Financial Accounting. Sample Paper 2 Questions & Suggested Solutions

Transcription

1 Financial Accounting Sample Paper 2 Questions & Suggested Solutions

2 NOTES TO USERS ABOUT SAMPLE PAPERS Sample papers are published by Accounting Technicians Ireland. They are intended to provide guidance to students and their teachers regarding the style and type of question, and their suggested solutions, in our examinations. They are not intended to provide an exhaustive list of all possible questions that may be asked and both students and teachers alike are reminded to consult our published syllabus (see for a comprehensive list of examinable topics. There are often many possible approaches to the solution of questions in professional examinations. It should not be assumed that the approach adopted in these solutions is the only correct approach, particularly with discursive answers. Alternative answers will be marked on their own merits. This publication is copyright 2012 and may not be reproduced without permission of Accounting Technicians Ireland. Accounting Technicians Ireland, Financial Accounting Sample Paper 2 Page 2 of 31

3 Accounting Technicians Ireland Year 1 FINANCIAL ACCOUNTING Sample Paper 2 EXAM DURATION THREE HOURS INSTRUCTION TO CANDIDATES PLEASE READ CAREFULLY In this examination paper the / symbol may be understood and used by candidates in Northern Ireland to indicate the UK pound sterling and by candidates in the Republic of Ireland to indicate the Euro. Answer ALL THREE questions from Section A. Answer ANY TWO of the three questions from Section B. If more than TWO questions are answered in section B, then only the first two questions, in the order filed, will be corrected. Candidates should allocate their time carefully. All workings should be shown. All figures should be labelled as appropriate e.g. s, units etc. Answers should be illustrated with examples, where appropriate. Financial Accounting Sample Paper 2 Page 3 of 31

4 SECTION A Answer ALL THREE QUESTIONS (Compulsory) in this Section QUESTION 1 (Compulsory) a) Provide a definition of depreciation and explain why non current assets are depreciated over their useful economic life. 5 Marks b) The following information relates to the non current assets of Past Editions Limited. Fixtures & Fittings Plant & Machinery Cost at 1/1/ , ,000 Accumulated depreciation as at 1/1/ ,000 74,656 Depreciation Policy Details are as follows: Past Editions Limited depreciates at the following rates: Fixtures and fittings at 10% per annum straight line; Plant and machinery at 20% per annum straight line. The depreciation policy of Past Editions Limited is to charge depreciation from the month of acquisition to the month of sale. During the year to 31 December 2009 the following transactions relating to non current assets occurred: Fixtures and Fittings An item of fixtures and fittings was purchased for 36,000 on 1 March Installation costs of 1,500 were incurred to bring the asset into working condition. The asset is to be depreciated in line with the company s depreciation policy for fixtures and fittings. Plant & Machinery An item of machinery that originally cost 24,000 and with accumulated depreciation of 11,600 as at 1 January 2009 was traded in on 30 June 2009 against a new machine that cost 32,000. A trade in of 8,400 was achieved. Financial Accounting Sample Paper 2 Page 4 of 31

5 QUESTION 1 (Cont d) Buildings Past Editions Limited constructed a new building and the following costs were incurred: Purchase of site 50,000; Site preparation 10,500; Raw material and labour costs 46,500; Architect fees 15,000. The building was completed and Past Editions moved into the building on 1 September It is estimated that the building will have a useful economic life of 50 years and a residual value of 20,000. You are required to prepare the following nominal ledger accounts of Past Editions for the year ended 31 December 2009: i. Buildings: cost account; ii. Fixtures and fittings: cost account; iii. Plant and machinery : cost account; iv. Buildings: accumulated depreciation account; v. Fixtures and fittings: accumulated depreciation account; vi. Plant and machinery : accumulated depreciation account; vii. Disposal of plant and machinery account. 2 Marks 1 Mark 3 Marks 2 Marks 2 Marks 3 Marks 2 marks Total 20 Marks Financial Accounting Sample Paper 2 Page 5 of 31

6 QUESTION 2 (Compulsory) The following information relates to the receivables and payables of John Forman, a sole trader, for the year ended 31 December 2009: Extract from the books as at 1 January 2009: Receivables ledger debit balances Receivables ledger credit balances Payables ledger credit balances Payables ledger debit balances 200,000 Dr 20,000 Cr 180,000 Cr 80,000 Dr Transactions for the year ended 31 December 2009: Sales on credit 1,400,000 Sales returns (all credit) 80,000 Purchases on credit 900,000 Purchases returns (all credit) 40,000 Amounts received from receivables 1,200,000 Discounts allowed to receivables 20,000 Discounts allowed by payables 30,000 Irrecoverable debts written off 60,000 Interest charged by a payable for late payment of accounts 6,000 Discount received subsequently disallowed 3,000 Payments to payables 750,000 Dishonoured cheque received from a receivable (included in the amounts received from receivables above) 12,500 Cash sales 17,200 Contra entry between receivable and payable balances 4,890 Closing allowance for receivables 16,700 Additional Information A receivable s balance 3,495 was omitted from the list of debit balances as at 1 January At 31 December 2009 the total of the credit balances in the Receivables ledger was 30,000 and the total of the debit balances in the Payables ledger was 12,000. You are required to: a) Prepare the receivables and payables control accounts for Mr. Forman for the year ended 31 December Marks b) Explain why a company should prepare control accounts. 4 Marks Total 20 Marks Financial Accounting Sample Paper 2 Page 6 of 31

7 QUESTION 3 (Compulsory) a) Write a note on your understanding of the terms financial accounting and management accounting. List four differences between financial accounting and management accounting. 8 Marks b) Outline three users of financial statements and briefly explain what information each of these three users requires. 6 Marks c) Over time several accounting concepts and conventions have developed. With the aid of examples, where appropriate, write a note on any three of the following concepts/conventions: i ii iii iv v Going concern; Prudence; Consistency; Separate entities Materiality. 6 Marks Total 20 Marks Financial Accounting Sample Paper 2 Page 7 of 31

8 QUESTION 4 SECTION B Answer any TWO of the three questions in this Section The following trial balance was extracted from the books of T Higgins on 31 December 2009: Buildings at cost 132,000 Accumulated depreciation on buildings 38,000 Delivery vans at cost 25,000 Accumulated depreciation on delivery vans 8,000 Inventories as at 1/1/ ,800 Receivables and payables 18,700 36,200 Bank 3,150 Purchases and sales 293, ,790 General expenses 6,375 Discounts received 350 Carriage inwards 3,600 Insurance 3,900 VAT 2,450 Interest 1,300 Wages and salaries 41,000 Allowance for receivables 1/1/09 1,050 Irrecoverable debts 700 Drawings 12,300 Capital 99, , ,675 The following information, which has not been accounted for above, is also available: 1. Inventory at 31 December 2009 at cost was 32,950. This figure includes damaged inventory items that cost 7,800 and that is now worth only 3, During the year T. Higgins took inventory items for his personal use valued at 5,400. This has not been accounted for. 3. The bank figure in the trial balance, when compared to the bank statement, revealed that the following adjustment is required: A direct debit charge posted by the bank for 370 has not been entered in the books of T. Higgins. 4. An amount of 600 had been received in respect of a debt previously written off. This receipt has not been recorded in the books. 5. The allowance for receivables is to be adjusted to 4% of receivables Financial Accounting Sample Paper 2 Page 8 of 31

9 QUESTION 4 (cont d) 6. Depreciation is to be provided for as follows: i. Buildings - 2% straight line ii. Delivery Vans - 15% reducing balance 7. T. Higgins informs you that 750 of insurance is prepaid for 2010 and that an accrual for carriage inwards of 450 should be provided for. You are required to prepare: i. The Statement of Profit & Loss for the year ended 31 December 2009; 13 Marks ii. The statement of financial position as at that date. 7 Marks Total 20 Marks Financial Accounting Sample Paper 2 Page 9 of 31

10 QUESTION 5 AA Rumble is an old fashioned business with a hand written set of books and records. A trial balance is extracted at the end of every month. This month (December 2009), however, the trial balance did not balance. The balance in the suspense account was 7,485 credit. The draft loss for the month of December 2009 was 12,540 before accounting for the transactions below. Upon inspection of the ledgers the following items were discovered: 1. An item of office machinery purchased during the month for 5,500 was credited to the machinery repairs account. The machinery was purchased on credit and the entry in the suppliers account was entered correctly. 2. The total of the receipts side of the cash book was overcast by 7, A discount received from J Morgan for 175 had been treated as a discount allowed to J Moran in the personal accounts and in the nominal ledger. 4. An invoice for light and heat for the month for 1,420 was found in a filing tray. The invoice has not yet been accounted for, nor the supplier paid as at the month end. 5. A cheque received from Mr. Smith for 6,450 in payment for goods previously sold to him was treated correctly in the cash book. However in Mr. Smith s personal account it was treated as the sale of additional goods and posted to the incorrect side of the account. The sales account was not affected. 6. Due to a totting error the balance in the allowance for receivables account is under cast by 985; 7. Due to cash flow problems, AA Rumble introduced 14,700 in cash into the business. The transaction was entered correctly in the cash book but was credited the capital account as 17,400. (Ignore the affects of VAT and depreciation) You are required to: a) Prepare the journal entries necessary to correct the above errors. 11 Marks b) Prepare a Suspense Account to clear the difference 5 Marks c) State the effect on profits (if any) of correcting each of the above errors. 4 Marks Total 20 Marks Financial Accounting Sample Paper 2 Page 10 of 31

11 QUESTION 6 The following information is available for All Lawns Tennis Club for the year to 31 December Receipts and Payments Account Details Details Balance c/d??? Light and heat 5,100 Subscriptions received: Repairs of clubhouse 11,350 - Ordinary (annual) 79,200 Barperson salaries 31,600 Bar takings 198,750 Insurance (30% relates to bar) 19,850 Bar purchases 72,800 Club secretary expenses 11,470 Lawn maintenance 7,820 Bar cleaning expenses 4,670 Closing bank balance b/d 121, , ,900 Opening balance b/d 121,240 Other assets and liabilities of the club are as follows: 1/1/09 31/12/09 Clubhouse building at cost 110, ,200 Bar inventories 9,700 10,200 Bar purchases payables 7,540 6,310 Subscriptions in advance 1,540 2,300 Subscriptions in arrears 3,560 5,560 Accruals light and heat Notes: 1. No depreciation is charged on the clubhouse. You are required to: a) Calculate the accumulated fund as at 1 January Marks b) Prepare a bar trading account for the year ended 31 December Marks c) The clubs income and expenditure account for the year end 31 December 2009 and the statement of accumulated fund as at that date. 9 Marks Total 20 Marks Financial Accounting Sample Paper 2 Page 11 of 31

12 Financial Accounting Sample Paper 2 Suggested Solutions Financial Accounting Sample Paper 2 Page 12 of 31

13 Solution One Part A Depreciation has been defined as a measure of the cost of the economic benefits of the non current asset that have been consumed during the period. When an item of non current asset is purchased it will last for longer than one year. It is not purchased to be resold but is purchased to be used within the business to help the business generate profits. As such the purchase of an item of non current asset is an example of a capital item of expenditure. Such expenditure is not written off to the Statement of Profit & Loss in the year of purchase but is capitalised and written off to the Statement of Profit & Loss via depreciation over the useful economic life of the asset. Therefore depreciation is a method that allocates the cost of the non current asset to the accounting period that benefited from the use of the non current asset. If the full cost of the purchase of a non current asset was written off to the Statement of Profit & Loss in the year of purchase then one year would bear the full cost of the asset. This is clearly not a true and fair view when the asset is used within the business for several years. As such, depreciation is an example of the accruals concept whereby the cost of using the non current asset is matched to the profits generated by that asset over its useful economic life. Part B Buildings Cost Account Date Details Date Details 1/9/09 Addition 122,000 31/12/09 Balance 122, , ,000 1/1/2010 Balance 122,000 Note: all of the costs listed can be capitalised and included within the cost of the non current asset. Purchase of site 50,000 Site preparation 10,500 Raw material and labour costs 46,500 Architect fees 15, ,000 Financial Accounting Sample Paper 2 Page 13 of 31

14 Solution One (cont d) Building Accumulated Depreciation Account Date Details Date Details 31/12/09 Balance /12/09 Statement of 680 Profit & Loss /1/2010 Balance 680 Buildings depreciation calculation: 122,000 20,000 = 2,040 * 4/12 = Fixtures and Fittings Fixtures & Fittings Cost Account Date Details Date Details 1/1/09 Balance b/d 290,000 1/3/09 Additions 37,500 31/12/09 Balance c/d 327, , ,500 1/1/2010 Balance b/d 327,500 Fixtures and Fittings Accumulated Depreciation Account Date Details Date Details 1/1/09 Balance b/d 70,000 31/12/09 Balance 102,125 31/12/09 I/S charge 32, , ,125 1/1/2010 Balance 102,125 Depreciation on additions 37,500 * 10% = 3,750 * 10/12 = 3,125 Deprecation on existing (continuing) non current assets 290,000 * 10% = 29,000 Financial Accounting Sample Paper 2 Page 14 of 31

15 Solution One (cont d) Total depreciation Additions 3,125 Existing assets 29,000 Total depreciation ,125 Plant and Machinery Plant and Machinery Cost Account Date Details Date Details 1/1/09 Balance b/d 180,000 30/6/09 Disposal 24,000 30/6/09 Additions 32,000 31/12/09 Balance c/d 188, , ,000 1/1/2010 Balance b/d 188,000 Plant and Machinery Accumulated Depreciation Account Date Details Date Details 30/6/09 Disposal 14,000 1/1/09 Balance b/d 74,656 31/12/09 Balance 97,456 31/12/09 I/S charge 36, , ,456 1/1/2010 Balance 97,456 Depreciation on additions 32,000 * 20% = 6,400 * 6/12 = 3,200 Depreciation on disposals 24,000 * 20% = 4,800 * 6/12 = 2,400 Deprecation on existing (continuing) non current assets 180,000 24,000 * 20% = 31,200 Financial Accounting Sample Paper 2 Page 15 of 31

16 Solution One (cont d) Total depreciation Additions 3,200 Disposals 2,400 Existing assets 31,200 Total depreciation ,800 Plant and Machinery Disposal Account Date Details Date Details 30/6/09 Cost 24,000 30/6/09 Accumulated 14,000 Depreciation 30/6/09 Trade in 8,400 30/6/09 I/S 1,600 24,000 24,000 Financial Accounting Sample Paper 2 Page 16 of 31

17 Solution Two Part A Receivables Control Account Date Details Date Details 1/1/09 Balance b/d 200,000 1/1/09 Balance b/d 20,000 Sales 1,400,000 Sales returns 80,000 Dishonoured 12,500 Receipts from 1,200,000 cheques receivables Balance 3,495 Discounts allowed 20,000 omitted Irrecoverable 60,000 debts Contra 4,890 31/12/09 Balance c/d 30,000 31/12/09 Balance c/d 261,105 1,645,995 1,645,995 1/1/2010 Balance b/d 261,105 1/1/2010 Balance b/d 30,000 Note: both cash sales and the closing allowance for receivables do not appear in an individual receivables T account and therefore do not appear in the control account. Payables Control Account Date Details Date Details 1/1/09 Balance b/d 80,000 1/1/09 Balance b/d 180,000 Purchases 40,000 Purchases 900,000 returns Discounts 30,000 Interest 6,000 received Payments to 750,000 Discounts 3,000 payables disallowed Contra 4,890 31/12/09 Balance c/d 196,110 31/12/09 Balance c/d 12,000 1,101,000 1,101,000 1/1/2010 Balance b/d 12,000 1/1/2010 Balance b/d 196,110 Part B (Any two of the following points other relevant points accepted) Control accounts are prepared by businesses for the following reasons: 1. The purpose of the control account is to keep the nominal ledger free of details, yet have the correct balance for receivables and payables for the trial balance which in turn forms part of the financial statements. Financial Accounting Sample Paper 2 Page 17 of 31

18 Solution Two (cont d) 2. Control accounts are a means of proving the accuracy of the ledger accounts of receivables and payables. As a result this is a control mechanism to ensure accuracy of the receivables and payables personal ledgers. This control assists in the location of errors. 3. Control accounts can also act as an internal check, i.e. the person posting entries to the control account acts as a check on a different person who posts amounts from the daybooks to the personal ledgers. Financial Accounting Sample Paper 2 Page 18 of 31

19 Solution Three Part A (Other relevant points accepted) There are two broad types of accounting information: Financial accounting is based upon meeting the informational requirements of external users of accounting information for example payables, lenders and the government. Financial accounting is presented to external users in the form of financial statements. In order to facilitate comparison, financial accounts are prepared using accepted accounting conventions and standards. International Financial Reporting Standards (IFRSs) help to reduce the differences in the way companies prepare their financial statements. The financial statements are public documents. Management accounting is based upon meeting the informational needs of internal users of accounting information for example management and employees. Management needs much more detailed and up-to-date information in order to control the business and plan for the future. They need to be able to cost products and assess profitability. In order to facilitate this, management accounts present information in any way that may be useful to management and in most cases to the specifications of management. Such information is only available within the company and usually is strategic in nature. The differences between financial and management accounting are as follows: Financial accounting - Production of summary financial statements for external users; - Prepared annually; - Required by law; - Reflects past performance and current position; - Information is calculated and presented in accordance with strict legal and accounting requirements. Management accounting - Production of detailed accounts, used by management to control the business and plan for the future; - Normally prepared monthly; - Not mandatory; - Includes budgets and forecasts of future activities, as well as reflecting past performance; - Information is computed and presented in order to be relevant to managers. (Any four differences for full marks other relevant points accepted) Financial Accounting Sample Paper 2 Page 19 of 31

20 Solution Three (cont d) Part B (Any three of the following for two marks each other relevant users of financial information accepted) Lenders Banks who lend money to a business require information that helps them determine whether loans and interest will be paid when due. The key accounting information for lenders is therefore, cash flow and profitability of the business. Payables Suppliers and trade payables require information that helps them understand and assess the short-term liquidity of a business. Is the business able to pay shortterm debt when it falls due? The key accounting information for payables is therefore cash flow and profitability. Receivables Customers require information about the ability of the business to survive and prosper. As customers of the company s products, they have a long-term interest in the company s range of products and services. They may even be dependent on the business for certain products and services. The key accounting information for receivables is therefore sales growth, new product development and investment decision. Employees Employees require information about the stability and continuing profitability of the business. They are crucially interested in information about employment prospects and the maintenance of pension funding and retirement benefits. They are also likely to be interested in the pay and benefits obtained by senior management. The key accounting information for employees is therefore revenue and profit growth, levels of investment in the business and overall employment data (numbers employed, wages and salary costs). Government Many government agencies and departments are interested in accounting information. For many businesses the most significant one is the Revenue commissioners. Revenue needs information on business profitability in order to levy and collect corporation tax, accounting information on sales and purchases is needed to verify Value Added Tax (VAT) returns. Analysts Investment analysts require very detailed financial and other information in order to analyse the competitive performance of a business and its sector (only applicable for Plcs). Much of this is provided by the detailed accounting disclosures that are required by authorities such as the London Stock Exchange. Financial Accounting Sample Paper 2 Page 20 of 31

21 Solution Three (cont d) Public at large Interest groups formed by various groups of individuals who have a specific interest in the activities and performance of businesses, will also require accounting information for example the environmental policies of the business. Part C (Any three of the following) Going Concern Going concern states that when preparing a set of financial statements accountants assume, unless there is evidence to the contrary, that a company is not going out of business and that it will continue in operational existence for the foreseeable future (twelve months from the date the financial statements are signed) and there is no intention to put the company into liquidation. This has important implications for the valuation of assets and liabilities, for example assets can be valued at their value in use to the business as opposed to the net realisable value. Financial statements have to be prepared in accordance with the going concern concept. Prudence In conditions of uncertainty, a cautious approach should be taken, so that gains and assets are not overstated and losses and liabilities are not understated. This means that sales and profit should not be included in the Statement of Profit & Loss until the cash has been received or that there is reasonable certainty that the cash will be received. In contrast, losses should be recognised in the Statement of Profit & Loss as soon as they are foreseen and considered reasonably certain. Prudence is the exercise of sound judgement in practical affairs. For example: if post year end inventory items were sold for less than cost, prudence would dictate that year end value of the inventory was written down to the net realisable value of the inventory. Hence ensuring that the value of year end assets (inventory) was not overstated and that profits were not over stated (closing inventory forms part of the profit calculation in the cost of sales section). Consistency Consistency states that transactions and valuation methods are treated the same way year to year, or period to period. Users of accounts can, therefore, make more meaningful comparisons of financial performance from year to year. Where accounting policies are changed, companies are required to disclose the fact that they have been changed, explain the impact of the change and the reason for the change. Usually a change in accounting policy is allowable only on the grounds that it is required because of a new accounting standard coming into force or because the change in accounting policy would give a truer and fairer view of the financial performance and position of the entity. Financial Accounting Sample Paper 2 Page 21 of 31

22 Solution Three (cont d) Separate Entity The separate entities principle seeks to ensure that private transactions and matters relating to the owners of a business are segregated from transactions that relate to the business. In accounting, a business entity is treated as a separate entity from the owners. Therefore, any capital injections made by the owner are recorded as capital contribution from owners in the books of the business entity. The owner s private expenditure/spending are therefore not recorded in the books of the business entity. Materiality Materiality is an important convention. The preparation of accounts involves a high level of judgement. Where decisions are required about the appropriateness of a particular accounting treatment, the materiality convention suggests that this should only be an issue if the judgement is significant or material to a user of the accounts. An item is material to a set of financial statements if its error/omission from the financial statements would influence the decisions of the users of financial statements. Financial Accounting Sample Paper 2 Page 22 of 31

23 Solution Four T. Higgins Statement of Profit & Loss for the year ended 31 December 2009 Sales 374,790 Cost of sales Opening inventory 25,800 Purchases 287,600 Carriage inwards 4, ,450 Less closing inventory (28,150) Cost of sales (289,300) Gross Profit 85,490 Discount received 350 Less Expenses Debts previously written-off as irrecoverable, (600) recovered Bank charges 370 Insurance 3,150 Interest 1,300 Wages and salaries 41,000 General expenses 6,375 Depreciation of buildings 2,640 Depreciation of delivery vans 2,550 Irrecoverable debts 700 Decrease in allowance for receivables (302) Total expenses (57,183) Net Profit 28,657 Financial Accounting Sample Paper 2 Page 23 of 31

24 Solution Four (cont d) T. Higgins Statement of Financial Position as at 31 December Non current assets Buildings 132,000 (40,640) 91,360 Delivery vans 25,000 (10,550) 14, ,810 Current assets Closing inventory 28,150 Receivables 17,952 Prepayments ,852 Total Assets 152,662 Equity and Liabilities Capital Capital 99,685 Profit for , ,342 Drawings (17,700) Current liabilities Payables 36,200 Bank overdraft 2,920 VAT 2,450 Accruals ,642 42,020 Total Equity and Liabilities 152,662 Workings 1 Closing inventory as per question: 32,950 Less write down of inventory (4,800) 28,150 Financial Accounting Sample Paper 2 Page 24 of 31

25 Solution Four (cont d) Workings 2 Purchases as per TB 293,000 Drawings (5,400) 287,600 Drawings Drawings as per TB 12,300 Drawings as per W2 5,400 Total drawings 17,700 Working 3 and 4 New expense of 370 in the Statement of Profit & Loss: Bank as per TB O/D 3,150 Bank charges not accounted for 370 3,520 Irrecoverable debt recovered (600) Restated bank balance (overdraft) 2,920 Workings 5 Receivables as per TB 18,700 Allowance for receivables 4% 748 Opening allowance for receivables 1,050 Decrease in allowances for receivables 302 Workings 6 Cost of buildings 132,000 Depreciation 2% SL 2,640 Cost of delivery vans 25,000 Accumulated depreciation (8,000) NBV 17,000 Depreciation 15% RBM 2,550 Financial Accounting Sample Paper 2 Page 25 of 31

26 Solution Four (cont d) Workings 7 Insurance as per TB 3,900 Insurance prepaid as per w7 (750) 3,150 Carriage inwards as per TB 3,600 Carriage inwards accrued as per w ,050 Financial Accounting Sample Paper 2 Page 26 of 31

27 Solution Five Part A Debit Credit 1. Dr Machinery repairs 5,500 Dr Machinery at cost 5,500 Cr Suspense 11,000 Being an error of principle 2. Dr Suspense 7,300 Cr Bank/cash book 7,300 Being the a correction of error cash book overcast 3. Dr J Morgan 175 Dr J Moran 175 Cr Discount received 175 Cr Discount allowed 175 Being the correction of error discount incorrectly treated in personal accounts and nominal 4. Dr Light and heat 1,420 Cr Other payables 1,420 Being an error of omission 5. Dr Suspense 12,900 Cr Mr Smith 12,900 Being cash receipts treated as additional sales in error 6. Dr Suspense 985 Cr Allowance for receivables 985 Being correction of error, allowance for receivables under cast 7. Dr Capital 2,700 Cr Suspense 2,700 Being the correction of an error of transposition Financial Accounting Sample Paper 2 Page 27 of 31

28 Solution Five (cont d) Part B Suspense Account Details Details Journal 2 7,300 Opening balance 7,485 Journal 5 12,900 Journal 1 11,000 Journal Journal 7 2,700 21,185 21,185 Part C Draft loss for December 2009 (12,540) Journal 1 (5,500) Journal 2 - Journal Journal 4 (1,420) Journal 5 - Journal 6 - Journal 7 - Loss after adjustments (19,110) Financial Accounting Sample Paper 2 Page 28 of 31

29 Solution Six Part A Calculate the opening cash balance: Receipts and Payments Account Details Details Balance c/d 7,950 Light and heat 5,100 Subscriptions received: Repairs of clubhouse 11,350 - Ordinary (annual) 79,200 Barperson salaries 31,600 Bar takings 198,750 Insurance (30% relates to bar) 19,850 Bar purchases 72,800 Club secretary expenses 11,470 Lawn maintenance 7,820 Bar cleaning expenses 4,670 Closing bank balance b/d 121, , ,900 Opening balance b/d 121,240 Calculate opening accumulated funds: Assets Clubhouse 110,200 Bar inventory 9,700 Subs in arrears 3,560 Cash/bank 7, ,410 Liabilities Bar purchases payable 7,540 Subs in advance 1,540 Light and heat accruals 650 (9,730) Accumulated funds 1/1/09 121,680 Financial Accounting Sample Paper 2 Page 29 of 31

30 Solution Six (cont d) Part B Bar Payables Control Account Details Details Cash paid for purchases 72,800 Balance b/d 7,540 Balance c/d 6,310 Purchases 71,570 79,110 79,110 Balance b/d 6,310 All Lawns Tennis Club Bar trading account for the year ended 31 December 2009 Bar sales 198,750 Cost of sales Opening inventory 9,700 Purchases 71,570 81,270 Less closing inventory (10,200) Cost of sales (71,070) Gross Profit 127,680 Less expenses Barpersons wages 31,600 Insurance 5,955 Bar cleaning 4,670 (42,225) Bar profits 85,455 Part C Subscriptions Account Details Details Opening subs in arrears 3,560 Opening subs in advance 1,540 I/S value for subs 80,440 Cash received for subs 79,200 Closing subs in advance 2,300 Closing subs in arrears 5,560 86,300 86,300 Opening subs in arrears 5,560 Opening subs in advance 2,300 Financial Accounting Sample Paper 2 Page 30 of 31

31 Solution Six (cont d) Income and expenditure account for the year to 31 December 2009 Income Subscriptions 80,440 Bar profits 85, ,895 Expenditure Light and heat 4,990 Repairs 11,350 Insurance 13,895 Club secretary expenses 11,470 Lawn maintenance 7,820 (49,525) Excess of income over expenses 116,370 All Lawns Tennis Club Accumulated Fund Statement as at 31 December Non current assets Buildings 110, ,200 Current assets Bar closing inventory 10,200 Subs in arrears 5,560 Bank 121, ,000 Total Assets 247,200 Equity and Liabilities Accumulated Fund/Capital Opening accumulated fund 1/1/09 121,680 Excess of income over expenditure , ,050 Current liabilities Bar payables 6,310 Subs in advance 2,300 Accruals 540 9,150 Total Equity and Liabilities 247,200 Financial Accounting Sample Paper 2 Page 31 of 31