NATIONAL 5 ACCOUNTING REVISION BOOKLET 1

Greenfaulds High School

Question 1

The following Trading and Profit and Loss Account of Lennon and McCartney for the year ended 31 December year 3 is incomplete due to a recent fire which destroyed most of the firm’s records: Trading, profit and Loss account of Lennon and McCartney for the year ended 31 December Year 3

Sales LESS COST OF SALES Opening stock Purchases Less Closing Stock GROSS PROFIT EXPENSES Selling and Distribution Administration NET PROFIT

£000

80 ? ? ?

33 ?

£000 990

? ?

? ?

The firm however, have been able to supply you with the following information for the year. 1 2 3

The Gross Profit ratio was 33.3% Expenses/Sales was 10% Closing Stock was £20,000 higher than Opening Stock

(a)

Using the above information and layout, produce the completed Trading, profit And Loss Account of Lennon and McCartney for the year ended 31 December Year 3. Calculate the Rate of Stock Turnover for the year.

(b)

1

Question 2 (a)

What is the purpose of a Trial Balance?

(b)

Explain the following types of error: (i) Error of Commission (ii) Error of Principle Question 3

Bubbles Unlimited manufactures and sells lemonade. You are supplied with the following information for Year 3: 1

The Bank Balance at 31 December Year 2 is expected to be £7,500.

2

Sales in units are expected to be: December 9000

January 8500

February 7200

March 7800

3

Each month 20% of total sales will be on a cash basis and the remainder paid one month after purchase.

4

The selling price per unit will be £4 but Cash Sales will receive a discount of 5%.

5

production units are expected to be: December 9100

January 8600

February 7300

March 7900

6

Production costs per unit will be: Raw Materials £0.50 paid for one month after production Wages £1.50 paid in the same month of production Variable Overheads £1.20 paid for one month after production

7

Fixed Costs are expected to be £2000 in January and February, then rise by £500 in March and are paid in the month incurred.

8

New machinery will be purchased in February for £12000. This will be paid for in 12 equal monthly instalments starting in March

. Prepare the cash budget for Bubbles Unlimited for 3 months January – March Year 3. 2

Question 4 Explain the following terms: (i) (ii) (iii)

Piece rate Time rate Commission Question 5

(a)

(b)

From the above break-even chart Identify: (i) the line marked A (ii) the line marked B (iii) the line marked C State: (iv) the break even point in units (v) the break even point in sales value Calculate: (i) the selling price per unit (ii) the variable cost per unit (iii) the contribution per unit (iv) the profit that would be earned from 3500 units (v) the sales in units required to earn a profit of £14000

3

Question 6 Carlo Assenti commence trading on 1 January Year 1. The following information relates to the stock movements of material A125 for the month of April Year 1.

Date 1 April 5 12 19 24

Purchases Quantity 1000 500

Unit Price £3.50

Issues Job No

Quantity

135

400

136 137

700 200

£3.60

Prepare Stock Record Cards for the month of April to show the Quantity, Cost and Value of units received, issued and in stock using: (i) First in First out (FIFO) (ii) Last in First out (LIFO) Question 7 Martin Bros is a manufacturing company which has 2 production and 2 service departments. Information relating to the cost centres is as follows:

Total £160000

Production departments A B £64000 £56000

Service Departments X Y £22000 £18000

Indirect Labour Indirect £32000 £14000 £18000 Materials No of 400 150 90 100 60 Employees Area(sq m) 40000 15000 10000 10000 5000 Value of £500000 £100000 £250000 £50000 £100000 Machinery The following information is also available: Overhead Costs Total Costs Factory Administration £160000 Heat and Light £72000 Depreciation of Machinery £140000 You are required to: (a) Complete the worksheet to calculate the total overheads to be allocated (b) Re-apportion the total overheads of Department X to the other 3 cost centres on the basis of number of employees. 4

Question 8 Kirkpatrick Sawmill Ltd has received an order from a customer for 1000 wood pallets. They have 2 departments, Cutting and construction. You are asked to prepar a quotation for the customer from the following information: Direct Materials Direct Labour

70 metres wood @ £9 per metre Cutting Construction

6 hours 5 hours Wage Rate £6.50 per hour £7 per hour Direct Expenses £20 Overheads are to be absorbed into the cost of the job as follow: Cutting Construction

£2 per direct labour hour £0.20 per pallet

Kirkpatrick Sawmill Ltd wish to make a profit of 20% on Cost. You are required to: (a)

(b)

calculate: (i) the total cost of the job to Kirkpatrick Sawmill Ltd (ii) the price which will be quoted to the potential customer taking into account the required profit and VAT at 17.5%. explain: (i) two advantages of using spreadsheets in the preparation of accounting statements.

5

Revision based on Int 2 past paper Question 8 The following balances were taken from the books of Mr Ruthven for the year ended 31 March Year 3. DR £000 Premises at cost Vehicles at cost Sales Purchases Discount Received Purchases Returns Provision for doubtful debts at 1 April Year 2 Provision for Depreciation on Vehicles at 1 April Year 2 Stock at 1 April Year 2 Debtors Creditors Insurance Wages and salaries VAT Bank

1 2 3

CR £000 260 30

980

415

14 15 6 5

100 200 95

60 95 75 1235

120 1235

Stock at 31 March Year 3 was valued at £125000 Provision for bad Debts is to be amended to 4% of Debtors Depreciation on vehicles is to be provided at 20% of cost

Using the above information prepare: (a) (i) Trading, Profit & Loss Accounts of Mr Ruthven for the year ended 31 March (ii) Balance Sheet as at that date (b)

When carrying out ratio analysis, businesses compare their performance in 3 areas: 1 Profitability 2 Liquidity 3 Efficiency 6

For the above areas, state one ratio that would be used and give the formula that would be used for each. Question 9 Bikes UK manufactures and sells 3 models of bicycles, Mountain , Racer and Fold Away. The current level of production of 2000 units of each model uses all the available machine time. Forecasts for the period are:

Selling Price per Unit Variable Costs per unit: Direct materials Variable Overheads Direct labour Hours paid at the rate of £9 per hour Machine Hours Fixed Overheads are expected

Mountain £240

Racer £320

Fold Away £210

£50 £4 4

£60 £3 5

£40 £2 4

5 to be £260,000

4

6

(a)

Calculate for each of the 3 models: (i) variable cost per unit (ii) contribution per unit (iii) contribution per machine hour (iv) the total contribution and profit earned

(b)

If machine hours were limited what would be the order of priority of production in order to maximise profits?

7

(c)

The following information relates to the issue and purchase of materials for “Tots”, a new model of cycle introduced by Bikes UK:

Date 1 May 7 May 10 May 15 May 21 May 24 May 26 May

PURCHASES Quantity 1000

Unit Price £20.50

1500

£20.60

1300

£20.70

ISSUES Quantity 400 700 500 1100

Using the LIFO method, prepare a Stock Record Card for the month of May showing receipts, issues and balances Question 10 Altamount Engineering manufactures and sells garden benches. The following information is available: Per Bench Selling Price Raw Materials Labour Variable Overhead Fixed costs per month

£120 £42 £36 £12 £30000

(a)

Calculate (i) the (ii) the (iii) the (iv) the

(b)

if the selling price was changed to £110 per bench, variable costs per unit were increased by £2 and Fixed Costs increased to £36000, calculate: (i) the new contribution per unit (ii) the new break even point in units.

variable cost per unit contribution per unit break even point in units and sales value profit from the current sales level of 5000 per month

8

Question 11 Heath & Hatcher plc is a textile company which has 3 production departments, Cutting, Machining and Finishing. The estimated overheads for the next year are: Supervision Rent and Rates Heat and Light Power Depreciation of Machinery

£28800 £7680 £6400 £18960 £6000

Information relating to the cost centres is as follows:

Power Number of Employees Floor Area(sq m) Value of Machinery Labour Hours Machine Hours

Cutting £6150 36 19200 £75000 8000 800

Machining £10216 108 24000 £100000 17000 1600

Finishing £2594 36 20800 £25000 7600 4000

TOTAL £18960 180 64000 £200000 32600 6400

You are required to: (a) Complete the worksheet provided to calculate the total estimated overheads for each Cost Centre (b) Explain the following terms: (i) Piece Rate (ii) Bonus (iii) Overtime Rate

9

Question 12 The following information was taken from the ledger of Jill Wilson on 31 December Year 3. £000 Sales Purchases Wages Creditors Rent Received Drawings Sales Returns Bank Overdraft Capital Heat and Light Debtors Buildings Stock at 1 January Year 3 Discount Allowed

150 100 8 45 5 20 30 25 85 15 50 80 5 2

Complete the Trial Balance of Jill Wilson as at 31 December year 3.

10

Question 13 The following figures are available for A Scotsman, a sole trader, for Year 1: Year 1 £000 Sales Opening Stock Closing Stock Cost of Goods Sold Gross profit Net profit Current Assets Current Liabilities Capital Employed

(a)

Calculate the following ratios: (i) (ii) (iii) (iv) (v)

(b)

200 12 18 120 80 50 120 60 500

Gross profit Ratio Net profit Ratio Rate of Stock Turnover Current Ratio Return on Capital Employed

Explain the following terms: (i) (ii) (iii)

Cash Discount Capital Expenditure Current Assets

11

Question 14 Jose Fernandez, a sole trader, runs a factory which manufactures MP3 players. There are 4 cost centres – A,B,C and the Canteen. Indirect wages are to be allocated for Year 2. A £40000

B £60000

C £120000

Canteen £33000

Total £253000

The following are estimated costs for year 2: OVERHEAD Heating Supervision Insurance of Machinery

BASIS OF APPORTIONMENT Floor Area (sq m) No of Employees Value of Machinery (£)

COST(£) 40000 120000 20000

The following information is available for the cost centres:

No of Employees Floor Area (sqm) Value of Machinery

A 15 20000 £100000

B 12 30000 £30000

C 27 20000 £70000

Canteen 6 10000

Total 60 80000 £200000

(a)Complete the Overhead Analysis Sheet for Jose to show the total estimated overhead apportioned to each cost centre. (b)Re-apportion the canteen costs between the other 3 cost centres based on the following perentages . A 30% B 20% C 50%

12

Question 15 1 2 3 4 5 6 7 8 9

A Wonderbryte plc

B

C

D

E

F

Rate

Hours 35 40 45

Income Tax £100.00 £144.00 £86.40

Net Pay

£12 £15 £8

Gross Pay ?

Wages Week 1

Claire Murphy Michael Forrester Levente Dalgrano TOTAL

?

?

State an appropriate formula for cells: (i) (ii) (iii)

D6 F6 F9

13

Question 16 Card Crazy holds all its greetings cards in a storeroom. Each item in the storeroom is recorded separately on a stock record card. On 1 September Year 1 the store has a supply of 50 boxes of cards which cost £20 each. The following issues and receipts of boxes of cards took place in September: Date 9 Sept 18 Sept 27 sept

Issues/Receipts Issues to the shop Receipts from supplier Issues to the shop

Boxes of Cards 30 40 @ £30 50

Record the information above using the FIFO method of Stock Valuation on the stock record card. Question 5 The following information relates to Poppy Palmer 

Cash balance at end of March Year 1 - £50000

Sales (cash) Sales (credit)   



March £18650 £6600

April £23400 £7490

May £22750 £7360

Poppy allows credit customers to pay one month after sale Poppy is to receive a loan of £10500 in April. She is to start monthly loan repayments in May of £500. Expected Monthly Expenses: Wages £15500 Insurance £400 Rent £800 this is being increased by 25% starting in May New machinery costing £4000 will be installed in May. This will be paid for in 4 equal instalments, the first payment being in May. Prepare a Cash Budget for Poppy for the two months April – May Year 1. (a) (b)

Name the software that could be used to prepare a cash budget Give an advantage of using this software.

14

Question 17 The following figures are available from the ledger of Khan Dowell, a Sole Trader for the year ended 31 December Year 2:

Dr £000s Sales Purchases Stock at 1 January Year 2 Discount received Carriage In Purchases Returns Sales Returns Rent Carriage Out Wages Insurance Electricity Bad Debts Notes at 31 December Year 2

1 2 3 4

Cr £000s 200 90 50 10 1 3 20 8 2 10 12 16 4

£000s

Stock Depreciation of Equipment per Year Insurance prepaid Wages owing

30 2 6 4

(a)

Using the figures above prepare the Trading, Profit and Loss Account for the year ended 31 December Year 2.

(b)

List 3 accounting ratios that could be prepared from The Trading, Profit and Loss Accounts prepared in part (a).

15

Question 18 The following forecasted figures are available for Heather McMorran. Cash Balance at the start of June - £20000

Sales (cash) Sales (credit) Purchases (credit)   

April £70000 £30000 £60000

May £75000 £35000 £75000

June £80000 £20000 £85000

July £105000 £25000 £130000

August £85000 £22000 £120000

Heather allow credit customers to pay in full 2 months after the sale takes place Heather will receive a bank loan in August - £10000 Heather pays in full for purchases one month after the month of purchase.

The following expenses are to be paid:  

Wages - £3000 each month A vehicle costing £10000 purchased in April, will be paid for in 5 equal monthly instalments starting in May.

Using the information above prepare Heather’s cash budget for the 3 months June – August. Question 19 Scott and David are partners who own a joinery business. They also employ Emma who works the following hours on Job 5656. Monday Wednesday Sunday

7 hours 5 hours 4 hours

Emma is paid a basic rate of £25 per hour and is paid double time on a Sunday. Emma also receives a bonus of £50 is she completes the job in less than 20 hours. (a)

Calculate the charge to Job 5656 for Emma’s labour.

(b)

In addition to the labour charge the following costs also relate to Job 5656 Material X 50 metres @ £20 per metre Material Y 100 metres @ £30 per metre Overheads £15 per labour hour worked Prepare a Job Cost Statement to show the total cost of Job 5656. 16

Question 20 Vexhim plc runs a factory which has 4 cost centres – X, Y, Z and the Canteen. Indirect wages are to be allocated for Year 2 as follows: X

£10000

Y

£15000

Z

£30000

Canteen

£8000

Total

£63000

The following estimated costs are for Year 2: Overhead Rent and rates Supervision Insurance of Machinery

Basis of Apportionment Floor Area (sq m) No of Employees Value of Machinery (£)

Cost (£) 30000 20000 12000

The following information is available for costs centres: Floor area (sq m) No of Employees 10000 15000 10000 5000 40000

X Y Z Canteen Total

Value of machinery 10 50000 15 15000 20 35000 5 50 100000

(a)

Complete the Overhead Analysis Sheet for Vexhim plc to show the total estimated overhead apportioned to each cost centre.

(b)

Re-apportion the Canteen costs between the other 3 cost centres based on the following percentages: X Y Z

30% 20% 50%

17

Question 21

(a)

Name the following lines on the break even graph (i) (ii) (iii)

(b) (c)

A B C

State the break even point in units Calculate the selling price of one unit. Question 22

(a) (b)

name one method of Stock Valuation Name 2 documents used in the management of stock.

18

Question 23 The following balances were extracted from the ledger of Matthew Stevenson as 1 January Year 2. Bank Equipment H Samson (Debtor)

£1500 dr £5000 £300

(a)

Enter the balances above into the appropriate ledger accounts

(b)

Using the following information complete the entries in the ledger accounts of Matthew, opening new accounts as necessary. Question 24

The following figures are available for Maria Mendez, a sole trader, for Year 1 £000 Sales

300

Opening Stock

11

Closing Stock

13

Cost of Goods Sold

180

Gross Profit

120

Net Profit

90

Calculate the following ratios: (a) (b) (c) (d)

Gross Profit Ratio Net profit ratio Average Stock Rate of Stock Turnover.

Give an example of: (a) Capital Expenditure (b) Revenue expenditure

19

Question 25 The following forecasted figures for Year 2 are available for Braxton plc: Cash Balance at 1 May - £20000 March Sales (cash) £5550 Sales(credit) £8000 Purchases(credit) £6600

April £6000 £10000 £4500

May £7500 £11500 £9000

June £5500 £19500 £6400

July £6000 £12300 £3800

Notes: 1 2 3 4 5 6

Credit purchases are to be paid 2 months after they are bought. Credit sales are to be paid one month after they are sold Petrol paid monthly - £400 Insurance paid monthly £500. The monthly payment will increase by 20% in June. Wages - £15000 monthly An advertising campaign costing £10000 is to be paid for in 2 equal instalments in June and July.

Prepare a cash budget for Braxton plc for the 3 months May – July Year 2 showing clearly the closing balance at the end of the month. Question 26 Craigie plc uses a spreadsheet to calculate wages.

1 2 3

A Wages – Week 2

4 Leila Wallace 5 Asim Azad 6 Julia Rogers TOTAL

B

C

D

E

F

Rate

Hours

Gross Pay

Net Pay

£15 £20 £10

40 35 40

?

Income Tax £144.00 £168.00 £96.00

?

?

State an appropriate formula for cells: (a) D4 (b) F4 (c) F7 20

Question 27 Pandarama plc produces luxury toy bears which sell for £40 each. Fixed costs are £20000 Variable Costs are £15 per bear From the above information calculate the: (a) (b) (c) (d)

contribution per unit break even point in units break even point insales value profit/loss when 1000 bears are sold Question 28

Explain the following terms used in the calculation of wages; (a)

Time rate

(b)

Piece Rate

21

Question 29 Bamboozle plc operates a factory with 3 cost centres – Dept E, Dept F and the Canteen Indirect wages are to be allocated for Year 4 as follows:

Total £100000

Production Departments Dept E Dept F £30000 £50000

Service department Canteen £20000

The following estimated costs are for Year 4: OVERHEAD Electricity Supervision Insurance of Machinery

BASIS OF APPORTIONMENT Floor Area (sq m) No of Employees Value of Machinery (£)

COST £40000 £20000 £12000

The following information is available for the cost centres: Production Departments

Floor Area (sq m) No of Employees Value of Machinery(£)

Dept E Dept F 7000 10 20000

Service Department Canteen Total 10000 3000 20000 35 5 50 30000 50000

(a)

Complete the Overhead Analysis Sheet for Bamboozle to show the total estimated overhead apportioned to each cost centre

(b)

Re-apportion the Canteen costs between the other 2 cost centres based on the following percentages: Dept E Dept F

60% 40%

22

Question 30 The following Trial Balance has been extracted from the ledger of Winston Elliot who trades as a general merchant: Trial Balance as at 31 October 20.. Dr Sales Purchases Discount Allowed Discount Received Carriage Outwards Carriage Inwards Returns In Returns Out Rent, Rates and insurance Heating and Lighting Postage and Stationery Advertising Salaries and wages Loan Interest Bad Debts Debtors Creditors Cash Bank Opening Stock Equipment at cost Equipment Accumulated depreciation Loan Drawings Capital as at 1 November

Cr 530780 388650 1454 1973 5328 2444 1866 2449 15769 6324 7660 13765 44970 1650 2088 26550 36887 515 3466 12306 141450 55320 13500 20800 49214

The following additional information as at 31 October 20.. is available: (a) (b) (c) (d)

Rent and rates have been prepaid by £750 Loan interest is accrued by £150 Equipment is to be depreciated at 10% per annum using the straight line method Stock at the close of business was valued at £14521.

23

Question 31 The following is a list of balances taken from the ledger of Mr Banda, a sole trader as at 31 July 20… List of Balances as at 31 July 20.. £ Stock at 1 August 20.. Plant and Machinery At cost Accumulated depreciation Purchases Sales Discounts allowed Discounts received Returns to suppliers Returns from customers Wages and salaries Other operating expenses Trade creditors Trade debtors Cash Bank Drawings Capital

5830 36420 14568 48760 101890 1324 1150 531 761 15300 21850 4380 6340 199 2197 8465 24927

The following additional information as at 31 July is available: (a) (b) (c) (d)

Closing stock as at 31 July £6140 Some operating expenses have been prepaid by £172 and others have been accrued by £233. Plant and machinery has still to be depreciated for 20.. at 20% per annum on cost. Other operating costs include the following: Carriage inwards £650 Carriage outwards £1540

You are required to prepare the Trading, Profit and Loss account and Balance Sheet for Mr Banda for the year ended 31 July 20..

24

Question 32

From the following information, prepare the Trading and Profit and Loss Account and Balance Sheet of F Smith for year ended 31 December Year 1. £ Postages 385 Printing and stationery 525 Capital 3,755 Cash 25 Bank 1,560 Opening stock 1,250 Purchases 24,750 Sales 47,030 Sales returns 150 Purchase returns 650 Carriage inwards 250 Carriage outwards 290 Wages and salaries 5,600 Rent and rates 800 Premises 7,500 Plant and machinery 3,250 Drawings 1,000 Insurance 250 Discount allowed 150 Discount received 20 Debtors 4,250 Creditors 4,750 VAT (Cr) 1,000 Distribution expenses 6,700 Loan from Building Society (1 July Year 2) 4,000 Furniture and Fittings 800 Motor Vehicles 1,500 Notes: 1. Closing Stock £1,000 2.

Rates prepaid at 1 January Year 2 £200

3.

Insurance prepaid at 1 January Year 2 £20 and prepaid at 31 December Year 2 £50

4.

Wages accrued at 31 December Year 2 £400

5.

Interest at 5% per annum has still to be paid on the Building Society loan 25

Question 33 From the following list of balances prepare the Trading, Profit and Loss and Balance Sheet of R Alburn for the year ended 31 December Year 2: Dr £

Cr £

Land and buildings 115,000 Fixtures and fittings 18,000 Stock 1 January Year 2 37,500 Debtors 47,200 Creditors Bank 13,000 Purchases 47,000 Sales Rent and rates 2,500 Heat and light 1,200 Carriage outwards 500 Bad Debts 200 Discounts received Sales returns 700 Office salaries 50,000 Provision for doubtful debts Bank loan Capital Drawings 15,520 _________

__________

348,320 _________

348,320 __________

11,300

160,000

2,700

3,720 20,000 150,600

Notes at 31 December Year 2: 1. 2. 3. 4. 5.

Closing stock amounted to £39,000. Office salaries accrued £1,600. Rates prepaid £300. Interest on loan due £2,200. Provision for doubtful debts to be increased to 10% of debtors.

26

Question 34 The following information is available for R Gordon, for the year ended 31 October Year 2: Trial Balance as at 31 October Year 2

Turnover Net purchases Opening Stock Advertising Heating and lighting Rent and rates Wages Debtors and creditors Bank VAT Premises Office equipment Plant and Machinery Provisions for Depreciation Office equipment Plant and machinery Provision for Doubtful Debts Drawings Capital

Dr £ 75,000 6,500 800 1,800 2,400 30,500 5,400 97,000

Cr £ 250,000

3,700 2,500

100,000 25,000 90,000

6,000

5,000 30,200 200

________

148,800 _________

440400 ________

440,400 ________

The following additional information is available on 31 October Year 2: 1. Closing Stock £5,900 2. Heating and lighting amount due £200 3. Advertising prepaid £200 4. Provision for doubtful debts is to be 5% of debtors 5. Depreciation on fixed assets is provided for on the written down value using the following percentages: Office equipment 20% Plant and machinery 15% 27

Question 35 The following trial balance was extracted from the ledger accounts of M Lee on 31 October Year 2 along with the accompanying notes. Trial Balance as at 31 October Year 2 Dr Cr £ £ Sales 600,000 Purchases 250,000 Opening Stock 15,900 Carriage inwards 1,450 Carriage outwards 1,800 Discount received 1,300 Discount allowed 2,200 Commission received 2,500 Rent and rates 2,400 Wages 120,000 Bad Debts recovered 200 Insurance 1,900 Debtors and creditors 8,000 5,400 Bank 12,500 VAT 2,750 Premises 200,000 Office equipment 15,000 Machinery 120,000 Provision for Depreciation Office equipment 3,500 Machinery 43,200 Provision for Doubtful Debts 500 Drawings 12,500 Capital 104,300 763,650 763,650 _______ _________ Notes at 31 October Year 2: 1. Closing Stock: £13,500 2. Accruals: Wages £3,600, Rent and Rates £500 3. Prepaid insurance £400 4. Commission received of £300 has still to be received 5. Provision for Doubtful Debts is to be 6% of annual debtors 6. Provide for depreciation using the diminishing balance method as follows: 7. Machinery 25% 8. Office equipment 15% 28

Question 36 Study the errors noted in column one of the following table. State in column 2 whether the correction of the errors will affect the Net Profit (tick for yes and a cross for no). In column 3, state whether the correction will INCREASE, DECREASE or have NO EFFECT on the Net Profit. Error

Yes/No

Effect on Net Profit

Sales over added by £150 Rent under added by £20 Rates over added by £50 Cash payment to a creditor entered in Cash Account only, £60 Omission of Drawings by cheque £100 Purchase of Machinery £100 entered in ledger accounts as £1,000 Purchases under added by £30 Purchase of Office Equipment £50 entered in Purchases Account Sale of motor van £500 entered in error in Sales Account Advertising under added by £80 Cash Payment by Debtor entered in error on credit side of the Cash Account

29

Question 37 After the final accounts of a firm had been drawn up, the following errors were discovered. State the effect that the CORRECTION of each of these errors would have upon the profits. Set out your answer as shown. Example: Sales over added by £1,240 Item

Effect upon profit

Amount

Example

Decrease

£1,240

1 2 3 4

1.

Purchases on credit had been over added by £100.

2.

Goods valued at £193.50 had been sold on credit to J Gibson but the entry had been debited to the account of J E Gibson.

3.

Discount received totalling £55 had been misread as discount allowed and entered accordingly in the final accounts.

4.

Closing stock was originally valued at £6,940 and entered in the Trading Account as that figure. It has since been discovered that it should have been valued at £7,000.

30

Question 38 Show in the table below, how the following errors would be corrected in the ledger accounts of R Taylor. 1.

£18 received from P Park had been posted to the account of D Park.

2.

£40 spent by the trader on his own expenses had been posted to the Office Expenses Account.

3.

£10 received in respect of the sale of some Bookcases from the office had been posted to the Sales Account

4.

£28 paid to D Allan had been posted to the account of J Callen.

5.

£65 spent by R Taylor on office furniture had been posted to the Office Expenses Account.

6.

Machinery valued at £1,600 purchased on credit from Mitchell Ltd, had been debited to the Purchases Account.

Error 1

Account Debited

Amount

Amount Credited Amount

2 3 4 5 6

31

Question 39 Show in the table below, how each of the following errors would be corrected in the ledger accounts of H Gibson. 1.

The purchase of a computer, value £750.50, had been wrongly included in the Purchases Account.

2.

A credit note issued to R Morgan for goods returned to the value of £60, less 5% Trade Discount, had been posted to the account of R Morton.

3.

When paying J Johnson, a creditor, Gibson had deducted £5 discount. Johnson had disallowed this discount.

4.

A sale to Derby & Co amounting to £275 had been entered in the ledger accounts as £257.

5.

Goods sold to K Smith, £89 were not entered into the ledger accounts.

6.

A payment made to R Strong, a creditor, of £100 had been entered on the debit side of the Cash Account and credited in R Strong’s Account.

Error 1

Account Debited

Amount

Amount Credited Amount

2 3 4 5 6

32