CAP1 Financial Accounting Sessions 1-5 DEBK Questions

8/11/2019 CAP1 Financial Accounting Sessions 1-5 DEBK Questions

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CAP1 Financial Accounting, Academic Year 2011 / 2012 ver 1.0 Chartered Accountants Ireland

CAP1 FINANCIAL ACCOUNTING

SESSION 1-5 DOUBLE ENTRY BOOKKEEPING

QUESTIONS


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CAP1 Financial Accounting, Academic Year 2011 / 2012 Chartered Accountants Ireland


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Contents

Double Entry General Questions

QUESTION 1- DOUBLE ENTRY................................................................................ 4

QUESTION 2DOUBLE ENTRY .............................................................................. 5

QUESTION 3DOUBLE ENTRY ............................................................................... 6

QUESTION 4 - DOUBLE ENTRY .............................................................................. 7

QUESTION 5CAPITAL vS REVENUE EXPENDITURE........................................ 8

QUESTION 6INVENTORY ..................................................................................... 9

QUESTION 7 - BAD DEBTS AND BED DEBT PROVISIONS ................................... 9

QUESTION 8 - ACCRUALS/PREPAYMENTS ......................................................... 10

QUESTION 9 - NON CURRENT ASSETS ............................................................... 10

QUESTION 10VAT ............................................................................................... 11

QUESTION 11 - WAGES AND SALARIES .............................................................. 12

OTHER RELAVANT QUESTIONSSUMMER 2008 Q2 - REID (BAD DEBTS AND BAD DEBT PROVISIONS)

Control Accounts and Bank Reconciliations

QUESTION 1 - CONTROL ACCOUNT RECONCILIATIONS .................................. 13

QUESTION 2MURRAY (CONTROL ACCOUNTS) PILOT PAPER Q2 ................ 14

QUESTION 3BROWN (CONTROL ACCOUNTS) ................................................ 15

QUESTION 4SPANNER (BANK RECONCILIATION) .......................................... 16

QUESTION 5 - DARCY (BANK RECONCILIATION) AUTUMN 2008 Q2 ................ 17

QUESTION 6PAPER PRODUCTS (BANK RECONCILIATION) .......................... 18

OTHER RELAVANT QUESTIONSSUMMER 2011 Q6 - RAYMOND (BANK RECONCILIATION)AUTUMN 2010 Q6 - FITZ LTD (CONTROL ACCOUNT RECONCILIATION)AUTUMN 2009 Q6 - CARROLL (CONTROL ACCOUNT RECONCILIATION)

Suspense Accounts/Trial Balance Corrections

QUESTION 1- TRIAL BALANCE ............................................................................. 20

QUESTION 2DALYSUMMER 2009 Q6 ............................................................ 21

QUESTION 3COX &Co. ........................................................................................ 22

QUESTION 4MARTIN - SUMMER 2008 Q7 ........................................................ 24

QUESTION 5HARPER - AUTUMN 2007 Q1 ....................................................... 25

QUESTION 6JONES 1 ......................................................................................... 28

QUESTION 7JONES 2 ......................................................................................... 29

QUESTION 8 - DOYLE ............................................................................................ 30

OTHER RELAVANT QUESTIONSSUMMER 2010 Q2 - PETRA (SUSPENSE ACCOUNTS)


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DOUBLE ENTRY GENERAL

QUESTIONS

QUESTION 1- DOUBLE ENTRYYou are required to open the asset and liability and capital accounts and record the

following transactions for June 19x4 in the records of C. Williams

June 1 Started business with /2,000 in cash

June 2 Paid /1,800 of the opening cash into a bank a/c for the

business

June5 Bought office furniture on credit from Betta Built for /E120

June 8 Bought a motor van paying by cheque /950

June 12 Bought works machinery from Evans on credit /560

June 18 Returned faulty office furniture costing /62 to Betta Built

June 25 Sold some of the works machinery for /75 cash

June 26 Paid amount owing to Betta Built /58 by cheque

June 28 Took /100 out of the bank and put it in the cash till

June 30 J. Smith lent us /500- giving us the money by cheque


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QUESTION 2DOUBLE ENTRY

You are to enter the following transactions, completing double entry in the books forthe books for the month of May 19x7:

May 1 Started business with /2,000 in the bank

May 2 Purchased goods /175 on credit from M Mills

May 3 Bought fixtures and fittings/150 paying by cheque

May 5 Sold goods for cash /275

May 6 Bought goods on credit /114 from S Waites

May 10 Paid rent by cash /15

May 12 Bought stationery /27, paying by cash

May 18 Goods returned to M Mills/23

May 21 Let off part of the premises receiving rent by cheque /5

May 23 Sold goods on credit to U Henry /77

May 24 Bought a motor van paying by cheque /300

May 30 Paid the months wages by cash /117

May 31 The proprietor took cash for himself /44


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QUESTION 3DOUBLE ENTRY

Enter the following in the necessary personal accounts. Do not write up the otheraccounts. Balance each personal account at the end of the month19x9

Aug 1 Sales on credit to L. Sterling /445, L. Lindo /445, R. Spencer /221

Aug 4 Goods returned to us by L. Sterling /15, R. Spencer /33

Aug 8 Sales on credit to L. Lindo /66, R. Spencer /129, L. Banks /465

Aug 9 We received a cheque for /430 from L. Sterling

Aug 12 Sales on credit to R. Spencer /235, L. Banks /777

Aug 19 Goods returned to us by L. Banks E21, R. Spencer /25

Aug 22 We received cheques as follows: R. Spencer /300, L. Lindo /414

Aug 31 Sales on credit to L. Lindo /887, L. Banks /442


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QUESTION 4 - DOUBLE ENTRY

Record the following details for the month of November 19x9 and extract a trialbalance as at 30 November

Nov 1 Started with /5000 in the bank

Nov 3 Bought goods on credit from T. Henriques /160, J. Smith /230, W.

Rogers /400, P. Boone /310

Nov 5 Cash sales/240

Nov 6 Paid rent by cheque /20

Nov 7 Paid rates by cheque /190

Nov 11 Sold goods on credit to : L. Matthews /48, K. Allen /32, R. Hall /1,170

Nov 17 Paid wages by cash /40

Nov 18 We returned goods to T. Henriques /14, P. Boone /20

Nov 19 Bought goods on credit from P. Boone /80, W. Rogers /270, D. Diaz

/130

Nov 20 Goods were returned to us K. Allen /2, L. Matthews /4

Nov 21 Bought motor van on credit from U.Z Motors /500

Nov 23 We paid the following by cheque T. Henriques /146, J. Smith /230, W.

Rogers /300

Nov 25 Bought another motor van paying by cheque immediately /700

Nov 26 Received a loan of /400 cash from A. Williams

Nov 28 Received cheques from L. Matthews /44, K. Allen /30

Nov 30 Proprietor brings a further /300 into the business , by a payment into the

business bank account


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QUESTION 5CAPITAL vS REVENUE EXPENDITURE

For the business of T. Brooks, a food merchant, classify the following between

Capital and Revenue expenditure:

a) Repairs to meat slicer

b) New tyre for van

c) Additional shop counter

d) Renewing signwriting on shop

e) Fitting partitions in shop

f) Roof repairsg) Installing thief detection equipment

h) Wages of shop assistant

i) New cash register

j) Repairs to office safe

k) Installing extra toilet


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QUESTION 6INVENTORY

1. A trader starts in business and by the end of his first year, he has purchased

goods costing /21,000 and he has made sales totalling /25,000. Goods

which cost him /3,000 have not been sold by the end of the year.

Required:

What profit has he made in the year?

2. During the second year, he purchased goods costing /35,000. His sales forthe year were /50,000. Goods which cost /6,000 remain unsold at the

year end.

Required:

What profit was made in the second year?

QUESTION 7 - BAD DEBTS AND BED DEBT PROVISIONS

J. Thorpe commenced business on 1 January 19x7 and prepares his accounts to 31

December every year. For the year ended 31December 19x7, bad debts written off

amounted to /1200. It was also found necessary to create a provision for doubtful

debts of /2000.

In 19x8, debts amounting to /1600 proved bad and were written off. Mrs P. Iles

whose debt of /350 was written off as bad in 19x7 settled her account in full on 30

November 19x8. As at 31 December total debts outstanding were /56,000. It wasdecided to bring the provision up to 5% of this figure on that date.

Required:

Complete for 19x7 and 19x8

(i) bad debts account

(ii) bad debts recovered account

(iii) provision for bad debts account


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(iv) extract from the Income Statement

QUESTION 8 - ACCRUALS/PREPAYMENTS

The financial year of H. Saunders ended on 31 December 19x6. Show the ledger

accounts for the following items including the transfers to the final accounts.

a) Motor expenses: paid in 19x6 /744, owing at 31 December 19x6 /28

b) Insurance: paid in 19x6 /420, prepaid as at 31 December 19x6 /35

c) Stationary: paid in 19x6 /1,800, owing as at 31 December 19x5 /250,

owing as at 31 December 19x6 /490

d) Rent: paid during 19x6 E950, prepaid as at 31 December 19x5 /220,

prepaid as at 31 December 19x6 /290e) Saunders sub-lets part of the premises. Receives /550 during the year

ended 31 December 19x6. Tenant owed Saunders /180 on 31 December

19x5 and /210 on 31December 19x6

QUESTION 9 - NON CURRENT ASSETS

a) On 1 January 19x1 a business purchased a laser printer costing E1800. The

printer has an estimated life of 4 years after which it will have no residual

value

Required:

Calculate the annual depreciation charges for 19x1, 19x2, 19x3 and 19x4 on the

laser printer on the following bases:

(i) The straight line basis

(ii) The reducing balance method at 60%

b) Suppose that in 19x4 the laser printer were to be sold on 1 July for E200 and

that the business had chosen to depreciate it using the straight line basis on

a month by month basis

Required:

(i) Reconstruct the following accounts for 19x4 only:

(ii) The laser printer account

(iii) The provision for depreciation account


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(iv) The disposal account

QUESTION 10VAT

1. Jane Kelly purchases a machine on credit terms for /15,000 plus VAT at

15%. The business is registered for VAT.

Show the journal entries to record the above transaction.

2. Seamus Webb who is registered for VAT , bought furniture on credit terms at

a cost of/8,000 plus VAT ofE1,200.

What is the correct journal entry to reflect this transaction?

3. Amy Kehoe sold fireplaces for /1,000 net of VAT at 20% to John Barron for

cash. She is registered for VAT.

Make the appropriate entries to account for this sale.

4. Charlie Kelly (a shopkeeper) purchased the following items from ABC Cash &

Carry on credit: purchases for resale /325, washing machine for his house

/199 and Fax machine for the office /67. Chris is not registered for VAT.

Show the journal entries to record the above transactions.


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QUESTION 11 - WAGES AND SALARIES

1. Emily ONeill runs a small shop and has 4 staff in total. She uses the services

of a payroll bureau to complete the wages calculations each month. She then

pays these wages the following month. For September, Emily receives the

following information from the payroll bureau:

PAYE etc due to Tax Authorities 1,326

Net wages due to staff 2,873

Make the appropriate journal to account for the wages for September, on the basis

that Emily will not pay these wages until October.

2. Adrian Barron has five staff working for his telesales firm. At the end of each

month he pays them salaries plus commission earned. In October his financial

assistant gives him the following information:

Total wages charges (before commission) 5,500

PAYE etc due to Tax Authorities 1,225

Wages due to staff 4,275

Commission due to staff 650

Make the appropriate accounting entries to account for the above , assuming that

these amounts will be paid the following month.

3. Ger OLeary is a garage owner with a staff of 8 employees. In July, he paid

the following amounts:Net salaries for July after tax and national insurance /28,000

Tax and employees national insurance for June /10,000

Employers national insurance for June /2,800

He owes the following amounts in respect of tax and national insurance for July:

Tax and employees national insurance /12,000

Employers national insurance /3,000


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What is the correct expense for employee costs to be shown in the income

statement for July?

CONTROL ACCOUNTS AND BANKRECONCILIATIONS

QUESTION 1 - CONTROL ACCOUNT RECONCILIATIONS

The receivables control account of C Ltd is shown below:

Receivables Control Account

/ /Balance b/d 70,814.16 Balance b/d 1,198.73Sales 54,738.36 Sales returns 2,344.39Dishonoured cheque 607.15 Payments received 68,708.27Debt collection fees 108.81 Contra 378.82

Bad debts written off 474.16Balance c/d 1,194.26 Balance c/d 54,358.37

127,462.74 127,462.74

A listing of the individual customer balances in the sales ledger gives the followingtotals:

Debits /55,136.65

Credits / 1,194.26 (used above)

The following facts have been discovered:

1) No entries have been made in the sales ledger for the debt collection charges

or bad debts written off

2) A credit balance of /673.46 has been taken as a debit balance in the listingof the customer balances

3) The sales day book has been over added by /500

4) The account of the customer who settled by contra was debited with

/378.82

5) A balance on a customers account of debit /347.58 has been entered on

the listing of balances as debit /374.85

6) The sales return day book had been under added by /10

7) The dishonoured cheque had been entered in the sales ledger as credit

/601.75


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Required:

Correct the receivables control A/C (commencing with the closing balances given)

and reconcile the listing of the individual balances to the new receivables control

account balances

QUESTION 2MURRAY (CONTROL ACCOUNTS) PILOT PAPER Q2/

Debit balance on the receivables control account as at 1 December. 2006 110,125Credit balances on the receivables ledger at 31 December. 2006 1,360Credit balances on payables control account as at 1 December 2006 54,100

Transactions for the month of December 2006Discount allowed 15,610Credit sales 720,250Returns inwards 8,125Contra payables/receivables ledger 14,050Payments received from customers 685,575Cheques received from customers dishonoured 4,630Carriage in 5,685Carriage out 6,450Bad debts written off 2,280Bad debt provision 4,825Discounts received 6,705Bad debts recovered (not included in cash from customers) 370

Returns outwards 8,625Purchases invoices 324,100Cheques paid to suppliers 301,325Refund cheques paid to customers, who have overpaid accounts 825

Requirement

a) Prepare the payables control account and the receivables control account for the

month of December 2006 10 marks

b) Explain why any items listed above were excluded from the control accounts 5 marks


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QUESTION 3BROWN (CONTROL ACCOUNTS)

Mr.Brown hasextracted a list of payable balances at 31 December 2006 totalling /99,850.

The transactions for the year were as follows:/

Opening balance on payables control account 103,125Purchases .............................................. 120,580

Discount received ................................... 3,190Purchases returns .................................. 675Cheques paid to suppliers ...................... 115,575

The following items have come to light since the list was extracted:

(1) Mr. Johnson was paid / 15 out of petty cash. Mr Johnsons account hasbeen adjusted accordingly.

(2) The credit side of Mr. Bees account has been under cast by / 35.(3) Mr. Drums account of / 600 was been included in the list as / 660.(4) Discounts of / 25 have been posted to the wrong side of Mr. Allens

account.(5) Returns to suppliers of / 40 have been omitted from the accounting

records.(6) Mr. Tullys account of / 4,475 has been omitted from the list.

Requirement

(i) Prepare the payables control account for the year ended 31stDecember2006.5 Marks

(ii) Prepare adjustments to the list of balances to reconcile to the control

account.4 Marks


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QUESTION 4SPANNER (BANK RECONCILIATION)

The following is a summary from the cash book of Spanners Limited for the month ofOctober:

/ /Balanace b/d 1,407 Payments 15,520Receipts 15,073 Balance c/d 960

16,480 16,480

On investigation you discover that:

(a) Bank charges of /35 shown on the bank statement have not been entered

inthe cash book

(b) A cheque drawn for /47 has been entered in error as a receipt

(c) A cheque for/18 has been returned by the bank marked refer to drawer,but it has not been written back in the cash book

(d) The balance brought forward should have been /1,470

(e) Three cheques paid to suppliers for /214, /370 and/30 have not yet

been presented to the bank

(f) Takings of /1,542 were placed in a night safe deposit on 31 October but

were not credited by the bank until 3 November

(g) The bank charged a cheque for /72 in error to the companys account

(h) The bank statement shows an overdraft of /124

You are required

(a) to show what adjustments you would make in the cash book (5 marks)(b) to prepare the bank reconciliation statement as at 31 October (5 marks)(c) The CEO of Spanner Limited would like to treat the returned cheque referred

to in note (3) of the question as an outstanding lodgement. You are requiredto explain briefly if this proposed treatment is acceptable (5 marks)


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QUESTION 5 - DARCY (BANK RECONCILIATION) AUTUMN 2008 Q2

Mr Darcy is in business as a sole trader. His draft income statement for the year

ended 31stDecember 2007 shows a net profit of / 74,430. The balance sheet at

31stDecember 2007 contains a bank overdraft, as per the cash book, of / 6,060.

On comparing the bank statements supplied by the bank, with the cash book, the

following differences have been identified:

1) Cheques received amounting to / 4,220 were entered in the cash book on

30thDecember 2007 and paid into the bank but these were not credited on the

bank statement until 3rdJanuary 2008.

2) Cheques paid totalling / 9,350 were entered in the cash book in December

2007 but were not presented for payment until January 2008.

3) There are bank charges of / 400 on the bank statement but these have not

been entered in the cash book.

4) Dividends received electronically of / 720 are shown on the bank statement

but have not been entered in the cash book.

5) A cheque for / 800 received from a customer was entered in the cash book

and paid into the bank on 10thDecember 2007. However, the bank statement

to 31stDecember shows that this was dishonoured as there were not

sufficient funds. / 800 was debited on the bank statement on 23rd

December 2007 and the cheque was returned unpaid but not received by Mr

Darcy until January 2008 due to postal delays. Mr Darcy now considers that

this is a bad debt as the customer cannot be contacted at the address given.Not entry has been recorded in the books.

6) A cheque for / 1,200 drawn in respect of purchases has been debited in the

cash book and credited to the sales account.

Requirement

a) Show the corrections that should be made to bank in the cash book (4 marks)

b) Prepare a bank reconciliation statement as at 31stDecember 2007 (5 Marks)


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c) Prepare a statement showing the corrections needed to arrive at the net profit

for the year ended 31stDecember 2007 (5 marks)

Presentation mark 1 mark

Total 15 marks

QUESTION 6PAPER PRODUCTS (BANK RECONCILIATION)

The bank account for the month of March 2007 for Paper products ltd. Was as

follows:

Bank Account

March Receipts March Payments Cheque

1 Balance b/d 243 4 M Mulcahy 205 27

1 R Moloney 57 5 J Kearney 206 29

1 GardenSuppliers Ltd

65 8 Cahill & Co. Ltd 207 119

12 Hardware Ltd 1,668 10 J ODonnell 208 1,382

18 John Ryan 2,397 14 KL Distributers plc 209 12

18 M Caplice 210 653

22 Acme Consultants DD 35

25 P Walsh 211 87

26 ABC plc SO 132

27 Salaries transfers 956

29 XYZ Ltd 212 7

_____ 31 Balance cd 1,001

4,440 4,440

April Balance b/d 1,001


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The bank statement for March 2007 was as follows:

ACCOUNT STATEMENT

BANK OF BREFFNI plc

95 Main Street

DundalkAccount Holder:

Paper Products Ltd.

Date of Statement: 1 April 2007

March Description Debit Credit Balance

1 Balance 645

2 204 84 561

4 203 102 459

9 205 27 432

12 DD Electricity 25 407

12 Credit 1,686 2,093

14 207 119 1,974

16 208 1,382 592

17 206 29 563

18 Credit 2,397 2,960

23 DD Acme Consultants 35 2,925

24 209 21 2,904

26 Standing Order 132 2,772

27 Transfer 956 1,816

28 Interest (Loan Account) 13 1,803


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31 Bank Charges 9 1,794

31 210 653 1,141

31 Balance 1,141

REQUIRED:

Prepare the bank reconciliation statement for Paper Products ltd. As at 31 March

2007. Total: 20 marks

SUSPENSE ACCOUNTS/TRIALBALLANCE CORRECTIONS

QUESTION 1- TRIAL BALANCE

A trial balance has an excess of debits over credits of /14,000 and a suspenseaccount has been opened to make it balance. It is later discovered that

(a) The discounts allowed balance of/3,000 and the discounts received

balance of/7,000 have both been entered on the wrong side of the trial

balance

(b) The payables control account balance of /233,786 had been included in the

trial balance as /237,386

(c)An item of /500 had been completely omitted from the sales records (ie

from the sales day book)

(d) The balance on the current account with the senior partners wife had been

omitted from the trial balance. This item, when corrected, removes the

suspense account altogether.

Required

Open the suspense account and record the necessary corrections in it. Show in theaccount the double entry for each item entered


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QUESTION 2DALY SUMMER 2009 Q6

K. Daly signed a property agreement with a landlord in 2005 renting a building at /

57,000 per annum. He utilises the ground floor himself as retail premises. He sub-lets the first floor to E. Reilly for / 19,000 per annum and the second floor to M.Flaherty for / 9,000 per annum.

The following was the position on 1stJanuary 2008/

Rent paid in advance by K. Daly to landlord 14,500Rent owed to K. Daly by E. Reilly 4,750Rent paid in advance to K. Daly by M. Flaherty 2,500

During the year ended 31stDecember 2008, the following transactions took place:

/Rent paid by K. Daly to landlord 28,500Rent received by K. Daly from E. Reilly 23,000Rent received by K. Daly from M. Flaherty 5,000

K. Daly also pays rates on these premises. Rates are payable in advance on 1stApril each year.

At 1stJanuary 2008 K. Daly had paid rates in advance of / 6,000.

K. Daly paid / 24,000 for rates on 6thApril 2008. No other payments were made inthe year ended 31stDecember 2008

K. Daly has been informed by the rates office that the rates on the premises will be/ 36,000 per annum from 1st April 2008 due to improvements made to thepremises.

Requirement

(a) Show in T-account format the entries in the rent payable account, rates payable

account and the rent receivable account for the year ended 31st

December2008.


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10 Marks

(b) Show the relevant entries in the income statement and the balance sheet of K.Daly for the year ended 31stDecember 2008.

4 Marks

Presentation mark 1 MarkTotal 15 Marks

QUESTION 3COX &Co.

You are the accountant of Cox & Co and have been presented with the following trialbalance as at 30 November Year 11

/ /Dr Cr

Inventory (cost)as at 1 December Year 10 270,183Inventory (provision) 9,654Income account 63,760Accumulated depreciationBuildings 35,000Plant and machinery 107,326Fixtures and fittings 41,054Motor vehicles 57,800Provision for doubtful debts 7,245Prepayments 9,810Accruals 14,100Receivables ledger control account 404,549Payables ledger control account 325,137Buildings 550,000Plant and machinery 175,685Fixtures and fittings 86,547Motor vehicles 101,250Cash at bank 672,525Capital account Paul Cox 779,586

Draft profit for the year 438,877Disposal of fixed assets 38,990Suspense account __ 1,911,192

3,050,135 3,050,135

You are also given the following information:

(1) An inventory count on 1 December Year 11 ("Inventory count") has identified that the

original cost of the Inventory held at that date was /320,654. A review of the

Inventory records has subsequently identified that a provision of/11,675

("Inventory provision") is required to ensure that this Inventory is recorded at the

appropriate value.


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(2) The original cost of the firms buildings ("Buildings") (none of which was purchased

during the current year) was/200,000. These were revalued by/350,000 on 1

December Year 10; the only entry made in respect of this revaluation was a debit of

the revalued amount to the buildings account.

(3) During the year the following non current asset disposals ("Disposals") were made:

Original Accumulated Proceedscost depreciation

as at1 December Year 10

Plant and machinery 78,325 56,100 29,109Fixtures and fittings 21,987 17,372 6,781Motor vehicles 16,458 10,132 3,100Total 38,990

The balance on the disposal of non current assets account represents the proceeds

(which were also incorrectly credited to cash at bank) arising on these disposalsnoother entries have been made in respect of the disposals.

(4) The firm depreciates its non current assets ("Depreciation") fully on a straight line

basis over the following useful economic lives:

Buildings 25 yearsPlant and machinery 10 yearsFixtures and fittings 6 yearsMotor vehicles 4 years

No depreciation is charged in the year of disposal but a full year's charge ismade in the year of acquisition. No entries have yet been made in respect of thecurrent year's depreciation.

(5) The prepayment and accrual balances ("Prepayments and accruals") as at 30

November Year 11 are 12,679 and 17,300 respectively.

(6) On 1 July 20X1 Capital introduced amounted to 80,000. The only entry made in

respect of this transaction was to debit correctly the amount introduced to cash.

Required


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Using the information above, prepare

a) a suspense account showing entries to clear the suspense account to zero

(6 marks)

b) an adjustment of profits statement for internal use. (14 marks)Total marks 20

QUESTION 4MARTIN SUMMER 2008 Q7

Mr. Martin is a plumber who operates his business as a sole trader. He employs anumber of plumbers, a bookkeeper and receptionist. Mr. Martins bookkeeper hasprepared the draft financial statements to 31 December 2007 which show a profit of/ 80,000. The following errors have come to light following the preparation of thedraft financial statements and you have been asked to correct these errors:

1. Mr. Martin wrote a cheque for / 8,700 to MAC GARAGE Ltd., which thebookkeeper entered in the motor expense account. This cheque was thebalancing payment for the purchase of a new van. A vehicle which hadoriginally cost / 8,000 and which had a net book value at 1 January 2007 of/ 3,700, was traded in as part exchange. Assume no gain or loss arose onthe trade in.

2. Mr. Martin charges depreciation on motor vehicles at 25% per annum with a fullyears depreciation charged in the year of acquisition, and none in the year ofdisposal. No account was taken of the error in 1.above when calculatingdepreciation for the year to 31 December 2007.

3. An invoice for / 1,560 was entered in the purchases day book as / 1,650.

4. Discounts allowed of / 2,890 were debited to the discount received account in

error.

5. Mr. Martin purchased goods for the business costing / 1,500 plus VAT at20%, using his private credit card. No entry has been made in the businessrecords for this transaction.

6. A cash refund of / 1,600 to Mr. M. Murphy, a credit customer, was recordedas a payment to a supplier of the same name.

7. Part of the office was sub let. Rent received of / 2,400 for subletting wascollected by Mr. Martins wife and used to pay domestic bills.


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8. No adjustment has been made for rates prepaid at 31 December 2007 of /1,800.

Requirement

(a) Prepare the journal entries to correct the errors listed in 1. 8.above.Narratives for the journals are required.

10 Marks

(b) Show the adjusted profit for the errors corrected in (a)above.4 Marks

Presentation mark 1 MarkTotal 15 Marks

QUESTION 5HARPER AUTUMN 2007 Q1

You are the Accountant for HARPER Ltd. (HARPER) and are currently preparingfinal accounts for the year ended 31stDecember 2006. The work is not yet completebut the following list of balances has been extracted from thebooks by yourbookkeeper.

/

Land .............................................................................. 54,000Buildings ........................................................................ 114,000Plant and machinery...................................................... 66,000Provision for depreciation of buildingsat 31stDecember 2005 .................................................. 18,000Provision for depreciation of plant and machineryat 31stDecember 2005 .................................................. 20,000Ordinary share capital ................................................... 100,000Accumulated reserves 1stJanuary 2006 ....................... 10,500Trade receivables .......................................................... 37,800Trade payables ............................................................. 18,500Inventory at 31stDecember 2006 .................................. 42,750

Draft profit before adjustment for the yearended 31stDecember 2006 ........................................... 29,5508% debentures .............................................................. 80,000Provision for doubtful debts ........................................... 6,000Cash at bank ................................................................. 8,000Share premium account ................................................ 40,000

ADDITIONAL INFORMATION

(1) A receipt from a customer of / 12,000 together with bank charges of /2,000 have been completely omitted from the records, as the bank statement

was not received until after the balances had been extracted.


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(2) The provision for doubtful debts is to be adjusted to 10% of receivables (afteradjusting for any other relevant items).

(3) The debentures were issued on 1stJuly 2006. No entry has been made in thebooks regarding interest on debentures.

(4) Inventory at 31stDecember 2006 has been understated by / 4,500.

(5) No adjustment has been made for insurances paid on 1stNovember 2006 of /6,000 for the year ended 31stOctober 2007.

(6) Depreciation is to be provided at 5% on buildings using the straight line basis,and 20% on plant and machinery using the reducing balance basis.

(7) You have become aware that a customer has been declared bankrupt. It hasbeen agreed that HARPER is unlikely to receive any payment and the entire

balance of / 4,000 is to be written off.

Requirement

(a) Prepare the journal entries to correct the above.7 Marks

(b) Prepare T accounts for all accounts identified in (a)above. No other Taccounts are required.

6 Marks(c) Prepare the balance sheet of HARPER as at 31stDecember 2006.

5 MarksPresentation Marks 2 Marks

Total 20 Marks


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QUESTION 6JONES 1

JONES, having been unable to balance his trial balance at 31 December, opened upa suspense account and entered in it the amount he was out of balance. The debitshad exceeded the credits by/736.

The following errors were subsequently discovered:

(a) an allowance of /265 to a receivable, TWIG, was entered in hisaccount as /256

(b) the total of the discount received column in the cash book for themonth of December of /237 had not been posted

(c) /500,representing the sales proceeds of a machine scrapped, hadbeen passed through the sales account

(d) A balance of/268, owing by a receivable, LEAF, had been omittedfrom the trial balance at 31 December

(e) The bank overdraft of /313 had been entered in the trial balance as/331

(f) Sale of goods for /1000 to STONE on credit had been completelyomitted from the books

(g) Discount received balance of /379 had been entered in the trialbalance as /397 (debit balance)

You are required to show the suspense account after the rectification of all errorsand to state the journal entries to be made to correct the errors which do not pass

through the suspense account

(15 marks)


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QUESTION 7JONES 2

JONES Ltd. (JONES) has prepared a trial balance, but it does not balance. Asuspense account was set up with the difference on the trial balance /29,350credited to it

The following has come to light since the prepareation of the trail balance:

1. The electricty expense account has been incorrectly extracted as /1,500 instead of

/150

2. JONES issued 20,000 / 1 shares at /1.50 during the year. The bookkeeper was

unsure how to treat this entry so she debited the bank and credited the suspense

account

3. A payment made to a supplier for /1,000 has been entered in the cash book, but

no entry has been made in the suppliers account.

4. A cheque for /10,000 received from a customer was correctly entered in the cashbook but posted to the cusomers account as /11,000

5. /4,500paid for motor repairs has been credited, in error, to the motor vehicle asset

account. The debit is correct.

6. The receipt of /10,000 from acredit customer has been completly omitted from the

accounting records.

7. Telephone expenses of /2,500 were debited in error to rent payable account.

Requirement

i. Prepare the journal entries for items (1) to (7) above

ii. Prepare the suspense account


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QUESTION 8 - DOYLE

An inexperienced book-keeper has drawn up a trial balance for the year ended 30June 2005 as follows:

Dr Cr

Capital 4,591Provision for doubtful debts 200Bank overdraft 1,654Trade accounts payable 1,637Trade accounts receivable 2,983Discount received 252Discount allowed 733Drawings 1,200Office furniture 2,155General expenses 829Purchases 10,923Returns inwards 330Rent and rates 314Salaries 2,520Sales 16,882Inventory 2,418Provision for depreciation of furniture 364

24,983 25,002REQUIRED:

(a) Draw up a corrected trail balance debiting or crediting any residual error to asuspense account. (5 marks)(b) Further investigation of the suspense account ascertained in (a) above, reveals

the following errors:(i) Goods bought from S O Neill amounted to 13 had been posted to his

account as 33.(ii) Furniture which had cost 173 had been debited to the general expense

account.(iii) An invoice from D Walsh Ltd for 370 had been omitted from the

purchase account, but credited to D Walshs account.(iv) Sales on credit to K Brophy for 450 had been posted to the sales, but not

to the trade accounts and receivable ledger.(v) The balance on the capital account had been incorrectly brought forward

in the ledger, and should have been 4,291.(vi) An amount of 86 received from J McGrath, a debtor, in settlement of his

account had been treated as a cash sale.(vii) Discount allowed has been undercast by 35.

Prepare journal entries correcting each of the above errors and write up thesuspense account. (12 marks)(c) There are several types of error which will not affect the balancing of a trail

balance; these include errors of omission, commission and principle.Explain what is meant by these terms and give an example of each. (3 marks)

(Total 20 marks)

CAP1 Financial Accounting Sessions 1-5 DEBK Questions

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