1 Correct Answer

No record was made when the asset was sold Yes

The supplier's invoice has not yet been received No

Wilma has a record of an asset which she cannot find. This discrepancy would be
explained if no record was made when the asset was sold.

However, the supplier's invoice not yet being received would not explain the
discrepancy as this would only be the case if there was a physical asset but no record.

2 Correct Answer
$199

The charge to the statement of profit or loss will include the irrecoverable debt written
off of $320 less the reduction in the receivables allowance of $121 (1,368 - 1,247) which
equals $199

3Correct Answer
Consistency

Applying the same accounting treatment to similar items across different accounting
periods demonstrates consistency.

4 Correct Answer
Information which is capable of making a difference in the decisions made by
users

Information is relevant if it influences the decisions of a user.

5 Correct Answer
Weighted average will report a lower profit than first-in first-out
Profit for the year is affected by the method of inventory valuation

As the cost of inventory has increased during the year first-in first-out will show a higher
figure for closing inventory than weighted average. This means that weighted average
will show a higher figure for cost of sales and so a lower profit.

Petra should value inventory at the lower of cost and net realisable value, not on the
basis that gives the lowest profit.

6 Correct Answer
True:
The bank general ledger account includes all cash receipts from customers
The trade receivables general ledger presents the sum of all customer account
balances only
A non-current asset register includes a description of each asset, its cost and
accumulated depreciation

False:
The total purchases for the period can be calculated using the purchases returns
general ledger account only

Both purchases and purchase returns general ledger accounts would be required to
calculate purchases for the period.

8 Correct Answer
The bank has levied charges on Elaine's account which have not been Yes
recorded by Elaine
A cheque payable to S Wright has not been presented at the bank No

If the bank has levied charges then these need to be recorded in the bank account in
the general ledger.

Unpresented cheques are part of the bank reconciliation and are not adjusted for in the
bank ledger account.

9 Correct Answer
$3,567

Units Unit cost Inventory

($) carrying amount
($)
B/f 1 May 60 1,320
Receipt 14 May 120 22.20 2,664
180 3,984
Sale 18 May -60 -1,320
-30 22.20 -666 -1,986
90 1,998
Receipt 26 May 150 22.30 3,345
240 5,343
Sale 28 May -80 22.20 -1,776
C/f 31 May 160 3,567

10 Correct Answer
Current asset $121,991
Current liability nil

The current asset will be $136,853 - $14,862 = $121,991

The current liability will be nil.

11 Correct Answer
Cash received from a customer

A debit to the cash account shows that money has been received so this rules out a
cash purchase or cash payment. As the credit entry is to trade receivables it cannot be
a cash sale. So the correct answer is cash received from a customer.

12 Correct Answer
$93,582

$
Amount owed at the end of the year 11,552
Payments to suppliers 95,886
107,438
Less amount owed at beginning of (13,856)
year
Purchases 93,582

13 Correct Answer
The total amount due to the business from its customers

The trade receivables ledger account (also known as the receivables account) is an
account in which records are kept of transactions involving all customers in total.
The balance on the trade receivables ledger account at any time will be the total amount
due to the business at that time from its customers, and will agree with the total of the
list of individual customer balances.

14 Correct Answer
$98,995

Grace achieves a 25% mark up on her sales. This means that sales are 125% and so
cost of sales is 100 / 125 x 120,600 = 96,480.

Cost of sales = opening inventory + purchases - closing inventory

96,480 = 9,340 + purchases - 11,855
So purchases = 98,995

15 orrect Answer
Margin - 20%
Mark up - 25%

Ina's margin is profit / sales = (174,820 - 139,856) 174,820 = 20%

The mark-up is profit / cost of sales = (174,820 - 139,856) / 139,856 = 25%

16 Correct Answer
Dr Trade receivables $3,000 Cr Table sales $2,250 Cr Chair sales $750

The left hand side of a T-account shows debit entries and the right hand side shows
credit entries. Therefore, the amounts shown in the ledger accounts are:

$
Trade receivables 3,000 Dr
Table sales 2,250 Cr
Chair sales 750 Cr

So the accounting entry that would have resulted in these amounts in the ledger
accounts is:
Dr Trade receivables $3,000 Cr Table sales $2,250 Cr Chair sales $750

17 Correct Answer
1 and 2 only

The bank balance is reconciled with the bank statement and not supplier statements.
18 Correct Answer
Process manual journal entries to correct for any amounts in the suspense
account
Accrue for expenses incurred in the week preceding year end for which the
invoice was received after year end

Incorrect answers:

Accrue for any expenses incurred after the year end for which the invoice was received
in the same period - Expenses incurred after year end are accounted for in the next
accounting period

Process manual journal entries for the difference between actual and budgeted sales -
Only income earned may be recognised

19 Correct Answer
To identify entries which have been generated by the bank, but not Yes
recorded in the bank ledger account
To identify errors in the entries in the bank ledger account Yes

The purpose of a bank reconciliation is to identify entries put through by the bank but
not recorded in the bank ledger acount, and to identify errors in the entries in the bank
ledger account.

20 Correct Answer
$122,500

The profit for the year needs to be grossed up for the irrecoverable debt and split
between the period before and after R joined. It will be allocated as follows:

Paula ($) Quentin($) Raj ($) Total ($)

To 30 June 20X5 82,500 82,500 165,000
To 31 December 20X5 55,000 55,000 55,000 165,000
Irrecoverable debt (15,000) (15,000) (30,000)
122,500 122,500 55,000 300,000

21 Correct Answer
Dr Sales returns
Cr Trade receivables
The credit note will increase sales returns and reduce the amount owed by the
customer. So the correct posting is debit sales returns, credit trade receivables.

22 Correct Answer
$29,125

Profit = Increase in net assets + Drawings - Capital introduced

= (174,529 - 127,554) + 17,150 - 35,000
= 29,125

23 Correct Answer
Assets which are expected to be converted into cash in the short term

Current assets usually consist of items like inventory, receivables and cash. These are
all cash or expected to be turned into cash in the short term.

24 Correct Answer
Dr Drawings
Cr Inventories

Assets removed for personal use are drawings – the asset decreases and drawings are
increased.

25 Correct Answer
$ 750

$230 - $230 + (20%/120% x £26,820) - (20%/100% x $18,600) = $750

26 Correct Answer
$96,000

Margin = Profit / Sales = 25%

So sales are 100% and cost of sales are 75% (Profit = 100% - 75% = 25%)

Cost of sales = 69,000 + 3,000 = 72,000

Sales = Cost of sales / 75% = 96,000

27 Correct Answer
True:
The value of the inventory on the statement of financial position will be the value
of the most recent units purchased

False:
Using the FIFO method guarantees that inventories are valued at the lower of cost
and net realisable value

The FIFO method values inventories on the assumption that the first inventories
purchased/ generated are the first to be sold; leaving the most recent units purchased in
inventories. There is no method that guarantees inventories are valued at the lower of
cost and net realisable value – this is achieved by reviewing all inventory line items in a
separate exercise.

28 Correct Answer
$71,600

James $ $
Goodwill written back (3/6) 18,000 Bal b/f 68,000
Bal c/f 71,600 Goodwill introduced (3/5) 21,600
89,600 89,600

29 Correct Answer
$7300

$10,000 + $2,500 - $4,000 - $1,200 = $7,300

30 Correct Answer
Accrued expenses increase the value of liabilities

Prepayments arise when an expense is paid in advance. Accruals occur when an

expense is incurred before the period end but the invoice is received after the period
end. Prepayments would increase assets and accruals would increase
liabilities. Therefore the only correct statement is: accrued expenses increase the value
of liabilities.

31 Correct Answer
Office cleaning expenses, cash and trade payables
The correct entry should have been debit office cleaning expenses, credit cash.
Therefore correcting entries will be needed to office cleaning expenses, cash and trade
payables.

32 Correct Answer
Both 1 and 2

Entries need to be made in the non-current asset register whenever a non-current asset
is disposed of.
33 Correct Answer
Dr Trade receivables Cr Sales

This is a credit sale and so no entries should be made to the cash account. The correct
double entry is: debit trade receivables, credit sales.

34 Correct Answer
Dr Purchases 1,820
Cr Trade payables 1,820

$2,300 - $480 = $1,820

Incorrect answers:

Dr Purchases 1,820
Cr Trade payables 1,820
Incorrect amount (credit notes of $1,000 deducted) but with correct journal entry

Dr Trade payables 820

Cr Purchases 820
Incorrect amount and with debits and credits transposed

Dr Trade payables 1,820

Cr Purchases 1,820
Debits and credits transposed

35 Correct Answer
$50210

$45,620 + ($980 - $890) + $4,500 = $50,210

36 Correct Answer
Profit will decrease by $18,000 and net assets will decrease by $18,000

The straight line depreciation charge is $9,000 (90,000 x 10%). The reducing balance
charge is $27,000 (90,000 x 30%). Extra depreciation is $18,000 (27,000 - 9,000). This
would reduce Paul's profit by $18,000 and reduce net assets by $18,000.

37 Correct Answer
$4,000

Mikel should make a provision for the amount he is likely to pay in this case $4,000.

38 Correct Answer
Shannon issued Brogan a $1,600 credit note for goods returned which had been
omitted from Brogan's accounting system
Brogan input a $1,600 purchase invoice from Shannon to the purchases module
twice

Incorrect answers:
Brogan made a $1,600 payment to Shannon before the year end which had not been
reflected on Shannon’s statement of account - A payment not recognised by the
supplier would make the supplier statement balance higher than the balance shown in
Brogan’s accounting system

Brogan allocated a $1,600 payment to Shannon’s individual balance when it related to a

different supplier - A payment recognised incorrectly against Shannon’s specific supplier
balance would make the balance shown in Brogan’s accounting system lower than the
balance on the supplier’s statement
39 Correct Answer
Dr Trade payables Cr Office stationery

This transaction involves office stationery, not goods for resale.

Tony's original purchase will have been debited to stationery and credited to trade
payables so this is now reversed:

Dr Trade payables / Cr Office stationery

40 Correct Answer
2 and 4 only

1 - No suspense account created

2 - Although no suspense account would be created, this would be identified by the

absence of a depreciation charge in the trial balance (as each expense has its own
general ledger account)

3 - No suspense account created

4 - Transposition errors lead to a suspense account being created automatically

41 Correct Answer
$1,098 accrual

Vikki needs to make an accrual for two months' electricity of $1,098 (1,647/3 x 2) to
accrue for costs related to September and October 20X8.

42 Correct Answer
Assets unchanged Liabilities unchanged Capital unchanged

The adjustments made were:

Dr Insurance expenses
Cr Bank

Dr Prepayments
Cr Insurance expenses

This means that expenses (therefore, capital) net out to nil, as do assets overall.

43 Correct Answer
1 and 2 only

Interest on a loan from a partner and salaries for employees form part of the business
costs and should be included in the calculation of net profit. Salaries for partners are an
allocation of profit.

44 Correct Answer
His profit will be increased by $563
If Trevor receives the $563 in the following year it will be credited to the statement of
profit or loss and so increase profit by $563.

45. Correct Answer

Financial statements are intended to provide useful information to a number of
user groups

The correct option is financial statements are intended to provide useful information to a
number of user groups.

Financial statements of a sole trader do not need to be prepared by a qualified

accountant, financial statements definitely provide useful information to lenders and the
owner of a business is likely to want more information than is given in the financial
statements (eg budget forecast for the coming year).

46 Correct Answer
Dr Non-current assets Cr Bank

The purchase of the non-current asset will be recorded as: debit non-current assets,
credit bank. The financing of the purchase is a separate transaction.

47 Correct Answer
Statement of profit or loss Debit
Statement of financial position Credit

The manual journal entry to recognise accruals is:

Dr Statement of profit or loss (expenses)

Cr Statement of financial position (trade and other payables)

48 Correct Answer
$39,300

Carl's account will increase by interest on capital $5,100 and his share of profit $34,200
(2/5 x (98,500 - 7,900 - 5,100)) which totals $39,300.

49 Correct Answer
Dr Sales returns Cr Trade receivables
Rosario needs to increase sales returns and reduce the amount owed by trade
receivables. Therefore the correct entry is debit sales returns and credit trade
receivables.

50 Correct Answer
2 only

The bank account in the general ledger will be updated to take account of items 1 and
3. However, item 2 will remain as an adjustment on the reconciliation statement.