CONTENTS

Chapter Topics Page No

1 Introduction 2-7
2 Double Entry System 8-11
3 Balancing the Account: The Trial Balance 12-13
4 The Final Account 14-17
5 The Division of Ledgers 18-18
6 Books of Original Entry: Cash Books 19-23
7 Petty Cash Book 24-25
8 Books of Original Entry: Sale Day Book, Purchase Day Book, 26-26
Returns Inwards Day Book & Returns Outwards Day Book
9 General Journal 27-27
10 Capital & Revenue Expenditure 28-28
11 Accrued and Prepaid Expenses & Accrued and Advance Income 29-30
12 Depreciation, Provision for Depreciation and Disposal of 31-34
Non-Current Assets
13 Irrecoverable Debts, Allowance for Doubtful Debts and 35-37
Bad Debts Recover of Trade Receivable
14 Bank Reconciliation 38-39
15 Sole Trader Final Account 40-46
16 Partnership Final Account 47-50
17 Change in Partnership Interest (Goodwill and Revaluation) 51-55
18 Dissolution of Partnership 56-60
19 Limited Company Final Account 61-67
20 Manufacturing Account 68-71
21 Incomplete Record (Single Entry) 72-76
22 Final Account for Non-Trading Organization 78-80
23 Control Accounts 81-84
24 Errors and Suspense Account 85-89
25 Interpretation of Financial Statement (Accounting Ratio) 90-93
26 Valuation of Inventory (IAS – 2) 94-94

1
 CHAPTER – 1
INTRODUCTIO
N
BOOKKEEPING
Bookkeepin THE ACCOUNTING EQUATION
g
Bookkeeping is the systematic recording in the books of accounts of the business transactions
of a company.
Accountin
g
Accounting is the process of recording, classifying, summarizing, reporting business
transactions, and interpreting their effects on the affairs of a company. Bookkeeping is only the
first and simplest step in the whole accounting process.
WHAT MUST RECORDS BE
KEPT
A businessman would always want to find out the amount of profit his business makes,
the assets he owns and the amount of money owed to the other people. Unless he keeps proper
records of his business transaction, he would not be able to keep himself informed.
THE RESOURCES OF A
BUSINESS
To run your business you will need to have resources. You may start with cash only and
use that to purchase other resources. Alternatively, you may put into the business various assets
which privately you already you may put into the business not only cash but also a motor vehicle
and some office furniture. The resources of the business are termed “assets”.
USERS OF ACCOUNTING
INFORMATION
The following people are likely to be interested in accounting information.
Owner (s) of the business (Shareholders of the Company): They to assess how well the
management is performing. They want to be able to see whether or not the business is profitable
and how much profit they can afford to withdraw from the business for their own uses.
A prospective buyer: When the owner wants to sell his business, the buyer will want to see such
information.
The Bank: If the owner wants to borrow money for uses in the business, then the bank will need
such information.
Tax Authorities: Want to know about business profit in order to assess the tax payable
amount.
Employees: They should have a right to information about the company’s financial situation,
because their future careers and the size of their wages and salaries depend on it.
Investors: Either existing one or people wondering whether or not to invest money in the
business.
Government: Are interest in the allocation of resources and therefore in the activities of business
2
entities.
The Public: Entities affect members of the public in a variety of ways. (Employment, Pollution,
etc.)

BUSINESS AND PERSONAL

ENTITIES

3
 In bookkeeping, it must be made clear that every business unit (the company) is separate
and distinct from the owner. They are considered as separate entities. Recordings made from the
point of view of the company, are entered into the company’s book of accounts.
THE PRINCIPLE ACCOUNTING
SUMMARIES
The Principle accounting summaries are Statement of Financial Position and Profit & Loss
are also called Income Statement.
STATEMENT OF FINANCIAL
POSITION
A statement of financial position shows the assets of the business of the business together
with the right or interest of the creditors and the proprietor’s equity, at a given date. It gives a
picture of financial position at a given date.
STATEMENT OF COMPREHENSIVE
INCOME
A statement of comprehensive income shows the income of the period, together with the costs
of operations for the period, resulting in an increase or a decrease in proprietorship. It reports on
the effects of the operations on the owner’s equity.

ACCOUNTING EQUITION –
1
Assets = Capital

Example – 1
To form snack & coffee house, buy the following assets for business.
$
Inventory for Sales 200,000
Shop Building 500,000
Furniture 50,000
Motor Van 100,000
Cash in Hand 50,000
Cash at Bank 100,000

Total Assets 1,000,000 → Owner Contribution (Capital)

ACCOUTING EQUATION –
2
Assets = Capital + Liabilities
Total Assets requirement = Owner Contribution + Liabilitie
s

4
For business (Capital) (Loan)
$1,000,000 $800,000 $200,000

5
 CAPITAL

The right or interest of the proprietor, that is, ownership in the assets of the business is
called net worth, capital or equity. (Amount owed by the company to the owner)

ASSETS
The properties owned by a business and used in the operation of that business is called
assets.

NON-CURRENT ASSETS
Fixed assets are those of the permanent of fixed nature that will not be sold or converted
into cash so long as they serve the need of the business.

CURRENT ASSETS
Current assets are those in the form of cash or those that may be expected to be converted
into cash in the near future by the regular operations of the business.

CURRENT LIABILITIES
Current liabilities are those that will be due within 12 months (one year) and have to be paid
within the coming year.

NON-CURRENT LIABLITIES
Non-Current Liabilities are those that will be due over 12 months and have to be paid over
one year.

RECEIVABLE
The person who owes money to the business for goods or services supplied to him.

CREDITOR
A person to whom money is owed by a company for goods or services.

LEDGER
A group of accounts is called ledge.

FOLIO
Each page in a ledger is called a folio.
6
 Question – 1

Classify the following items into liabilities and assets:

(a) Office Machinery (e) Motor vehicles
(b) Loan from C. Shirley (f) We owed for goods
(c) Fixtures and Fitting (g) Bank Balance
(d) Plant & Machinery (h) Office Furniture

Question – 2
Classify the following items into liabilities and assets:
(a) Motor Vehicle (f) Owing to Bank
(b)Freehold Premises (g) Cash in Hand
(c) Payable for Goods (h) Loan from D.Jone
(d)Stocks of Goods (i) Machinery
(e) Trade Receivable (j) Mortgage Loan

Question – 3
State which of the following are shown under the wrong classification for J.White Business.
Assets Liabilities
Loan from C.Smith Stock of goods
Cash in hand Trade Receivable
Machinery Money owing to bank
Trade Payable Leasehold Premises
Premises
Motor Vans
Store
Furniture

Question - 4
Complete the column to shows the effects of the following transactions: Effect
upon Assets = Capital + Liabilities
(a) We pay a payable $70 in cash.
(b) Bought fixtures $200 paying by cheque.
(c) Bought inventory on credit $275.
(d) The proprietor introduces another $500 cash in the firm.
(e) J.Walker lends the firm $200 in cash.
(f) A trade receivable pays us $50 by cheque.
(g) We return goods costing $60 to a supplier whose bill we have not paid.
7
(h) Bought additional shop premises paying $5,000 by cheque.

8
Question - 5
Complete the columns to shows the effects of the following transactions: Effect upon
Assets = Capital + Liabilities
(a) Bought a motor van on credit $500.
(b) Repaid by cash a loan owed to P.Smith $1,000.
(c) Bought goods for $150 paying by cheque.
(d) The owner put a further $5,000 cash into the business.
(e) A receivable returns to us $80 goods.
(f) Bought goods on credit 220.
(g) The owner takes out $100 cash for his personal use.
(h) We pay a creditor $190 by cheque.

Question – 6
Draw up M.Kelly’s Statement of Financial Position as at 30 June 20X2 from the following items
$
Capital 13,000
Office Machinery 9,000
Trade Payable 900
Inventory 1,550
Trade Receivable 275
Cash at Bank 5,075
Loan from C.Smith 2,000

Question – 7
You are to complete the gaps in the following table:
Assets Capital Liabilities
$ $ $
(a) 12,500 ? 1,800
(b) 28,000 ? 4,900
(c) 16,800 12,500 ?
(d) 19,600 16,450 ?
(e) ? 19,200 6.300
(f) ? 39,750 11,650

9
Question – 8
You are to complete the gaps in the following table:
Assets Capital Liabilities
$ $ $
(a) 55,000 ? 19,900
(b) ? 34,400 17,200
(c) 36,100 28,500 ?
(d) 119,500 ? 15,400
(e) 88,000 62,000 ?
(f) ? 110,000 49,000

1
0
 CHAPTER – 2
DOUBLE ENTRY SYSTEM
The Account for Double Entry
XX A/C
Debit Credit
Date Particular Folio $ Date Particular Folio $

Double Entry Bookke e ping s ys te m

A system when each transaction is enter twice, once on the debit side and one on the credit side.
Assets = Capital + Liabilitie
s
Increase Debit Credit Credit
Decrease Credit Debit Debit

Question – 1
You are required to open the assets, Liabilities and capital and record the following transaction for
June 19X4 in the records of C Williams.
19X4
June 1. Started business with $ 2,000 in cash.
June 2. Paid $1,800 of the opening cash into a bank account for the
business. June 5. Bought office furniture on credit from Betta-Built Ltd for
$120. June 8. Bought a motor van paying by cheque $950.
June 12. Bought Machinery from Evens & Sons on credit $560.
June 18. Returned faulty office furniture costing $62 to Betta-Build
Ltd. June 25. Sold some of the work machinery for $75 cash.
June 26. Paid amount owing to Betta-Build Ltd $58 by cheque.

1
1
June 28. Took $100 out of the bank and put it in the cash
till. June 30. T Smith lent us $500 giving us the money by
cheque.

Question – 2
Write up the assets, Liabilities and capital accounts to record the following transaction in the
records of G Powell.
19X3
July 1. Started business with $2,500 in the
bank. July 2 Bought office furniture by cheque
$150.
July 3 Bought machinery $750 on credit from Planers Ltd.
July 5. Bought a motor van paying by cheque $600.
July 8. Sold some of office furniture, not suitable for the firm for $60 on credit to J Walker
& Sons.
July 15. Paid the amount owing to Planers Ltd $750 by cheque.
July 23. Received the amount due from J Walker $60 in
cash. July 31. Bought more machinery by cheque $280.

Question – 3
Write up the assets, capital and Liabilities accounts in the books of C Walsh to record the
following transactions.
19X5.
July 1. Started business with $5,000 in the bank.
July 2. Bought motor van paying by cheque
$1,200.
July 5. Bought office fixtures $400 on credit form Young
Ltd. July 8. Bought motor van on credit form Super Motors
$800. July 12. Took $100 out the bank and put it into the cash
$100. July 15. Bought office fixtures paying by cash $60.
July 19. Paid super Motors a cheque for $800.
July 20. A loan of $1,000 cash is received from J Jarvis.
July 25. Paid $800 of the cash in hand into the bank
account. July 30. Bought more office fixtures paying by
1
2
cheque $300.

1
3
Question – 4
You are to enter the following in the accounts needed:
19X6
Aug 1. Started business with $1,000 cash.
Aug 2. Paid $900 of the opening cash into the bank.
Aug 4. Bought goods on credit $78 from S Holmes.
Aug 5. Bought a motor van by cheque $500.
Aug 7 Bought goods for cash $55.
Aug 10. Sold goods on credit $98 to D
More. Aug 12. Returned goods to S Holmes
$18. Aug 19. Sold goods for cash $28.
Aug 22. Bought fixtures on credit form King Stone Equipment Co.,Ltd
$150. Aug 24. D Watson lent us $100 paying us the money by cheque.
Aug 29. We paid S Holmes his account by cheque $60.
Aug 31. We paid King Stone Equipment Co.,Ltd by cheque $150.

Question – 5
Enter up the following transactions in the records of G Morgan.
19X5.
May 1. Started business with $2,000 in the bank.
May 2. Bought goods on credit from S Chaw $900.
May 3. Bought goods on credit from F Hughes
$250. May 5. Sold goods for cash $180.
May 6. We returned goods to S Chaw $40.
May 8. Bought goods on credit from F Hughes
$190. May 10. Sold goods on credit to G Wood $390.
May 12. Sold goods for cash $210.
May 18. Took $300 of the cash and paid it into the
bank. Mya 21. Bought machinery by cheque $550.
May 22. Sold goods on credit to L Moore $220.
May 23. G Wood returned goods to us $140.
May 25. L Moore returned goods to us $10.
May 28. We returned goods to F Hughes

10
$30.

10
May 29. We paid C Chaw by cheque $860.
May 31. Bought machinery on credit from D Lee $270.

Question – 6
You are to enter the following transactions, completing the double entry system in the books for
the month of March 2017.
2017
Mar 1. Started business with $2,000 in the bank.
Mar 2. Purchased goods $175 on credit from M Mills.
Mar 3. Bought furniture and fittings $150 paying by
cheque. Mar 5. Sold goods for cash $275.
Mar 6. Bought goods on credit $114 from S Waites.
Mar 10. Paid rent by cash $15.
Mar 12. Bought stationary $27, paying in
cash. Mar 18. Goods returned to M Mills $23.
Mar 21. Let off part the premises receiving rent by cheque $5.
Mar 23. Sold goods on credit to U Henry for $77.
Mar 24. Bought a motor van paying by cheque
$300. Mar 30. Paid the month’s wages by cash $117.
May 31. The proprietor took cash for himself $44.

11
 CHAPTER - 3
BALANCING THE ACCOUNTS: THE TRIAL BALANCE
Balancing the Accounts
Finding and entering the different between the two sides of an account on the lesser side, so to equalize
the two side of an account.
Trial Balance
- A list of account title and their balance in the book, on a specific date, show in debit and
credit columns.
- Trial balance are one form of checking on the arithmetical accuracy of the books.
- For each debit entry there is a credit entry
- Total debit entries = Total credit entries
- Therefore, Total debit Balance – Total Credit Balance

Example of Trial Balance

Trial Balance for the year ended dd/mm/yy.
Account Name Dr Balance Cr Balance
$ $
Assets A/c xx
Liabilities A/c xx
Capital A/c xx
Purchase A/c xx
Sale A/c xx
Return Inward A/c xx
Return Outward A/c xx
Expenses A/c xx
Income A/c xx
Drawing A/c xx
xx xx

Question – 1
Record the following details for the month of November 2015 and extract at trial balance as at 30
November 2015.
2015.
Nov 1. Started with $5,000 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 sale $240.
12
Nov 6. Paid rent by cheque $20.
Nov 7. Paid rates by cheque
$190.
Nov11. Sold goods on credit to L Matthems $ 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, Wrogers $270, D Dtaz
$130. Nov 20. Goods were returned to us by 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.
Question 2
Enter the following transactions in double entry.
19X9
July 1 Started business with $ 8,000 in the bank.
July 2 Bought stationery by cheque $30.
July 3 Bought goods on credit from 1 Walsh
$900. July 4 Sold goods for cash $180.
July 5 Paid insurance by cash $40.
July 7 Bought machinery on credit from H Morgan
$500. July 8 Paid for machinery expenses by cheque $50.
July10 goods on credit to D Small $320.
July11 Returned goods to I Walsh
$70. July14 Paid Wages by cash $70.
July17 Paid rent by cheque $100.
July20 Received cheque $200 from D
Small July21 Paid H Morgan by cheque $500.
July23 Bought stationery on credit from Express Ltd $80.
July25 Sold goods on credit to N Thomas

13
$230. July31 Paid Express Ltd by cheque $80.

14
 CHAPTER - 4
FINAL
ACCOUNTS

The Principle Accounting Summarie s

The Principle accounting summaries are Statement of Financial Position and profit & loss
account also called income statement.
Profit & Loss Account
A profit & loss account (income statement) shows the income of the period together with
the costs of operations for the period, resulting in an increase or a decrease in proprietorship. It
reports on the effects of the operations on the owner’s equity.
Balance Sheet
A balance sheet (financial position) shows the assets of the business together with the
right or interest the creditors and the proprietor’s equity, at a given date. It gives a picture of
financial condition at a specific date.
The accounting equation is expressed in a financial position statement called the balance
sheet. It may be seen very strange to you to learn that balance sheets are not of the double entry
system.
Non-Curre nt Ass e ts
Fixed assets (non-current assets) are those of the permanent or fixed nature that will not be
sold or converted into cash so long as they serve the need of the business. These are listed
starting with those the business will keep the longest, down to those which will not be kept so long.
For example.
1 Land and Buildings
2 Fixed and Fittings
3 Machinery
4 Motor vehicles
Curre nt Ass e ts
Current assets are those in the form of cash or those that may be expected to be converted into
cash in the near future by the regular operations of the business. These are listed starting with the
asset furthest away from being turned into cash, finishing with cash itself. For example,
1 Stock/inventory
2 Debtor/receivable
3 Cash at bank
4 Cash in hand
Curre nt Liabilitie s
Current liabilities are those that will be due within 12 month and have to be paid within the near future.
For example.
1 creditor/payable
2 bank overdraft or short-term bank loan

15
Question – 1
From the following trial balance of R Graham draw up a Income Statement for the year ended
30 September 2017, and Statement of Financial Position as at that date.
Dr Cr
$ $
Inventory at 1 October 2016 2,368
Carriage outwards 200
Carriage Inwards 310
Returns Inwards 205
Returns Outwards 322
Purchases 11,874
Revenue 18,600
Salaries and Wages 3,862
Rent 304
Insurance 78
Motor expenses 64
Office expenses 216
Lighting and Heating expenses 166
General expenses 314
Premises 5,000
Motor Vehicles 1,800
Fixtures and Fittings 350
Trade Receivables 3,896
Trade Payable 1,731
Cash at Bank 482
Drawings 1,800
Capital 12,636
33,289 33,289
Inventory at 30 September 2017 was $2,946.

16
Question – 2
From the following trial balance of T Williams, prepare a trading

and losses account (Income Statement) for the year ended 31 May 2015 together with a balance at
the date.
T Williams Trial Balance at 31 May 2015
Dr Cr
$ $
Revenue (Sales) 139,200
Purchases 103,500
Wages and Salaries 15,320
Buildings 32,000
Stock, 1 June 2014 27,230
Carriage inwards 630
Rent 5,400
Fixtures and fittings 4,250
Returns Outwards 960
Insurance 325
Return inwards 430
Debtors 21,460
Creditors 12,240
Loan from T Smart, repayable in Year 2021 15,000
Sundry expenses 475
Carriage outwards 2,340
Cash at bank 4,450
Cash in hand 195
Drawings 11,400
Capital 62,005
229,405 229,405
Stock at 31 May Year 2015 was valued at $30,580.

17
Question-3
From the following trial balance of R Graham, draw up a trading and profit and loss account for
the year ender30 September 19X6, and a balance sheet at that date.
Dr Cr
$ $
Stock 1, October 19X5 2,368
Carriage outwards 200
Carriage inwards 310
Returns Inwards 205
Returns Outwards 322
Purchases 11,874
Sales 18,600
Salaries and wages 3,862
Rent 304
Insurance 78
Motor expenses 64
Office expenses 216
Lighting and heating expenses 166
General expenses 314
Premises 5,000
Motor vehicles 1,800
Fixtures and Fittings 350
Debtors 3,896
Creditors 1,731
Cash at bank 482
Drawings 1,800
Capital 12,636
33,289 33,289
Stock at 30 September 19X6 was $2,946.

18
 CHAPTER – 5
THE DIVISION OF LEDGER
Types of Accounts
(a) Personal
Accounts
(b) Real Accounts
(c) Nominal
Accounts
Types of Ledgers
(a) Sale Ledger
(b) Purchase Ledger
(c) General Ledger
(d) Cash Book
Question – 1
Name the ledger in which you would expect each of the following accounts to appear:
(a) Purchase account
(b) D Smith – Receivable
(c) Rent payable
(d) Machinery
(e) Drawings
(f) Sales
Question -2
What type of account is each of the following?
(a) Machinery
(b) Sales
(c) General expenses
(d) Bank
(e) Inventory
Question – 3
Set Out and Complete the following table:
Transaction Account to Division Account to Division
be de bit of Le dge r be Cre dit of Le dge r
(a) Goods bought for cash
(b) Sold goods on credit
(c) Paid rent by cheque
(d) Bought furniture by cheque
(e) Goods bought for cash
(f) Customer paid account in cash

19
 CHAPTER – 6
BOOK OF ORIGINAL ENTRY (CASH BOOK)

Types of Book of Original Entry

(a) Sales Day Book/Journal - for credit sales
(b) Purchase Day Book/Journal - for credit purchase
(c) Return inward Day Book/Journal - for return inwards
(d) Return outward Day Book/Journal - for return outwards
(e) Cash Book - for receive & payment for cash
And cheque
(f) General Journal - for other items

Two Column Cash Book

Dr Cr
Date Particular Folio Cash Bank Date Particular Folio Cash Bank
$ $ $ $

20
Three Column Cash Book
Dr Cr
Date Particular Folio Dis Cash Bank Date Particular Folio Dis Cash Bank
Allo Re c
$ $ $ $ $ $

Discount
1. Trade Discount (No need to record)
2. Cash Discount
Cash Discount

1. Discount Allowed
2. Discount Received

Question-1
Prepare a two – column cash book from the following details, balancing it at the end of the month.
Year 3.
Oct 1 Balance brought forward from the previous
month; Cash $35; Bank $1,640 (Dry)
Oct 3 Paid rent by cheque $165
Oct 5 Withdrew from bank for office cash $60
Oct 7 Sold goods for $390: $70 in cash: $320 by
cheque Oct 10 Paid T Rendell by cheque $265
Oct 12 bought postage stamps $15 in cash
Oct 14 Received cheque from A Pine $
130
Oct 16 Cash sales $450, $300 of this was paid direct into the bank

20
account Oct 19 the proprietor withdrew $80 in cash for private use.

20
Oct 23 Paid insurance by cheque $110
Oct 25 Bought goods by cheque $770.
Oct 27 Cash sales $215
Oct 29 Paid general expenses in cash
65 Oct 30 Banked $250 cash

Question –
2

Write up a two – column cash book from the following details, and balance off as at the end of
the month.
19X
5
July 1 Started business with capital in cash
$100 July 2 Paid rent by cash $10
July 3 F Lake lent us $500, paid by cheque
July 4 we paid B Makenzie by cheque $65
July 5 Cash sales $98
July 7 N Miller paid us by cheque
$62
July 9 we paid B Burton in cash
$22
July 11 Cash sales paid direct into the bank
$53 July 15 G Moore’s paid us in cash $65
July 16 we took $50 out
of the cash till and paid it into the bank account
July 19 we repaid F Lake $100 by
cheque
July 22 Cash sales paid direct into the bank
$66 July 26 Paid motor expenses by cheque $12
July 30 Withdrew $100 cash from the bank for business
use. July 31 Paid wages in cash $97

Question -
3
Grant Evans, a sole trader, had the following cash book balances at 1 February Year 6.
Cash $65, bank $3,196
21
During the month of February Year 6, he had the following
transactions: Feb 2 bought $50 worth of postage stamps from cash
Feb 4 Cash Sales banked same day
$2,610
Feb 6 Cash purchases, paid by cheque, for
$1,075

22
Feb 8 received a cheque from D Pole for $1,250 in settlement of a debt of
$1,280 Feb 10 Cash Sales banked same day $2,730
Feb 12 Drew a cheque to increase cash in hand by $100
Feb 12 Paid wages by cheque $1,964
Feb 15 Paid electricity by cheque $53
Feb 16 Purchased stationary for cash
$38 Feb 19 Paid wages by cheque $1,840
Feb 19 Cash Sales banked same day $2,945
Feb 21 Paid travelling expenses of $19 from cash
Feb 23 Received a cheque for $1,760 from E Holme in settlement of his account of
$1,800 Feb 25 Paid telephone bill by cheque $132
Feb 27 Paid wages by cheque $1,920
Feb 28 Paid P Barrant & Co. $1,240 by cheque in settlement of their account of
$1,260 Feb 28 Drew a cheque $2,180 payable to D Smart in settlement of this account of
$2,234 Required
(a) Enter the above transactions in Grant Evan’3-column cash book, balancing it at 28
February,
Bring down the balance at 1 March.
(b) Post the totals of discounts allowed and discounts received from the cash book into the
discounts allowed and discounts received accounts.
Question – 4
D Evans is a sold trader who records all her cash and bank transactions in a three – column cash
book, at 1 Oct Year 6, her cash in hand was $68, but she has a bank overdraft of $1,692.
The following are her transactions for the month of October Year 6.
Year 6
Oct 2 Received a cheque of $160 from P Mace in full settlement of a debit of $168. This
was
paid straight into the bank.
Oct 10 Cash sales paid direct to bank $2,086.
Oct 12 Drew a cheque $75 in favour of
WEasten. Oct 14 Paid $35 cash for stationery.
Oct 16 Paid to F Samway the sum of $86 by cheque in settlement of an amount owed to him
of

23
 $90.
Oct 18 Drew cheque for office cash $150.
Oct 20 Cash sales $1,120: cash kept in office safe.
Oct 21 Received loan interest of $60, and paid this into bank. The sales of the previous
day were also banked.
Oct 22 Paid cleaner’s wages out of cash $35.
Oct 24 Paid telephone charges by cheque
$147.
Oct 26 Received a cheque of $704 from B Chalke in settlement of his account amounting to
$720. D Evans paid this into the bank.
Oct 28 Paid $40 out of cash for office
expenses.
Oct 30 Paid $254 to L Hall by cheque in full settlement of the $260 balance on his
account. Oct 31 Bank noticed D Evans that they had charged $20 bank interest to his
account.
Required
(a) Draw up the three-column cash book of D Evans for the month of October Year 6. Balance
the cash and bank columns, bringing down the balances at 1 November Year 6.
(b) Total the two discount columns and state to which ledger accounts these totals will be
posted, and to which side of each account.

24
 CHAPTER – 7
PETTY CASH BOOK AND THE IMPREST SYSTEM

Division of Cash Book

- Main Cash
Book
- Petty Cash
Book

The Imprest
System
The imperst system is where the cashier gives the petty cashier enough cash to meet his
needs for the following period. At the end of the period the cashier find out the amounts spent by
the petty cashier, and gives him an amount equal to the spend. The petty cashier will produce the
petty cash vouchers as evidence of the amount spent. The petty cash in hand should then be equal
to the original amount with which the period was started.

Petty Cash
Book

For Control Purpose, it is always advisable to deposit all cash received into a bank
account and to make payments by cheques. However, for small sums of payments, such as but
fares, postage, stamps, etc. is not practical to pay by cheque.
Therefore, a small amount of cash is always kept in the office to meet such expenditure.
This amount of cash kept in the office is called the petty cash fund, and it is normally controlled
by a clerk, who is called the petty cashier.
Question – 1
S Gardner keeps his petty cash book on the imprest system. The imprest system figure was set at
$200. On 1 May Year 6 the balance of petty cash brought forward amounted to $87. On 1 May
Year 6, S Gardner drew cash from the bank to restore the imprest. The following transactions
took place during May Year 6:
Year 6
May 3 Paid motor vehicle expenses
$32. May 5 Purchased stationery $12.70
Mya 8 Purchased postage stamps
$9.50. May 11 Paid cleaning expenses
$8.
May 14 Paid Travelling expenses $11.30
May 16 Paid D Kane, a creditor $24.60
May 18 Purchases postage stamps
25
$12.80 May 21 Purchased stationery
$15.10 May 25 Paid cleaning expenses
$9
May 27 Purchased petrol $14.50

26
May 30 Payment of charge for parcel post $13.20
On 1 June Year 6, S Gardner decided to increase the imprest to $250.
Required
(a) Draw up S Gardner’s petty cash book, using the following analysis
column: Motor vehicle expenses
Stationery
Postage
Travelling expenses
Cleaning expenses
Ledger accounts
Balance the petty cash book at 31 May Year 6, carry down the balance and show the
amount drawn from the bank to make up the imprest at 1 June Year 6.
(b) State the ledger to which the total of each analysis column will be posted.
Question – 2
T Wylie uses the petty cash imprest system the imprest being $150. At 1 November Year 4, the
balance of petty cash in hand is $32.10.
The following transactions were dealt with by the petty cashier during the month of November.
Year 4
Nov 1 T Wylie gave cash to petty cashier to make up to the imprest
amount. Nov 3 Paid $15.20 for petrol
Nov 5 Paid $20 for postage stamps
Nov 8 Paid $8 for cleaning
materials Nov 12 Paid $9.60 for
petrol
Nov 14 Paid $9.15 for travelling
expenses Nov 17 Paid $5 for cleaning
materials Nov 21 Paid $5.30 for postage
Nov 22 Paid $10.10 to C Talisman, a creditor
Nov 25 Paid $11.50 for Petrol
Nov 26 Paid $7.64 for travelling
expenses Nov 27 Paid $30 for Postage
stamps
Nov 30 Paid $3.50 to D Cole, a creditor
Required
Enter the above transactions in the petty cash book of T Wylie for November Year Y, showing
the balance at the end of the month. Bring down the balance and show the entry to reimburse
the account on 1 December Year 4.

27
Note: The analysis columns used by T Wylies are motor vehicle expenses, Postage, Cleaning
expenses, Travelling expenses and Ledger.

28
 CHAPTER - 8
BOOK OF ORIGINAL ENTRIES [DAY BOOK/ JOURNAL]
[SLALE DAY BOOK, PURCHASE DAY BOOK, SALE RETURN DAY BOOK
AND
PURCHASE RETURN DAY BOOK]
Question 1
You are to enter up the sales, purchases and the return inwards and return outwards journal from
the following details, then to post the items to the relevant accounts in the sale and purchase
ledger. The total of the journals are then to be transferred to the accounts in the general ledger.
19X6
May 1 Credit Sale: T Thompson $56, L Rodrigue $148, K Barton
$145. May 5 Credit Purchases: P Potter $144, H Harries $25, B Spencer
$76. May 10 Credit Sales K Kelly $89, N Mendes $78, N Lee $76.
May 15 Credit Purchases: B Perking $24, H Harries $58, H Miles $123.
May 20 Goods returned by us to: P Potter $12, B Spencer $22.
May 31 Goods returned to us by: T Thompson $5, K Barton $11, K Kelly $14.
Question – 2
You are to enter the following items in the books, post to personal accounts and show transfers to
the general ledger.
2017
July 1 Credit Purchases from: K Hill $380, M Norman $500, N Semon
$106 July 10 Credit Sales to E Ringby $510, E Phillips $246, F Thompson $356
July 15 Credit Purchases from: R Morton $200, J Coke $180, D Edwards $410, C Davies $66.
July 24 Credit Sales to: A Green $307, H Green $250, J Ferguson
$185 July 28 Returns outwards to: M Norman $30, N Semon $16.
July 31 Return inwards from: E Phillips $18, F Thompson $22.

29
 CHPATER – 9
GENERAL
Form of General JOURNAL
Journal

Date Particular Folio Dr Cr

2016
Feb 1 Motor Van A/c 10,000
Toyota Co., A/c 10,000
(Being the entry for purchase of motor van on credit)

Typical use of General Journal

(a) Purchases and sales of Non-Current Assets on credit
(b) The correction of error
(c) Writing of a bad debt
(d) Opening entries
(e) Other items
Question – 1
You are to show the journal entries necessary to record the following items:
(a) 19X5 May 1 Bought a motor vehicle on credit from Kingston Garage for $6,790.
(b) 19X5 May 3 A debt of $34 owing from H Newman was written off a bad debt.
(c) 19X5 May 8 Office Furniture bought by us for $490 was returned to the supplier Unique
Office, as it was unsuitable. Full allowance will be given us.
(d) 19X5 May 12 We are owed $150 by W Charles. He is declared bankrupt and we received
$39 in full settlement of the debt.
(e) 19X5 May 14 We take $45 goods out of the business inventory without paying for them.
(f) 19X5 May 28 Some time ago we paid an insurance bill thinking that it was all in respect of
the business. We now discover that $76 of the amount paid was in fact insurance of our private
house.
(g) 19X5 May 29 Bought Machinery $980 on credit from Systems Accelerated.

Question -2

Show the Journal entries necessary to record the following

items: 19X7
April 1 Bought fixtures on credit from J harper $1,809.
April 4 We take $500 took out of the business inventory without paying for them.
April 9 $28 of the goods taken by us on 4 April is returned back into the inventory by us. We
do not take any money for the return of the goods.
April 12 K Lamb owes us $500. He is unable to pay his debt. We agree to take some office
equipment from him at the value and so cancel the debt.
April 18 Some of the fixtures bought from J Happer. $65 worth, found to be unsuitable and
are returned to him for full allowance.

30
April 24 A debt to us J Brown of $68 is written off as a bad debt.
April 30 Office equipment bought on credit from Super Offices for $2,190.

31
 CHAPTER – 10
CPAITAL EXPENDITURE AND REVENUE
EXPENDITUR
Capital Expenditure
- When a firm spends money to buy or add value to a Non-Current Assets.
- Disclosed in Statement of Financial Position as Non-Current Assets
- Example:
Purchase of Motor Van
Extension Cost of office
building Renovation

Revenue Expenditure
- Expenses needed for the day to day running if the business.
- Post to the Income Statement at the end of financial period as Expenses (deducted from
Gross Profit)
- Example:
Repairs of Motor Van/ Building
Running Cost (Fuel, Petrol) for
vehicles.

Question – 1
For the business of J Charles, wholesale chemist, classify the following between ‘capital’ and ‘revenue’
expenditure.
(a) Purchase of an extra motor van.
(b) Cost of rebuilding warehouse wall which had fallen down.
(c) Building extension to the warehouse.
(d) Painting extension to warehouse when it is first built.
(e) Repairing extension to warehouse three years later than that done in (d).
(f) Carriage costs on bricks for new warehouse extension.
(g) Carriage cost on purchases.
(h) Carriage cost on sales.
(i) Legal costs of collection debts.
(j) Legal charges on acquiring, new premises for office.
(k) Fire insurance premium.
(l) Costs of erecting new machine.
Question – 2
For the business of H Ward, a food merchant, classify the following between ‘Capital’ and
‘Revenue’.
(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 repairs.
(g) Installing thief detection equipment
(h) Wages of shop assistant
(i) Carriage on returns outward.
(j) New cash register.
32
(k) Repairs to office safe.
(l) Installing extra toilet.

33
 CHAPTER - 11
ACCRUED & PREPAID EXPENSES AND ACCRUED & ADVANCE
INCONE

Question – 1
T Lamb’s financial year ends on 31 December. The following information is available.
Lighting and Heating
Paid during Year 6 – Electricity $950 and Heating oil $1400

At 31 December Year 5 – There was a inventory of oil valued at cost, $ 295.

At 31 December Year 6 - An electricity bill of $120 was unpaid.
There was a inventory of oil valued at cost, $320.
Insurance
Paid during Year 6 - $1080 covering the year ending 30 April Year
7. At 31 December Year 5 – There was a prepaid amount of $390.
Stationary
Paid during Year 6 - $850
At 31 December Year 5 – There was inventory of stationary valued at cost, $410.
At 31 December Year 6 – There was a inventory of stationary valued at cost,
$445. Commission Received
Received during Year 6 - $1350
Amounts due: at 31 December Year 5 - $285
at 31 December Year 6 - $340
Rent Receivable
Received during Year 6 - $4700
Amount due at 31 December Year 5 - $700
Received in advance at 31 December Year 6 -
$800 Required
(a) Write up the five nominal ledger accounts named above showing transfers to Income
Statement at
31 December Year 6 together with the balances carried down to the next year.
(b) Show, in Income Statement for the year ended 31 December Year 6 & Statement of
Financial Position extract at 31 December Year 6.

34
Question – 2
Thunder and Lighting Ltd, prepare accounts every six month, on 31 March and 30 September. The
following information was extracted from the business records:
Motor Insurance Account
01 April 2002 Bal b/d (2 months insurance prepaid) $800
The following payment was made on 1 June 2002 in respect of the year ended
31 May 2003 $5400

Rent Receivable Account

(1) Tenant A paid $3000 rent three monthly in advance on 1 June 2002, 1 September 2002, 1
December 2002 and 1 March 2003.
(2) On 1 June 2002, Tenant B paid a year’s rent of $3600 in advance.
(3) Tenant C commenced a new lease on 1 July 2002 at a rental of $6000 per annum, but the
first three months of the lease were offered rent free. The subsequent first three monthly
rent was received in advance on the due date, but nothing further has been received.
Rates Account
01 April 2002 Bal b/d (3 moths rate prepaid)
$600 The following payments were made
07 Aug 2002 3 Months’ rates $600
20 Dec 2002 3 Months’ rates $600
Required
In the books of Thunder and Lighting Ltd, prepare and balance the following accounts at 30
September 2002 and 31 March 2003. Transfers to the Income Statement must be clearly shown.
(a) Motor Insurance Account
(b) Rents Received Account
(c) Rates Account
In respect of the six months ended 31 March 2003.
(d) Prepare for Thunder and Lighting Ltd a Statement of Financial Position extract clearly
showing both accruals and prepayment.

30
 CHAPTER - 12
DEPRECIATION, PROVISION FRO DEPRECIATION AND DISPOSAL
OF NON-CURRENT ASSETS
Question –
1
A machine costs $12,500. It will be kept for four years, and then sold for an estimated figure
of
$5,120. Show the calculations of the figures for depreciation (to nearest $) for each of the four
years using (a) Straight line method, (b) the reducing balance method for this method using a
depreciation rate 20 per cent.

Question –
2
A motor vehicle costs $6,400. It will be kept for five years, and then sold scrap value $1,400.
Calculate the depreciation for each year using (a) the reducing balance method, using a
depreciation rate of 50 per cent, (b) the straight line method.

Question –
3
Kerry Leases a small shop. On 1 July 20X4, she purchased fixtures and fittings costing $25,000
and a van costing $12,000. She decided to depreciate the fixtures and fittings at 20% per year on
a straight – line basis and the van at 30% per year on a reducing (or diminishing) balance basis.

Kerry prepares her accounts annually to 30

June.
Require
d
Record the transactions for the purchase and depreciation of the assets for the years ended 30
June 20X5 and 20X6, balancing the ledger accounts at the end of each year. Kerry maintains
separate ledger accounts for the cost and accumulated depreciation of each type of Non-Current
Assets but only one depreciation expense account. Prepare Income Statement extracted for the
ended & Statement of Financial Position extracted as at 30 June20X5 and 20X6.

Question –
4
A machine costing $20,000 was purchased by R Silvester by cheque on 1July year 3. He
decided to depreciate it at the rate of 40% per annum using the reducing balance method.
(a) Show
the
(i) Machine account
(ii) Provision for depreciation of machine account
(iii) Depreciation account
31
For the three years ending 30 June Year 4, 5 and
6.
(b) Show how the asset would appear in the Statement of Financial Position of R Silvester on 30
June Year 6.

32
Question -
5
On 1 April Year 2, Andrew Pointer bought a machine for $15,000 by cheque. He decided to
depreciate it at the rate of 20% per annum using the reducing balance method of depreciation.
On 31 March Year 5, he sold the machine for $6,900 by cheque.
Show
the

(a) Machine
account
(b) Provision for depreciation of machine account,
and
(c) Disposal
account

for the financial years ending 31 March Year 3, 4 and

5.

Question –
6
On 1 January year 6, Tanya Green bought a motor vehicle for $6,500 by cheque. She decided to
depreciation the motor vehicle by 25% per annum using the straight line method of depreciation.
She sold the motor vehicle on 31 December Year 8 for $1,750 received in cash.
Show
the
(a) Motor vehicle
account
(b) Provision for depreciation of motor vehicle account,
and
(c) Disposal
Account

for the financial years ending 31 December Year 6, 7 and

8.

Question –
7
PC Processing owns computer equipment with a cost of $45,000 and accumulated depreciation
of
$13,500 at 1 January 20X6. The computer equipment is depreciated at 30% per year, using the
straight- line method, on a monthly basis.
On 1 July 20X6, the company sold all of the computer equipment for
$28,750.
Require
d
33
Prepare the ledger accounts to record the disposal and show the profit or loss on disposal
transferred to the Income Statement for the year ended 31 December 20X6.

Question –
8
Silas Ld purchased four machines on 1 January
20X7.
Machine A $35,000
Machine B $42,000
Machine C $22,500
Machine D $50,000
The company depreciates its machines on an annual 12% straight-line method basis. Depreciation
is calculated monthly from the date of acquisition to the date of disposal.

34
On 30 April 20X7, the company sold Machine C for $15,360 and on 31 October 20X7
Machine A was sold for $28,600.

Required
Record the relevant entries in the Machinery Cost, Accumulated Provision for
Depreciation, Depreciation Expenses and Assets Disposal Ledger Accounts for the Year ended 31
December 20X7.

Question – 9
Lucy West depreciates her motor vehicles at of 25% per annum using the reducing balance
method. She provides a full year’s depreciation on assets in the year of purchase and provides
no depreciation in the year of disposal.
Lucy bought new non-current assets as
follows. Date Purchased Motor Vehicle
Cost
31 July 2005 $40,000
31 August $36,000
On 30 November 2007, she traded in the vehicle purchased in 2005 for a new vehicle. The old
vehicle was trade in for $22,000 and the purchase price of the replacement vehicle was $42,000, the
balance being paid by cheque.
Required
Prepare the following accounts, for each of the years ended 31 December 2005, 2006 and 2007:
(a) Motor Vehicle Account
(b) Provision for Depreciation of Motor Vehicles Account.
(c) Depreciation of Motor Vehicles Account.
(d) Disposal of Motor Vehicle Account.

Question – 10
Annie Lee has a year end of 31 October. Her depreciation policy for motor vehicles is a
follows: All motor vehicles are depreciated at the rate of 25% using the straight line method.
A full year’s depreciation is charged when an asset is purchased in the first six months of a
financial year.
When an asset is purchased in the second six months of the financial year, a half year’s
depreciation is charged.
There was no residual value expected for the motor vehicles. No depreciation is charged in the
year of sale.

35
The following purchases and sales of Motor Vehicle were made in the 3 years ended 31 October
2010. All payments and receipts were made by cheque.

Date of Purchase Assets Cost ($)

01 Nov 07 Motor A 20,000
Vehicle
21 Oct 08 Motor B 24,000
Vehicle
28 Feb 09 Motor C 28,000
Vehicle
11 Nov 09 Motor D 32,000
Vehicle
Date of Sale Assets Sale Price
($)
11 Nov 09 Motor A 13,500
Vehicle
Required
Prepare the following accounts for the 3 year ended 31 October 2008, 2009 and 2010.
(a) Motor Vehicle Account
(b) Motor Vehicle Depreciation Account
(c) Motor Vehicle Provision for Depreciation Account
(d) Motor Vehicle Disposal Account
(e) Name three methods of depreciation other than the straight line method

36
 CHPATER – 13
IRRECOVERABLE DEBT, PROVISION FOR DOUBTFUL DEBTS AND BAD
DEBT RECOVER OF TRADE RECEIBABLE

Question -1
Fred Titmus is sole trader who makes all his purchases and sales on credit. He has supplied you
with the following information.
Year ended Bad debts write-off Trade Receivables Allowance for

31 March During the year at Year End Doubtful Debts

$ $ %

1998 724 19,200 2.5

1999 968 25,000 5

2000 1,220 2,700 4

Fred Titmus adjusts the Allowance for Doubtful Debts at the end of each year. At the end of the
year 31 March 1997, the allowance was $400.
Required

(a) Prepare the following accounts in the books of Fred Titmus for the years ended 31
March1998, 1999 and 2000.
(i) Bad Debts
(ii) Allowance for Doubtful Debts
Care should be taken with the correct identification of dates.
(b) Prepare Statement of Financial Position extracts for the trade receivables for 31 March 1998,
1999 and 2000.
(c) Prepare Income Statement extract for the year ended 31 March 1998, 1999 and 2000.

Question – 2

The following information is available from the books of Hobbs and Leyland Ltd for the three
years to 31 March 2001. The year ended 31 March 1999 was the first year of trading.

31.3.99 31.3.00 31.3.01

Sale ledger balance $250,000 $280,000 $320,000

Bad Debts already written off $800 $1,000 $1,200

Bad Debts not written off by year end $700 $900 $1,600

Allowance for Doubtful debts 3% 3% 2.5%

37
Required

Prepare the three years ended 31 March 1999, 2000 and 2001:

(a) Bad debts Account

(b) Allowance for Doubtful Debts Account
(c) Statement of Financial Position Extract
(d) Income Statement extract, showing amount charged for bad debts and adjustment for doubtful
debts.

Question – 3

The following information relates to Kline, who has been trading for a number of years.

31/12/12 31/12/13 31/12/14

$ $ $
Total Receivable 83,260 84,590 88,600

Specific Allowance 1,260 490 4,600

General Allowance 1.5% 1.5% 2%

Require
d

Prepare allowance for doubtful debts account for each of the year ended 31 December 2012, 2013
and 2014. Show the balance brought down and carried down and the transfers to the Income
Statement. Also prepare extracts from the Income Statement and The Statement of Financial
Position for the year.

Question –
4

The following information relates to Lucy Ling’s Trade receivable

account:

(1) The Statement of Financial Position at 31 January 2010 included the following
entry:
$
Trade Receivable 40,500
Less Allowance for Doubtful Debts 39,150
39,285
(2) The trade receivable’ figures before the deduction of Allowance for doubtful debts
were:
38
 $
At 31 January 2011 44,400
At 31 January 2012 39,150
(3) The irrecoverable debts were:
figures

39
 For the year ended 31 January 2011 1,800

For the year ended 31 January 2012

2,100 The bad debts had been written off throughout the
year.
(4) At the end of the financial year 2011 and 2012, Lucy Ling made allowance for doubtful
debts 4% of her trade receivables.

Required

(a) Prepare the following account for year’s ended 31 January 2011 and 2012:
(1) Irrecoverable Debts Account
(2) Allowance for Doubtful Debts Account
(b) Prepare the entry for Lucy Ling’s trade receivable in her Statement of Financial Position at
31 January 2012.
(c) State two reason why allowance for doubtful debts is made at financial year end.

40
 CHAPTER – 14
BANK
Question – RECONCILIATION
1

From the following draw up a bank reconciliation statement from details as on 31 December 2015.
$
Cash at bank as per bank column of the cash book 678
Unpresented Cheque 256
Cheque received and paid into the bank, but not yet enter on the bank statement 115
Credit transfers entered as banked on the bank statement but not enter on the cash book 56
Cash at bank as per bank statement 875

Question – 2
Draw up a bank reconciliation statement, after writing the cash book up to date, ascertaining
the balance on the bank statement from the following as on 31 March 2014.
$
Cash at bank as per bank column of the cash book (Dr) 3,896
Banking made but not yet entered on the bank statement 606
Bank charges on the statement but not yet on the cash book 28
Unpresented Cheque – C Clarke 117
Standing Order to ABC, entered on the bank statement, but not in the cash book 55
Credit transfer from A Wood entered on bank statement, but not yet in the cash book 189
Question – 3
The bank Statement for G Greene for the of March 2010 is:
month
Dr Cr Balance
19X6
$ $ $
Mar 1 Balance 5,197 O/D
Mar 8 L Tulloch 122 5,319 O/D
Mar16 Cheque 244 5,075 O/D
Mar 20 A Bennett 208 5,283 O/D
Mar 21 Cheque 333 4,950 O/D
Mar 31 M Tumbull: trader’s credit 57 4,893 O/D
Mar 31 BKS: Standing order 49 4,942 O/D

41
Mar 31 Bank Charges 28 4,970 O/D

42
The cash book for March 2010 is:
19X6 Dr $ 19X6 Cr $
Mar 16 N Marsh 244 Mar 1 Balance b/f 5,197
Mar 21 K Alexander 333 Mar 6 L Tulloch 122
Mar 31 U Sinclair 160 Mar 30 A Bennett 208
Mar 31 Balance c/d 5,280 Mar 30 J Shaw 490
6,017 6,017

43
 CHPATER – 15
SOLE TRADER FINAL ACCOUNT
1. Income
Statement
2. Statement of Financial Position
Question – 1
The following is the Trial Balance at 31 December Year 5 of K Larkin, a sole trader. The trial
balance at 31 December Year 5.
Dr Cr
$ $
Land and Building at cost 71,000
Machinery and equipment at cost 25,000
Motor van at cost 10,000
Bank 3,400
Cash 950
Trade Receivable and Payable 5,100 4,900
Inventory at 1 January Year 5 4,950
Purchase and Revenue 21,900 51,700
Carriage outwards 300
Return Inward and Outward 210 540
Carriage Inward 150
Discount Allowed and Received 450 700
Wages and Salaries 7,100
Advertising 2,200
Drawings 4,200
Interest on Loan 200
Travelling expenses 1,000
Rent 1,500
Postage and Stationery 180
Light and Heat 2,050
Provision for depreciation at 1 January Year 5
Machinery and Equipment 6,000
Motor Vehicle 4,000
Capital at 1 January Year 5 90,000
Loan: From 1 January Year 5 for 10 years at 10% Premium 4,000

161,840 161,840
40
The following information is available
(1) Inventory at 31 Dec Year 5 is value at $5,780
(2) K Larkin makes an allowance for doubtful debts is 5%
(3) It is K Larkin policy to provide for depreciation as follows:
(i) Machinery and Equipment at 25% per annum using reducing balance method
(ii) Motor vehicle at 20% on cost.

(4) Include in travelling expenses is an amount of $180 used by K Larkin for a short holiday.
(5) Rent of $600 for the period 1 Oct to 31 Dec Year 5 had no yet been paid.
(6) An account for electricity $140 is outstanding at Year 5.
(7) Wages and salaries have been prepaid by $100.
Required
Prepare for K Larkin, an Income Statement for the year ended 31 December Year 5 and a
Statement of Financial Position at 31 Dec Year 5.

Question – 2
The following trial balance had been extracted from the ledger of Mr Yourslf, a sloe trader.
Trial Balance as at 31 May 19X6
Dr Cr
$ $
Revenue 138,078
Purchases 82,350
Carriage 5,144
Drawings 7,800
Rent, Rate and Insurance 6,622
Postage and Stationery 3,001
Advertising 1,330
Salaries and Wages 26,420
Bad Debts 877
Allowance for Doubtful Debts 130
Trade Receivable and Payable 12,120 6,471
Cash in Hand 177
Cash at Bank 1,002
Inventory at 1 June 19X5 11,927
Equipment:
41
 At cost 58,000
Accumulated Depreciation 19,000
Capital 53,091
216,770 216,770

The following additional information as at 31 May 19X6 is an available:

(a) Rent is accrued by $210.
(b) Rates have been prepaid by $880.
(c) $2,211 of carriage represents carriage inwards on purchases.
(d) Equipment is to be depreciated at 15% per annum using the straight line method.
(e) The allowance for doubtful debts to be increased by $40.
(f) Inventory at the close of business has been valued at $13,551.
Required
Prepare an Income Statement for the year ended 31 May 19X6 and the Statement of Financial
Position as at that date.

42
Question – 3
The following trial balance was extracted from the books of D Martin, a sole trader, on 31
December Year 6.
Dr Cr
$ $
Capital 184,460
Drawings 40,000
Freehold Premises at cost 160,000
Motor Vehicle at cost 30,000
Office Furniture at cost 10,000
Inventory at 1 January Year 6 21,480
Provision for Depreciation at 1 January Year 6
Motor Vehicles 8,000
Office Furniture 2,500
Rent 18,000
Electricity 3,800
Salaries 50,100
Purchase and Revenue 191,200 337,200
Carriage Outwards 6,000
Carriage Inward 1,200
Insurance 4,200
Trade Receivable and Payable 31,400 7,880
Irrecoverable Debts 2,400
Allowance for Doubtful Debts 1 January Year 6 1,970
Bank Interest 720
Bank Overdraft 7,000
Cash in hand 600
Telephone 3,200
Returns Inwards and Outwards 4,950 3,600
Discounts 2,700 2,090
Loan from D Samson repayable Year 12 26,000
Sale of Motor Vehicle 1,250
581,950 581,950

43
Additional information at 31 December Year 6
$
(1) Inventory was value at 24,900
(2) Prepayments were:
Insurance 780
Rent 4,000
(3) Accrued were:
charges
Electricity 360
Salaries 3,200
Loan interest 2,600
(4) Depreciation to be provide on cost price at the following rates per annum.
Motor Vehicles 20%
Office Furniture 10%
(5) The items sales Motor Vehicles shown in the trial balance represent cash received for sale
of a motor vehicle on 1 January Year 6. The motor vehicle was purchased on 1 January
Year 3 at a cost of $5000. Depreciation rate is remain the same since 1 January Year1.
No entries have been made in respect of this sale except for the trial balance item.
(6) The allowance for doubtful debts is to be adjusted to 5% of trade receivable.
Required
Prepare for D Martin:
(a) An Income Statement for the year ended 31 December Year 6.
(b) A Statement of Financial Position as at 31 December Year 6.

Question – 4
The following trial balance was extracted from the books of T Bullen, a general merchant, on 31
December Year 6.
$ $
Capital at 1 January Year 6 100,000
Premises at cost 90,000
Furniture and Fittings at cost 5,000
Purchases 256,000
Motor Van at cost 10,000
Inventory at 1 January Year 6 25,000
Provision for on:
Depreciation
1,000
Furniture and Fitting
Motor Van 10,000
Revenue 356,000
Returns Inwards 12,000

44
Bad Debts 3,000
Returns Outwards 6,000
Carriage Inwards 10,000
Discount Received 2,000
Wages and Salaries 39,000
Insurance 3,000
Trade Receivable and 40,000 30,000
Payable
Discount Allowed 4,000
Bank Overdraft 13,000
Rates 6,000
Allowance for bad debts 3,000
Selling Expenses 8,000
Drawings 10,000
521,000 521,000
Notes:
(1) Inventory at 31 December Year 6 amounted to $30,000
(2) Rates paid in advance were $1,000.
(3) Wages accrued due were $2,000.
(4) Fixture and Fitting ate to be depreciation at the rate of 20% per annum on cost.
(5) The inventory at 31 December Year 6 includes materials which had cost $4,000 but which
are now considered to have no value.
(6) Interest amounting to $2,000 is due on the bank overdraft.
(7) The allowance for doubtful debts is to be adjusted to 5% of the total trade receivable.
Required
Prepare Income Statement for the year ended 31 December Year 6 and Statement of Financial
Position at that date.

Question – 5
M Tiong, a sole trader engaged in wholesaling, extracted the following trial balance from his
books at the close of business on 30 April Year 5.
Dr Cr
$ $
Office Furniture and Equipment 6,000
Discounts 1,170 390
Cash at bank 3,240
Cash in hand 160

45
 Purchase and Revenue 13,890 35,030
Rent, Rate and Insurance 2,340
Delivery Vehicle at cost 7,400
Provision for depreciation on delivery vehicle 2,000
Trade Receivable and Payable 8,400 3,650
Wages and Salaries 9,350
Allowance for doubtful debts 600
Capital at 1 May Year 4 20,000
Drawings 4,500
Vehicles running expenses 1,840
Sundry Expenses 410
61,670 61,670
In additional information:
(1) Inventory at 30 April Year 5 has been at $3,160
valued
(2) Wages
(3) The accrued provision
depreciation amount toon$280.
the delivery vehicle is to be increased by $1,200. A Provision of
$500 is to be create in respect of depreciation on office furniture and equipment.
(4) The allowance for doubtful debts is to be set at 5% of trade receivable.
(5) During the year, Tiong took goods, at cost price of $90, for his own use. He has not yet
recorded this in the books of account.
(6) Insurance paid in advance is $120.
Required
Prepare, in respect of M Tiong:
(a) The Income Statement for the year ended 30 April Year 5.
(b) A Statement of Financial Position at 30 April Year 5.

46
 CHAPTER – 16
PARTNERSHIP FINAL
Partnership Final ACCOUNT
Account:

1. Income Statement (Profit or loss)

2. Profit or Loss Appropriation A/C
3. Partner’s Current A/C
4. Statement of Financial Position
Profit or Loss Appropriation A/C prepare by

1. Partnership Agreement
2. Without Agreement under Partnership Act 1890

Question -1

Thames and Severn are in partnership sharing profit or losses in the ration 2:3 respectively.
The
following trail balance was extracted from the book at 31 Dec 2002
partnership
Dr Cr
Freehold Premises 300,000
Motor Vehicles, at cost 50,000

Fixture and Fitting at cost 18,000

Plant and Machinery, at cost 80,000

Capital – Themes 1 January 2002 209,000

Capital – Severn 1 January 2002 163,000

Drawing – Themes 19,700

Drawing – Severn 38,500

Rent 28,000
Salaries 101,000

Carriage In 4,700
Carriage Out 8,950

Returns In 9,500

Purchase 609,000

Revenue 1,005,000

Insurance 9,300
Light and heat 7,800

Trade Receivable 126,000

47
Trade Payable 91,000

General Office Expense 15,350

48
Motor Vehicle Expense 9,900

Bad Debt 1,800

Allowance for Doubtful Debt 1 January 2002 3,700

Discount Received 1,800

Discount Allowance 8,300

Interest on Bank Loan 3,750

Bank Loan 75,000

Cash at Bank 66,950

Telephone Expenses 8,000

Inventory 1 January 2002 67,900

Provision for Depreciation 1 January 2002

Motor Vehicle 10,000

Plant and Machinery 30,300

Fixture and Fitting 3,600

1,592,400 1,592,400

The following additional information has been made available in respect of the year ended 31 Dec
2002:

(1) Depreciation is to be provide at the following rates using the straight line
method: Fixture and Fitting 10% pa
Plant and Machinery 15%
pa Motor Vehicles 20% pa
(2) The Allowance for Doubtful Debt is to be adjusted to 2% of trade receivable.
(3) Themes is to receive a salary of $25,000.
(4) The Partners are to receive interest at the rate of 5% per annum based on the balance on
their Capital Accounts at 1 January 2002.
(5) Closing Inventory was valued at $58,900.
(6) There were no balance on the partner’s current accounts at 1 January 2002.
(7) Accrued charges at 31 December 2002 were:
Salaries 1,000
Interest on Loan 3,750
Motor Vehicle expense 600
Telephone 550
Light and Heat 450
(8) The prepayment at 31 Dec 2002:
Rent 4,000
Insurance 50
(9) Interest on drawing is 5%.
Required

49
Prepare, in the books of the partnership:

(a) The Income Statement and Appropriation A/C for the year ended 31 Dec 2002
(b) The partner’s Current A/C, in columnar format, in respect of the year ended 31 Dec 2002.
(c) Prepare the Statement of Financial Position as at 31 Dec 2002.

Question – 2

Tiger and Snake are in partnership and share profits or losses 2:1. A draft Trial Balance has
been extracted from the partnership books at the end of the year, 31 Dec 2008.

Dr Cr
$ $
Equipment at cost 1 January 2008 40,000
Equipment Provision for Depreciation 1 January 4,000
2008 Building at cost 65,000
Motor Vehicle at cost 1 January 2008 18,500
Motor Vehicle Provision for Depreciation 1 January 2008 3,700
Revenue 120,000
Purchased 45,000
Opening Inventory 2,750
Bank 6,400
Trade Receivable and Payable 33,400 21,960
Insurance 2,800
Wages and Salaries 24,000
Capital Accounts:
Tiger 40,000
Snack 20,000
Drawing
:
2,000
Tiger
Snack 4,000
Current Account:
Tiger 11,300
Snack 9,088
Allowance for Doubtful Debt 1,002
237,450 237,450
There are a number of items that need to be taken into consideration:
1. Depreciation is to be provide at 10% straight line on Equipment and 25% reducing balance on
motor vehicles.
2. Closing Inventory is valued at $3,000.
50
3. Insurance of $ 400 is prepaid and wages of $800 are to be accrued.
4. The allowance for doubtful debt is to be increased to 5% of trade receivable.
5. Interest on drawing is charges at 5% pa on the balance in the trail balance.
6. Interest on capital as allowance at 7%.
7. Snake receives a salary of $24,000.

Required

(a) Prepared the partnership Income Statement for the year ended 31 Dec 2008.
(b) Prepared the partnership Appropriation Account for the year ended 31 Dec 2008.
(c) Prepared the partner’s Current Accounts at 31 Dec 2008.
(d) Prepared the partnership Statement of Financial Position at 31 Dec 2008.

Question – 3

Harold, Martin and Peter have been in partnership for a number of years. Their partnership
agreement contains the following provisions:

(1) Interest is charges to be rate of 15% of each partner’s total drawings for any financial year.
(2) Interest of 8% per annum is to be allowed on the balance of each partner’s capital account at
her beginning of the financial year.
(3) Harold is entitled to an annual salary of $16,000 and Peter is entitled to an annual salary
of
$10,000.
(4) Martin made a loan to the partnership of $20,000 several year ago and is entitled to interest
of 10% per annum.
(5) Profit and losses are to be shared between Harold, Martin and Peter in the ratio of 3:2:1
respectively.

The following information has been made available in respect of the year ended 28 February 2005:

(1) Capital account balances at 1 March 2004.

Harold $300,000
Martin $200,000
Peter $100,000
(2) Drawing for the year:
Harold $18,000
Martin $15,000
Peter $12,000
(3) Net Profit for the year before interest $112,600

Required

(a) Prepared the Profit or Losses Appropriation Account of the partnership for the year ended 28
Feb 2005.
(b) Prepare Partner’s Current Account and Statement of Financial Position Extract at 28 Feb 2005.

Martin considers a partnership agreement to be a waste of time and feels that the terms of the
partnership Act of 1890 should be implemented in its place.

(C) Prepared the Profit or Loss appropriation account of partnership for the year ended 28 Feb
2005, as it would appear in the absence of a partnership agreement.

50
 CHAPTER – 17
CHANGE IN PARTNERSHIP
INTEREST [GOODWILL AND
REVALUATION]

Question – 1
Matthews and Finney are in partnership, sharing profits and losses in the ratio 3:2. The Statement
of Financial Position of the partnership at 31 December 2001 was as follow:
Non – Current Assets $ $
Land and Buildings 144,400
Fixtures Fittings 43,600
Goodwill 36,000 224,000
Current Assets
Inventory 25,440
Trade Receivable 30,600
Cash at Bank 16,160 72,200
Total Assets 296,200

Capital A/c - Matthews 164,000

Capital A/c - Finney 104,000 268,000
Current A/c - Matthews 8,720
Current A/c - Finney 4,680 13,400
281,400
Current Liabilities
Trade Payable 14,800
Total Equity and Liabilities 296,200
On 31 Dec 2001, Matthews retired.
On that date goodwill was valued $46000 and land and buildings were at$160000. There
aattrade receivable of $2400 which was
valued
consider a bad debt, and this balance was was written off. The
inventory was a valued at $24840. All other assets and liabilities were maintained at Statement of
financial position values.
On January 2002, Finney admitted Mortensen to the partnership. The new partnership agreement
was that profits and losses should be shared in the ratio of 4:1.
At the commencement of the new partnership, Mortensen introduced the following assets:
$
51
Motor Vehicle 24,000

52
Cash
80,000
Goodwill
16,000
At 31 December 2001, Matthews agreed to leave %100000 of this capital as a loan to the new
partnership. Any balance due to Matthews from the partnership, after making the loan, was
immediately paid by cheque.
Finney and Mortensen agreed not to show goodwill in their
books.
Require
d
(a) The Revaluation Account for the Matthews and Finney
partnership.
(b) The Partnership Bank Account for 31 December 2001 to 1 January
2002.
(c) The Partnership Goodwill Account for 31 December 2001 to January
2002.
(d) The Statement of Financial Position at 1 January 2002 for the Finney and Mortensen
partnership.
(e) Partner’s Capital
Accounts
Question –
2
Thomas and Sandra are in partnership, sharing profits and losses in the ratio 4:1
respectively. The statement of Financial Position of the partnership at 31 December 2002
was as follow.
Thomas and Sandra
$ $
Non-Current Assets
Freehold Premises 125,000
Motor Vehicle 38,000
Plants & Machinery 40,000
Fixtures & Fittings 12,000
Goodwill 20,000 235,000
Current Assets
Inventory 12,500
Trade Receivable 19,000
Bank 7,500 39,000
Total Assets 274,000

53
Partner’s Capital A/c
Thomas 160,000
Sandra 90,000 250,000
Partner’s Current A/c
Thomas 1,000
Sandra 2,000 3,000

54
Current Liabilities
Trade Payable 15,000
Bank Loan (Repayable June 2003) 6,000 21,000
Total Equity and Liabilities 274,000
Thomas and Sandra agreed that, from 1 January 2003, profits and losses would be shared in the
ratio 3:1 respectively. It was also agreed that certain assets would be re-valued.
$
Freehold Premises 140,000
Motor Vehicles 34,000
Fixtures and Fittings 10,000
Inventory 11,900
Goodwill 44,000
It was further agreed that goodwill should no longer appear as an asset in the partnership books.
Required
Record the above in the books of the partnership by preparing the:
(a) Revaluation Account
(b) Partner’s Capital Account, in columnar format
(c) Goodwill Account
(d) Statement of Financial Position of the revised partnership at 1 Jan 2003.

Question – 3
Garcia and Martino are in partnership sharing profits and losses in the ratio 2:1. At 30 June 2011,
their Statement of Financial Position was as Follows:
Non-Current Assets $ $
Goodwill 40,000
Premises 70,000
Office Equipment 25,000
Fixtures and Fittings 20,000
155,000
Current Assets
Inventory 12,000
Trade Receivable 18,000
Bank 8,000 38,000
Total Assets 193,000
Capital

55
 Garcia

120,000
Martino 180,000

60,000

Current Liabilities
Trade Payable
13,000
Total Equity & Liabilities
193,000
Zarita was admitted into the partnership on 1July 2011 and it was agreed that all future profits
and losses would be shared equally. Zarita introduced into the partnership, Inventory valued at
$40,000, Trade receivable of $5,000 and sufficient cash to cover his share of goodwill.
At the same time, some assets and liabilities of the old partnership were revalued as
follows:
$
Goodwill
60,000
Premises
120,000
Office Equipment
15,000
Inventory
12,600
Trade Receivable
13,900
Require
d
(a) The Revaluation Account of Garcia and
Martino.
(b) The Capital Accounts of Garcia, Martino and Zarita, following the revaluation of assets and
liabilities and admission of Zarita. It was decided that goodwill would not be retained in the
books of the new partnership.
(c) The opening Statement of Financial Position of Garcia, Martino and
Zarita.
(d) State three items to be found in a partnership agreement other than profit sharing
ratios.

Question –
4

54
 Alan and Bob are in partnership sharing profits and losses equally. On 1 January 2007 they
admitted Charlene into the partnership under the following terms and condition:
(1) All future profit and losses were to be shared between Alan, Bob and Charlene in the ratio
2:2:1 respectively.
(2) Certain existing partnership assets were revalued as follows:
(i) Freehold property increased in valued by $50,000
(ii) Motor vehicles reduced in value by $10,000
(iii) Trade Receivable reduced in value by $2,500
(iv) Inventory increased in value by $500
(3) Charlene paid $2,500 into the partnership bank account and also transferred some
machinery to the partnership valued $4,000
(4) The goodwill of partnership was considered to be worth $75,000 although no goodwill account
existed in the partnership books

Required

55
(a) Prepare Journal Entries, (Including bank where appropriate) to record the following. Narrations
are not required:
(i) The revaluation of the partnership assets. A revaluation account is to be used but
goodwill
is not to be included in this account
(ii) The introduction by Charlene of $25,000 and the machinery worth $4,000
(iii) The goodwill adjustment. A Goodwill Account is not required

56
 CHAPTER – 18
DISSOLUTION OF PARTNERSHIP

Question - 1
Emma and jack agreed to dissolve their partnership on 28 Feb 2007.
At 28 Feb 2007, the partnership had the following assets and
liabilities:
$
Machinery at net book valuation 72,000
Motor vehicles at net book valuation

56,000 Inventory 860

Trade payable 680
Trade receivable 2,500
Bank 2,334
Immediately prior to dissolution, the partner’s current account balances were transferred to
their capital accounts. The capital account balances then stood at:
$
Emma 102,638
Jack 30,376
The following information was also available:
1. The machinery was sold to Jones Ltd for $40,000.
2. The amount was settled by the issued of $40,000 ordinary shares of $1 each in Jones Ltd.
The partners received half of the shares each.
3. A vehicle with a book value of $24,000 was taken over by Jack for $18,000
4. The remaining vehicles were sold for $30,000 cash.
5. Inventory was sold for $760 cash.
6. Trade payable was paid in $600 only.
7. Trade Receivable paid $2,300 in full settlement.
8. The cost of dissolution amounted to $4,970.
9. Profit or Losses are to be shared in the ratio of 2:1 for Emma and jack respectively.

Required
(a) Prepare a Realization Account on dissolution.
(a) Prepare Partner’s Capital Accounts in columnar format to show the closing entries.
(b) Prepare Bank Account.

57
Question – 2
Alice and Brenda have been in partnership for many years, sharing profits and losses equally. At
30 Sep 2007, their summarized Statement of Financial Position was as follows.
Non-Current Assets $ $
Goodwill 50,000
Premises (at cost) 40,000
Motor Vehicles (at net book value) 24,000
114,000
Current Assets
Inventory 4,000
Trade Receivable 28,000
Bank 16,000 48,000
Total Assets 162,000
Capital

Alice 66,000
Brenda 60,000 126,000
Current Liabilities
Trade Payable 36,000
Total Equity & Liabilities 162,000
They decided to dissolve the partnership and close the books at the Statement of Financial
position date and on the following terms:
(i) The premises were sold for $45,000 cash.
(ii) Slice took a motor vehicle valued at $10,000 and Brenda the other vehicle valued at $14,000.
The partners made no payment for the vehicles
(iii) The goodwill and trade receivable were sold for $80,000 cash
(iv) The inventory was sold for $2,400 cash
(v) Dissolution expenses were 1,000 paid in cash
(vi) Trade payable were paid $33,000 cash in full and final settlement
These transactions took place on 30 September 2007 and all cash receipts and payments went
through the partnership bank account.
Required
In the book of partnership at 30 September 2007, prepare:
(a) The Dissolution Account
(b) The Partner’s Capital Accounts in columnar form
(c) The Bank Account

58
Question – 3
Cedar, Elm and Pine were in partnership, sharing profits and losses equally. The Statement of
Financial Position of the business at 31 December Year 13 is shown below:
Non-Current Assets $ $
Land and Building 901,080
Equipment 154,790
Motor Vehicles 36,130
1,092,000
Current Assets
Inventory 74,000
Trade Receivable 102,000 7,600
Total Assets 1,268,000
Current Account
Cedar 10,000
Elm 16,000
Pine (6,100)
Capital Account
Cedar 140,000
Elm 70,000
Pine 42,000
525,000
Non-Current Liabilities
Loan Account (Cedar) 200,000
Current Liabilities
Trade Payable 182,800
Bank Overdraft 613,300 796,100
1,268,000
Following trading losses, the partners dissolved the partnership and entered into an arrangement with
Meredew Limited.
The terms of the arrangement were:
(1) Meredew Ltd purchased the land and building, the equipment, three of the motor vehicles and
the inventory for a total of $1,030,000.
(2) Meredew Ltd paid $90, 8000 into the partnership bank account. The balance of purchase
consideration was settled in ordinary shares in Meredew Ltd.
The partnership paid the amounts due to trade payable and repaid the loan from Cedar.
The partnership collected all the amounts due from trade receivable, with the exception of $12,400
which was written off as bad debts. Partnership dissolution expenses amounted to $1,500.

59
The remaining motor vehicles were taken over by Elm at an agreed valuation of $8,000.
Pin was unable to contribute any funds to the dissolution. Any debit balance on capital account
which a partner could not make good was to be home by the other partners in proportion to their
capital balance at 31 December Year 3.
Required
Prepare the following accounts to close the book of the partnership at 31 December Year 13.
(a) Dissolution Account
(b) Capital Accounts in columnar form
(c) Meredew Ltd
(d) Bank

Question – 4
A Choo, B Chang and C Mei have been in partnership sharing profits and losses in the proportion
2:2:1 respectively. The partnership Statement of Financial Position at 31 January 2008 was as
follows.
Statement of Financial Position
$ $
Non-Current Assets
Goodwill 54,000
Fixtures and Fittings 144,900
Motor Vehicles 82,200
281,100
Current Assets
Inventory

33,300
Trade Receivable
113,700
80,100
Cash 300
Total Assets 394,800
Capital Accounts:
A Choo 105,780
B Chang 136,110
C Mei 121,410
363,300
Current Liabilities
Trade Payable 5,400

60
Bank Overdraft 26,100 31,500
Total Equity and Liabilities 394,800

61
On 31 January 2008, A Choo, B Chang and C Mei decided to dissolve the partnership and close the
books on the following terms:
(1) The goodwill and fixtures & fittings were sold to D Woo for $162,000. By agreement, D
Woo paid each partner $54,000 and these amounts were paid into the partners’ private bank
accounts.
(2) Each partner took over a motor vehicle, valued at:
$
A Choo 27,300
B Chaung 25,800
C Mei 30,600
(3) All the cash in hand was used to pay dissolution expenses. The Trade Payable were settled
for an agreed sum of $5,370.
(4) The remaining assets were sold for $146,400. This amount was paid into the partnership
bank account.
(5) The bank informed the partners that $660 interest was accrued on the bank overdraft. This
amount
has not been entered in the books.

Required
Prepare the following accounts on 31 January 2008 for the partnership of A Choo, B Chang and
C Mei.
(a) Dissolution account
(b) Capital Accounts
(c) Bank Account
(d) D Woo’s Account.

60
 CHAPTER – 19
LIMITED COMPANY FINAL ACCOUNT
Terms
(a) Authorized Capital
(b) Issued Capital
(c) Type of Share:
Preference
Share Ordinary
Share
(d) Share Premium
(e) Dividend
Interim dividend
Proposed
dividend
(f) Retained Earnings (Profit or Loss Balance)
(g) Reserve
Non-Distributable Reserve (Share Premium and Revaluation
Reserve) Distributable Reserve (General Reserve and Retain
Earning)

Final Accounts:
(1) Income Statement
(2) Statement of Changes in Equity
(3) Statement of Financial Position

61
Question – 1
The following list of balances was extracted from the books of Parker Ltd on 31 December
2008.
$
Ordinary Share Capital – Authorized issued and fully paid shares of $1 each 1,500,000
6% Preference share Capital- Authorized issued and fully paid shares of $1 each 200,000
Freehold Property 2,300,000
Motor Vehicles 500,000
Office Equipment 170,000
Motor Vehicle depreciation provision 375,000
Office Equipment depreciation provision 102,000
Gross Profit 1,620,000
Inventory 204,000
Administration Expenses 460,000
Selling expenses 276,000
Distribution expenses 210,000
8% Debenture – 2015 100,000
Debenture Interest Paid 4,000
Loss on sale of vehicle 2,000
Profit or Loss – 1 January 2008 (Credit Balance) 109,100
Trade Receivable 132,000
Trade Payable 116,000
Cash at bank (Credit Balance) 26,800
Cash in hand 400
Share premium 150,000
Interim dividend – Ordinary Shares 37,500
Interim dividend – Preference Shares 6,000
Doubtful Debts Allowance 3,000
The following information is to be taken into account:
(1) At 31 December 2008, accrued selling expenses amounted to $18,500 and prepaid
administrative expenses amounted to $7,000.
(2) The doubtful debts allowance is to be maintained at 2% of trade receivable at 31 December 2008.
(3) Depreciation is to be provided as follows:
Office equipment – 20% per annum on
cost.
Motor vehicles – 50% reducing balance method.
62
(4) The directors propose:

63
 Payment of the final dividend to the preference shareholders
A final dividend to the ordinary shareholders of $0.15 per share.
(5) Transfer to general reserve $5,000.
Required
(a) Prepare the Income Statement and Statement of Changes in Equity for the year
ended 31 December 2008.
(b) Prepare the Statement of Financial Position at 31 December 2008.
(c) Explain your treatment of the 8% debenture.

Question – 2
The following information relates to consolidated Union Ltd for the year ended 31 December 2006.
$
Net trading profit for the year (before deducting the debenture interest due for the
Year which been paid) 560,000
Retained profit at 31 December 2005 290,700
Interim ordinary dividend paid 8,000
Interim preference dividend paid 2,500
6% Debenture loan (2007) 50,000
Share Capital: authorized, issued and fully paid
200,000 5% $1 Preference Shares 200,000
800,000 $1 Ordinary Shares 800,000
General Reserve 20,000
Trade Payable 90,000
The director propose the following:
(1) Payment of a final dividend on the Ordinary Shares of $0.25 per share
(2) Payment of the final dividend on the Preference Shares
(3) Transfer $80,000 to general reserve.
Required
(a) Prepare the Statement of Changes in Equity of Consolidated Union Ltd for the year ended
31 December 2006.
(b) Prepare, as far as is possible from the information provided, the following sections
of the Statement of Financial Position of Consolidated Union Ltd at 31 December
2006:
(1) Current Liabilities
(2) Capital and Reserve

64
Question – 3
XYZ Plc has an authorized share capital of 300,000 10% preference shares of $2 and 450,000
each
ordinary shares of $2 each.
The following balance sin the books at 31 October 2014:
$
Preference shares fully paid 450,000
Ordinary shares fully paid 600,000
Inventory 499,200
Allowance of doubtful debts at 1 November 2013 1,000
Motor vans at cost 180,000
Furniture and equipment at cost 150,000
Trade Receivable 236,000
Insurance Prepaid 10,000
Bank Overdraft 6,000
Profit or Loss balance at 31 October 2013 114,000
Provision for depreciation on motor vans at 31 October 2013 42,000
Provision for depreciation on fixtures and equipment at 31 October 2013 37,500
10 Debentures (repayable 2021) 150,000
Trade Payable 186,000
Cash 5,000
Premises 645,000

Additional information:
No entries have been made in the books for the following:
(1) Motor vans are depreciated at 10% per annum on cost
(2) Furniture and equipment was valued at $105,000 on 31 October 2014.
(3) Allowance for doubtful debts was increased by $2,200 at 31 October 2014.
(4) Interest on debentures is due but unpaid.
After adjusting for items 1-4 above, the net profit before appropriation was
$96,000. The director are proposing:
(1) The preference share dividend is to be paid in full.
(2) A dividend on the ordinary shares of $0.20 per share.
Required
Prepare a Statement of Financial Position at 31 October 2014.

65
Question – 4
The following balances were extracted from the books of Mae Ltd., after completion of the
Income Statement and Statement of Changes in Equity for the year ended 31 December 2016.
$
Goodwill 10,000
Equipment at cost 20,000
Motor vehicles at cost 40,000
Trade Receivable 52,000
Trade Payable 20,050
Inventory at 31 December 2016 30,500
Bank 8,750 Dr
General Reserve 10,000

Additional information was also available:

(1) A Doubtful Debts Allowance of 5% of trade receivable was created on 31 December 2016.
(2) Authorized share capital of the company is 50,000 Ordinary Shares of $1 each. These have
all been issued and fully paid at $1.10 a share.
(3) The directors have proposed a dividend of $0.15 per share in respect of the year ended 31
December
2016.
(4) The motor vehicles and equipment belonging to the company were all purchased on 1 January
2015.
The depreciation policy of the company is as
follows:
(a) Equipment – Straight line over 5 years assuming a 10% residual
value.
(b) Motor vehicles – 25% per annum reducing balance
method.
(5) During 2016 Mae Ltd had taken out a bank loan for $20,000. This was to be repaid in
equal amounts over 10 years commencing 1 November 2017.
Required
(a) Using the above list of balances, and the additional information provided, prepare the
Statement of Financial Position, in vertical format, of Mae Ltd at 31 December 2016.
None of the balances in the above list requires amendment, as a result of the additional
information, although others will need to be created. The retained profit represents the
balancing figure.

66
Question – 5
The following list of balances was extracted from the books of Gregg Ltd on 30 September 2009.
$
Ordinary Share Capital – issued and fully paid 400,000
8% Preference Share Capital- issued and fully paid 80,000
Premises 664,000
Motor Vehicles 200,000
Office Equipment 70,000
Provision for depreciation on motor vehicles 150,000
Provision for depreciation on office equipment 28,000
Gross Profit 504,400
Inventory at 30 September 2009 90,000
Administrative expenses 85,500
Selling expenses 60,000
Distribution expenses 130,000
5% Debentures repayable on 2017 80,000
Interest paid to debenture holders 2,000
Profit on sale of vehicles 1,500
Profit or Loss – October 2008 (Credit Balance) 83,500
6% Deposit Account- Investment by Gregg Ltd on 1 June 2009 50,000
Trade Receivable 62,000
Trade Payable 45,000
Cash at Bank (Credit Balance) 6,800
Share Premium 40,000
Interim dividend –Ordinary Shares 4,000
Interim dividend –Preference Shares 3,200
Allowance for doubtful debts 1,500
The following additional information is also available at 30 September 2009:
(1) The first year’s deposit account interest was not due to be received until 30 May 2010.
(2) The allowance for doubtful debts is to be maintained at 2% of trade receivable.
(3) Depreciation is to be provided as follows:
Motor vehicles –25% reducing balanced method.
Office equipment -20% per annum on cost.
(4) The directors propose:
(a) The final dividend to the ordinary shares of $0.10 per share.

67
 (b) To create a general reserves of $25,000.
Required
(a) Prepare the Income Statement and Statement of Changes in Equity for the year ended 30
September2009.
(b) Prepare the Statement of Financial Position at 30 September 2009.

68
 CHAPTER – 20
MANUFACTURING ACCOUNT

1. Manufacturing Account
2. Unrealized Profit Account
3. Income Statement

Question – 1
Masterson plc manufactures electrical components. The following partial list of balances was
extracted at 28 Feb 2006.
$’000
Revenue 1,550
Raw Materials:
Purchase 225
Return Outward 8
Carriage Inward 6
Direct Labour 200
Direct O verhead 30
Factory Rent 18
Office Rent 4
Electricity 25
Insuranc 53
e
Salaries: 30
Office 90
Directors 110
General O ffice Cost 72
Canteen 55
Services
Cleaning: 25
Office 6
Inventory at 1 March 2005:
Raw Materials 50
Work – in – Progress 30
Finished Goods (Valued at transfer price) 90

69
Factory Machinery:
Cost 240
Accumulated Depreciation 60
Office Equipment Rental 34
Additional Information
(1) Factory rent prepaid 4
(2) Electricity accrued 10
(3) Insurance Prepaid 3
(4) Inventory
Raw Materials 60
Work – in – Process 39
Finished Goods (at transfer price) 87
Depreciation on Factory machinery is to be provide at 25% per annum using the reducing
balance
method.
Electricity, Insurance and canteen services are apportioned as follows: 80% factory and 20%
office. Finished goods are transferred to the Income Statement at total factory cost plus 50%.
Required
(a) Using relevant information from the above list of balance, prepare a Manufacturing Account for
the year ended 28 Feb 2006.
(b) Prepare the provision for Unrealized profit Account for the year ended 28 Feb 2006.
(c) Prepared the Income Statement for the year ended 28 Feb 2006.
Question – 2
Eldon Brothers, a Manufacturing company, produces the following balances from its books at 30
September Year 7.
$
Inventory at 1 Oct Year 6:
Raw Materials 7,450
Work – in – progress (factory cost) 5,330
Finished Goods (transfer value) 12,110
Purchase for Raw Materials 128,740
Purchase Returns 310
Directs Expenses 3,280
Returns Inwards 1,215
Carriage Inwards 1,055
Rates 5,250
Light, Heat and Power 3,270
Wages – Direct 187,240
- Indirect 14,320

70
Telephone 890

71
Factory Repairs 2,215
Insurance 1,420
Salaries:
Factory 38,000
Office 24,000
Sales 27,435
Plant and Machinery at cost 16,000
Provision for depreciation of Plant and Machinery at 1 Oct Yr- 64,000
6
Bad Debt Written O ff 325
Revenue 721,560
Furniture and at Cost
Equipment
42,000
Factory
Office 48,000
Provision for depreciation of and Equipment at 1 Oct Yr-6
Factory 4,800
Office 9,600
The additional information is available
following
(1) Closing Inventory at 30 Sep Yr-7
Raw Materials $6,325
Work – In – Progress (factory cost) $6,105
Finished Goods (transfer value) $15,225
(2) Prepayment at 30 Sep Yr-7
Rates $450
Insurance $220
(3) Accruals at 30 Sep Yr-7
Direct Wages $1,220
Telephone $70
Light, Heat and Power $210
(4) At 30 Sep Yr-7 Depreciation is to be provide as
follows: Plant and Machinery – 20% on cost per
annum. Furniture and Equipment – 10 % on cost per
annum.
(5) Expenses are apportioned to the factory as
follows: Rate 4/5
Insurance 3/4
Telephone 2/3
Light, Heat and Power 3/4
(6) It is the policy of the company to transfer goods manufactured to the warehouse at factory
cost plus 15%.
Required
(1) Prepare, in vertical format, Manufacturing and Income Statement of Eldon Brothers for the
year ended 30 Sep Year 7.
(2) Prepare the Provision for Unrealized profit A/c.

70
Note: Financial Position are not required.

71
Question – 3
Carson Ltd commenced trading on 1 January 2010. The Financial year end on 31
Dec. Carson Ltd manufacturing and also purchases goods from a supplier for
resale.
The following is an extract from the Trial Balance at 31 December 2010.
Dr Cr
$’000 $’000
Purchase of Materials 3,184
Returns of raw materials 36
Purchase of Finished Goods 960
Returns of Finished Goods 22
Carriage On:
Purchase of raw materials 130
Purchase of Finished Goods 28
Revenue 9,526
Sale Returns 184
Direct Wages 924
Productions Overhead 1,848
The following information was also available at 31 December 2010.
$’000
(1) Inventory of raw materials at cost 244
(2) Work – in – progress at cost 154
(3) Inventory of finished goods 890
Finished goods are transferred from the factory at production cost plus 10 %
(4) Inventory of finished goods bought from the supplier at cost 114
(5) Prepaid production overhead 16
(6) Accrued direct wages 24
Required
(a) Prepare the following for Carson Ltd:
(i) Manufacturing Account for the year ended 31 December 2010.
(ii) Trading Account for the year ended 31 December 2010 to calculate the combined
gross profit for the sale of the manufactured and purchased goods.
(b) Explain the different between direct labour and indirect labour and give one example of
each.

72
 CHAPTER – 21
INCOMPLETE RECORD [SINGLE
Question – ENTRY]
1

JO Quant runs a small bookshop. She does not keep double entry accounting records and the
following information is available.
Assets and Liabilities at: 1 April 20X6 31 March 20X7
$ $
Fixtures and Fittings 11,520 13,248
Inventory 20,480 18,754
Trade Receivable 2,498 2,580
Bank (Debit) 15,040 Unknow
n
Trade Payable 16,640 14,290
Cash in hand 100 340
Other business expenses owing 465 502
Bank transactions in the year ended 31 March 20X7
$
Receipts from trade receivable 153,360
Capital introduced by Jo Q uang 10,000
Payments to Trade Payable 99,120
Drawings 22,000
Purchase of fixtures and fittings 4,500
Proceeds from disposal of fixtures and fittings
950 Business expenses 36,720
Required
(a) Calculate the opening and closing
capital
(b) Calculate net
profit.

Question –
2
Phil Fordarm runs a stationary wholesale business. He uses a cash book to record his
bank transactions. He has provided the following information.
1 January 20X3 31 December 20X3
$ $
Shop fittings 13,200 11,200
Inventory 42,240 49,170
Trade Receivable 48,180 33,660
Bank (Debit) 23,100 30,060
73
Cash 1,650 2,640
Trade Payable 34,320 26,400

74
Bank transactions in the year ended 31 December 20X3
$
Receipts from sales 210,870
Payments to Suppliers 136,920
Drawings 16,500
Business expenses 50,490
During the year cash sales amounted to $1,900 and business expenses paid in cash amounted to
$910. There were no additions to shop fittings during the year.
Required
(a) Calculate the opening and closing capital
(b) Calculate net profit.

Question – 3
Fred Tyne is a sole trader, who commenced business on 1 January 2002. Proper accounting
records were not maintained during the first year.
On 1 January 2002, Tyne opened a business bank account by depositing $10,000, and he
also transferred personal assets to the business at the following valuations:
$
Motor vehicle 15,000
Fixtures and Fittings 2,500
On 1 July 2002, Tyne borrowed $6,000 for a twelvemonth period from Tom Wear, and this sum
was deposited in the business bank account on that date. Tyne agreed to pay $300 interest on 1
January 2003 in respect of the loan period 1 July to 31 December 2002.
The Summary of the bank account for the year ended 31 December 2002 is as follows:
Receipt $
Own deposit 10,000
Loan, Wear 6,000
Banking from customers 61,000
Payments $
Rent 4,000
Staff Wages 16,000
Purchases for resale 31,000
Advertising 950
Printing and Stationary 400
Insurance 1,200
Postage 50
Motor and Travel 4,100
Bank charges 250

75
During the year, Tyne did not pay all receipts into the bank. Tyne used the non-banked receipts as
follows:
$
Drawings 11,000
Sundry expenses 876
Cash purchases 1,111
The following information has also been made available:
(1) Motor vehicle to be depreciated at 20% per annum
(2) Fixtures and fittings to be depreciated at 10% per annum
(3) Bad debts of $300 were written off during the year
(4) Inventory at 31 December 2002 is valued at $2,222 cost
(5) Trade payable are owed $3100 at 31 December 2002
(6) Trade receivable owe $6,100 at 31 December 2002
(7) Cash in hand at 31 December 2002 amounts to $300.
Required
Prepare in the books of Fred Tyne
(a) A Income Statement for the year ended 31 December 2002
(b) The Statement of Financial Position at 31 December 2002.
All working to be shown.
Question – 4
The following is the Statement of Financial Position of Jack Robertson at 30 June 2002.
$ $ $
Non-Current Assets Cost Dep’n NBV
Land and Buildings 120,000 - 120,000
Fixtures and Fittings 25,000 15,000 10,000
Motor Vehicles 30,000 12,000 18,000
175,000 27,000 148,000
Current Assets
Inventory

44,100
Trade Receivable

35,600 81,400
Prepayments – Overheads

1,100
Cash in hand 600
Total Assets 229,400
Capital & Liabilities
Owners Capital 162,900
Current Liabilities
Trade Payable 38,000
76
Bank Overdraft 28,500
66,500
Total Equity & Liabilities 229,400

77
Robertson does not maintain double-entry records, and the following is a summary of the
transactions in the business bank account for the year ended 30 June 2003.

Receipts $

Trade Receivable 356,000

Cash Sales 197,500

Payments $

Trade Payable 376,000

Staffs Wage 116,000

Overheads 65,000

Bank Charges 615

The following information is also available:

(1) All cash and cheques are banked daily. The cash in hand float of $600 is maintained at the
times.
(2) At 30 June 2003.
(a) Inventory was valued at $48,000
(b) Trade payable were valued at $41,600
(c) Trade receivable were valued at $38,900
(d) Accrued staff wages amounted to $650
(3) A bad debt of $600 is to be written off the trade receivable balances at 30 June 2003,
and a doubtful debts allowance of 2% of the net trade receivable figure is to be created.
(4) Depreciation is to be provide as follows:
Fixtures and Fittings 10% pa, reducing balance method.
Motor Vehicle 20% pa, straight line method
Required

Prepared for Jack Robertson

(a) Income Statement for the year ended 30 June 2003.

(b) Statement of Financial Position at 30 June
2003. All working to be shown

78
Question – 5

Shem Lee, a sole trader, who does not maintain double-entry records, has provided the following
information:
Dr Cr
$ $
Trade Receivable and Payable 1 Jan 2011 83620 53,000
Trade Receivable and Payable 31 Dec2011 98474 55,060
Year ended 31 December 2011
$
Cash received from Trade Receivable 478,000
Cash Sales 103,800
Discount Allowed 4,200
Cash paid to trade payable 222,940
Discount received 1,800
Cash purchased 58,918
Goods taken by the owner 4,350
Sales ledger balances transferred to the Purchased ledger 9,000
Required
(a) Calculate for the year ended 31 December 2011, the value of the following:
(i) Total sales
(ii) Total purchases.
The following information was also available for 2011:
(1) Inventory at 1 January $10,200
(2) Inventory at 31 December $11,400
(3) General expense $6,300
(4) Rent and rates $4325
(5) Insurance $350
(6) General expenses prepaid $136 at 1 January and accrued $245 at 31 December
(7) Rent and rates accrued $298 at 1 January and prepaid $367 at 31 December
(8) Non-current assets costing $15000 are to be depreciated by 10% per annum straight line.

(b) Prepare for Shen Lee the Income Statement for the year ended 31 December 2011.

79
 CHAPTER –
22
FNINAL ACCOUNT FOR NON-TRADING ORGANIZATION

Question -
1
The Treasurer of the Four Rivers Golf and Social Club extracted the following summary of
receipts and payments from the Club’s bank statement in respect of the year ended 31 December
2002.
Receipts $ Payments
$
Restaurant 95,000 Kitchen and restaurant wages
26,000 Members Subscriptions 60,000 Kitchen equipment
5,000 Life membership scheme 2,600 Food supplies for restaurant
46,500
Administrative staff wages

21,000 Sundry expenses 900

Bank charges 650
Marketing and advertising

3,500 Insurances

2,100
Light and heat 1,000
Gifts 750
Travelling expenses 1,100
Rent 45,000
Other information: Year ended 31 2001 2002
December $ $

Kitchen equipment at valuation 8,100 12,000

Cash in hand 275 420
Subscription in arrears 2,600 3,100
Subscription in advance 150 300
Administrative staff wages accrued - 450
Light and heat accrued - 200
Insurances prepaid 200 500
Trade payable – Food supplies 1,800 3,900
80
Inventory – Food supplies 600 800
Notes:
(1) The life membership Scheme was introduced on 1 January 2002, with 4 members each paying
$650. It was agreed that life membership fees would be transferred to the income and
Expenditure
Account in equal amounts over a five years period.
(2) One third of the cost of rent, insurances and light and heat relate to the restaurant.
Required
Prepare for the Four Rivers Golf and Social Club.
(a) A Statement of the accumulated fund at 1 January 2002

81
 (b) The Restaurant Trading Account for the year ended 31 December 2002
(c) The Income and Expenditure Account for the year ended 31 December 2002
(d) Statement of Financial Position as at 31 December 2002
(e)

Question – 2
The following is a summary of the receipts and payments of the Lynton Sports and Social Club
for the year ended 30 June 2012:
Receipts $
Restaurant taking 210,600
Annual subscriptions 115,400

Payments $
Wages of restaurant staff 40,890
Restaurant purchases 100,740
Sports equipment 30,025
Club treasurer’s fee 6,000
Rent and rates 100,800
Light and heat 30,080
General expenses 9,160
Bank charges 900
Sports club manager’s salary 15,360
Additional Information
(1) Balance at: 1 July 2011 30 June 2012
$ $
Inventory of restaurant supplies 11,090 6,050
Light and heat accrued 550 690
Rent and rates paid in advance 4,000 -
Rent rates in arrears - 5,070
Cash in hand 650 650
Cash at bank 30,890 ?
Sport equipment at net book value 119,400 144,700
Trade Payable for restaurant supplies 6,010 8,050
Subscriptions in arrears 4,850 5,010
Subscriptions paid in advance 3,005 3,010
Accumulated fund 161,315 ?
(2) Rent and rates is to be apportioned 50% to the restaurant.
Required
Prepare
the
(a) Restaurant Account for the year ended 30 June 2012.
(b) Income and Expenditure Account for the year ended 30 June 2012
(c) Statement of Financial Position at 30 June 2012

82
Question – 3
The Bourne Social Club had the following Statement of financial position at 30 April 2010.

Non-Current Assets Cost Accumulate Carryin

d g
$ Deprecatio Amoun
Equipment 17,200 3,200
n 14,000t
Fixtures and Fittings 15,600 5,575 10,025
32,800 8,775 24,025
Current Assets
Inventory – restaurant 3,080
Subscriptions in arrears 200
Prepaid rent 500
Bank 4,610 8,390

Total Assets 32,415

Accumulated Fund 30,985

Life members’ fund 570
31,555
Current Liabilities
Trade payable-restaurant 400
Subscriptions in advance 100
Accrued wages-restaurant 250
Accrued heating and lighting 110 860

Total Accumulated Fund & 32,415

Liabilities

83
The following additional information is available:

(1) The receipts & Payments Account for the year ended 30 April 2011 was as follows:

$ $

Balance b/d 4,610 Rent 6,700

Restaurant sales 54,100 Restaurant purchases 32,870

Subscriptions received for the year ended Restaurant wages 9,600

30 April 2010 120 Fixtures and fittings 4,650

30 April 2011 16,480 Heating and lighting 6,130

30 April 2012 120 General Expenses 12,145

Life members’ subscriptions 900 Balance c/d 4,685

Bank interest 50

Sale of fixtures and fittings 400

76,780 76,780

(2) Depreciation is provided on equipment at 25% per annum reducing and on fixtures
fittings at 10% per annum on cost. A full year’s balance
depreciation is provided inand
the year of
purchases
and non in the year of disposal.
(3) Unpaid subscriptions are written off when they have been outstanding for a year.
(4) Life membership is available for a one-off subscription of $300. The Club appropriations this
evenly to income over a period of 20 years. The club has five life members.
(5) The fixtures and fittings sold during the year had been purchased on 1 December 2007, at a
cost of
$1100.
(6) Half of the heating and lighting costs are apportioned to the restaurant.
(7) Other balances at 30 April 2011 were:

Inventory-Restaurant 5,660

Subscriptions in arrears 420

Prepaid rent 600

Trade payable for restaurant purchases 560

Accrued heating and lighting 130

Required

Prepare, for the year ended 30 April 2011, the:

(a) Subscriptions Account

(b) Life Members’ Fund Account
(c) Fixtures & Fittings Disposal Account
(d) Restaurant Trading Account to calculate the restaurant profit
80
(e) Income & Expenditure Account.

80
 CHAPTER – 23

CONTROL

ACCOUNT

Question - 1
The following balances were extracted from the books of Mary Lee at 1 August 2016.
$ $
Dr Cr
Purchases Ledger Control Account 1470
Purchases Ledger Control Account
258,932 Sale Ledger Control
Account 292,416
Sale Ledger Control Account 1084
The balance on the following for Doubtful Debts Account at 31 July 2006 was $10720.
The following transactions took place in the month of 2006:
August
$
168,340
Purchases on credit
Cash Purchase 18,560
Credit Purchases return 2,998
Sales on credit 146,452
Cash Sales 25,846
Cash sales return 754
Credit Sales Return 2,664
Cash refund to credit customer 2,352
Interest charges to trade receivable on overdue account 600
Bad debt written off 1,200
Payment to trade payable 237,940
Received from trade receivable 154,146
Discount Allowed 1,998
Discount Received 1,666
Debit Balance in Sale Ledger transferred to Purchase 900
Ledger
Legal Expenses charged to customer’s accounts 270

81
At 1 September 2006, the following balances were in the purchases and Sales Ledger
Control Accounts.
$ $
Dr Cr
Purchase Ledger Control Account 2,820
Sales Ledger Control Account 1,894
The allowance for Doubtful debts was to be adjusted to 3% of the debit balances in the Sale Ledger
at 1 September 2006.
Required
Prepare the following accounts for August 2006 in the books of Mary Lee:
(a) Purchases Ledger Control
(b) Sales Ledger Control
(c) Allowance for Doubtful Debts Account
(d) Prepare Statement of Financial Position (extract) as at 31 August 2006.

Question – 2
The following balances were extracted from the books of Milward Ltd on 1 May 2010:
Dr Cr
$ $
Purchases Ledger 1,275 56,200
Sales Ledger 84,320 1,200
In the month of May 2010, the following was a summary of made:
transactions
$
1,275
Refund from supplier for overpayment in April
Debit Balance on Sales Ledger transferred to Purchase Ledger 3,300
Cash Purchases 7,275
Trade Receivable’s cheque dishonoured 2,400
Legal fees for debt collection charged to customer’s account 200
Credit sales 85,300
Credit purchases 62,760
Returns Outwards 25,350
Return inward 1,060
Discount allowed 870
Discount received 600
Payments to credit suppliers 55,780
Bad debts written off 315

82
Cash sales 12,670
Receipts from the credit customer 82,370
The allowance for doubtful debts at 1 May 2010 was $1,270

At 1 June 2010, the following information was also available:

$
Purchase Ledger debit balance 480
Sale Ledger Credit balance 610
The allowance for doubtful debts was to be adjusted to 2% of trade receivable at 31 May 2010.
Required
(a) Prepare the Purchases Ledger Control Account
(b) Prepare the Sales Ledger Control Account for the month of May 2010.
(c) Prepare, at 31 May 2010, a Statement of Financial Position extract showing the trade
receivable and trade payable figures under the current assets and current liabilities.

Question – 3
The following information, Presented by an inexperienced book-keeper, relates to Zanesta Limited for
the year ended 31 March Year 7.

Purchases Ledger Control A/c

Year 6 $ Year 6 $
1 April Balance b/d 394 1 April Balance b/d 21,966
Year 7 Year 7
31 Mar Bank 185,360 31 Mar Purchases 187,852
31 Mar Discount Received 1,489 31 Mar Cash Refunds 624
31 Mar Sale Ledger Control 31 Mar Returns 2,840
Outwards
(Contra) 795 31 Mar Balance c/d 208
31 Mar Balance c/d 25,452
213,940 213,940
1 April Balance b/d 208 1 April Balance c/d 25,452

83
 Sale Ledger Control A/c
Year 6 $ Year 6 $
1 April Balance b/d 26,576 1 April Balance b/d 415
Year 7 Year 7
31 Mar Sales 258,124 31 Mar Discount 1,920
allowed
31 Mar Debt collection fees 197 31 Mar Bad debts 2,562
31 Mar Returns inwards 3286 31 Mar Bank 240,160
31 Mar Balance c/d 304 31 Mar Balance c/d 43,430
288,487 288,487
1 April Balance b/d 43,430 1 April Balance b/d 304

The following information was later discovered:

(1) The company received notice of the dishonouring of a cheque for $486. This was correctly
entered in the Cash Book but not posted to the both Personal Account of the customer and
control A/c.
(2) The purchases Day Book had been undercasted by $600.
(3) No entries had been made in the sales ledger in respect of the debt collection fees.
(4) A debit balance of $520 had been omitted from the list of trade receivable balances and
wrongly show as a credit balance of $250 in the list of trade payable balances.
(5) The Returns Outwards Book had been overcasted by $100.
(6) F Green, a customer with a balance of $795, settled by contra. This had been recorded
correctly in both Personal Ledgers, but only in the Purchases Ledger Control Account.

Require
d
Prepare:

(a) A statement showing the adjustments required to listing of both Purchases Ledger and Sales
Ledger balances, including the revised totals.
(b) Revised Purchases Ledger and Sale Ledger Control Account.

84
 CHAPTER – 24
ERROR AND SUSPENSE ACCOUNT

1. Error will not affects the agreement of Trial Balance

2. Error will affects the agreement of Trial Balance

Error will not affe ct the agre e me nt of Trial Balance

(1) Error of Omission
(2) Error of Commission
(3) Error of Principle
(4) Compensating Error
(5) Error of Original Entry
(6) Complete Reversal Entry

(1) Erro r of Omiss ion

Where a transaction is completely omitted from the books. If we sold $90 goods to J.Brown,
but he did not enter it in either sales or Borwn’s personal account, the trial balance would still
‘balance’.
(2) Error of Commiss ion
This type is where the correct amount is entered but in the wrong person’s account, e.g.,
where a sales of $11 to C. Green is entered in the account of K. Green. It will be noted
that the correct class of account was used, both the accounts concerned being personal
accounts.
(3) Erro r of Principle
Where an item is entered in the wrong class of account, e.g., if a fixed asset such as a motor
van is debited to an expense account such as motor expense account.
(4) Compe ns ating Error

Where errors cancel out each other. If the sale account was added up to be $10 too much and
the purchase account was also added up to be $10 too much, then these two errors would
cancel out in the trial balance. This is because the totals both of the debit side of the trial
balance and of the credit side will be $10 too much.

(5) Erro r of Original Entry

Where the original figure is incorrect, yet double entry is till observed using the incorrect
figure. An instance of this could be where there were sales of $150 goods but an error is
made in calculating the sales invoice. If it were calculate as $130, and $130 were credited
as sales and
$130 were debited to the personal account of the customer, the trial balance would still
‘balance’.

(6) Comple te Re ve rs al of Entry

Where the correct accounts are used but each items is shown on the wrong side of the
account. Suppose we had paid a cheque to Williams for $2000, the double entry of which is

85
Cr Bank
$2,000, Dr Williams $2000. In error it is entered as Cr Williams and Dr Bank. The trial
balance totals will still agree.

86
Error will affe ct the agre e me nt of Trial Balance .
Example – 1

Return of goods $200 by trade receivable. Had been posted from the Return Inward day book
to debit of his accounts.
Example – 2

A payment $68 for office cleaning had been posted as $86.

Example- 3

A payment $75 for Rent had been posted to as $57 to Insurance A/c.

Example – 4

Total discount receive $500 had been posted to debit of discount allowed.

Example – 5

A payment to Insurance $55, had been posted from the Cash Book.
Question -1

Bill Jones has drawn up the following trial balance at 31 March 2008. It contains a number of
errors. Trial Balance at 31 March 2008

Dr Cr

$ $

Purchases 290,000
Revenue 450,000

Capital 94,300

Drawings 43,000

Carriage Inwards 4,000

Carriage O utwards 3,000

Discount Allowed 2,300

Discount Received 1,500

Office Equipment at cost 24,000

Provision for depreciation for Office Equipment 4,800

Fixture and Fitting at cost 13,000

Provision for depreciation for Fixture and Fitting 2,600

Trade Receivable 50,000

Trade Payable 40,000

Sales returns 2,000

87
Purchase returns 1,000

Insurance 8,000

Inventory at 1 April 2007 30,000

Inventory at 31 March 2008 26,000

Wages 40,000

Bank Overdraft 12,000

Sundry Expenses 14,000

Cash 1,900

739,400 418,000

Required

(a) Prepare an amended Trial Balance at 31 March 2008. Clearly show the balance to be
transferred to the Suspense A/c.
After preparing the Trial Balance, Bill discovered the following errors.

(i) Light and heat expenses of $2,500 have been correctly entered in the Cash Book but no
other entry had been made.
(ii) An entry of $1,000 for insurance has been entered on the credit side of the Insurance
Account.
(iii) A credit sale to D Farrow of $300 has been debited to the account of D Marlow.
(iv) Fixture and fitting of $77,500, purchased in January 2008, have been entered as $7,500
in the Fixtures and Fitting Account but correctly entered in the Cash Book. No depreciation
is charged in the year of purchase.
(v) A balance on the Rent payable Account of $6,500 has not been entered on the Trial Balance.

Required

(b) Prepare a Suspense account showing the necessary corrections to be made.

(c) State Four types of errors that will not be identified by the preparation of a Trial Balance.
(d) Prepare Journal entries (narrative are not required)

Question – 2

Jack Brown’s book-keeper prepared his trial balance at 31 May 2008. The trial balance contained
the balance for the sale Ledger Control Account and the Purchase Ledger Control Account. The
bookkeeper was unable to make the trial balance totals agree and therefore a suspense account.

After examining the books the following errors were discovered:

(i) Discounts allowed of $60 had been incorrectly credited to the discount received account
(ii) A credit note from Black, a supplier, for $120 was incorrectly entered in the Purchases
Return Journal as $160.
(iii) A vehicle had been sold during the year for which Jack had received cheque for $5,000.
This had been entered on the wrong side of the cash book although treated correctly in the
disposal account.

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(iv) It is company policy not to depreciate vehicles in the year of disposal. An entry of $250
had been incorrectly entered in the provision for depreciation account for a vehicle sold
on 8 April 2008.
(v) Jack had taken goods amounting to $1,200 at cost for his own use. No entries had been
made
in the books.
(vi) Rent paid by jack Brown of $580 was correctly entered in the cash book but entered in
the rent payable account as $850.
(vii) Cash of $200 was received from a trade receivable with regard to a debt which had been
written off in March 2007. This had been correctly entered in the cash book but no other
entry had been made.
(viii) The sales Journal had been overcast by $900.
Require
d

(a) Prepare journal entries to correct the above errors. Narratives are not
required.
(b) Prepare the Suspense Account, correcting the errors above, and showing the opening
balance.

Question –
3

Sandra prepared her Trial Balance at 31 March 2006, but found that it did not agree, the
difference was posted to a suspense account and the following errors and omissions were
subsequently discovered:

(1) Sandra had taken goods valued at $1,000 at cost for her own use but no entries had been
made in the books.
(2) A cheque of $500 for insurance was entered correctly in the Cash Book but debit ted as $800
in the Lighting and Heating account.
(3) A payment of $450 to payable E Clair was credited both to the Bank Account and E Clair
account.
(4) The debit balance of $3,600 on the Travel Expenses account had been omitted from the Trial
Balance.
(5) Discount Allowed totaling $800, had been credited to the Discounts Allowed account. The
correct entries had been made in the individual trade receivable accounts.

(6) An invoice for petrol $150 bought from B Jolly had been omitted from the books
(7) A computer system, costing $5,000 and purchased for use in the business, had been credited
to the Repairs Account. The correct entry had been made in the Cash – Book, Sandra
provides for a full year’s depreciation of 25% on all assets purchased during a financial year.

Require
d

(a) Prepare Journal entries, excluding narrations, to correct the above errors and
omissions.
(b) The provisional net profit of Sandra for the year ended 31 March 2006 was $51,245.
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 Prepare a statement showing the revised net profit that will result from the correction of the
above errors and omissions.
(c) Prepared suspense
account.

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Question – 4

The trial balance of George Swindon at 30 June 2001 did not agree, and the difference was posted
to a Suspense Account.

The following errors were found later:

(1) A payment by A Ferguson, a trade receivable, had been posted to the account of V Ferguson.
(2) A credit note for $234 from A Forbes had been posted to the account of A Forbes as $23.
(3) Discounts allowed of $123 had been posted to the credit of discounts received.
(4) Goods totaling $4,567 had been correctly enter in the Purchase Day Book, but had not been
posted to the Payable Account.
(5) No entries were made in the books for goods originally sent to W Wright on a sale or return
basis.
This goods had now been sole and the value to be invoiced is $4,321.
(6) A new conservatory had been built at the house of George Swindon. The cost of the
conservatory was $6,789 and this had been charged to the ‘Factory Building’ account.
(7) The purchase day book had been undercast by $1,000. The Sales Day Book had been
undercast by the same amount.
(8) An invoice from L Compton for $2,250 had been entered in the Purchases Day Book as $2,520.

Required

(a) Identify the type of error which have occurred in items 1 to 8 above. You should list in your
answer book the numbers 1 to 8 and opposite each number, state the ‘type’ of error. One of
the following types of error is to be used in each case: commission, compensating, omission,
original, positing principle.
(b) Prepare the journal entry at 30 June 2001, with narratives, to correct items 3, 5, and 8.
(c) Prepare the suspense account, showing clearly the original difference on the account.

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 CHAPTER – 25
ACCOUNTING
RATIO

[INTERPRETATION OF FINANCIAL
STATEMENT]

Question - 1
The following financial statements relate to Foster’s Garden Centre Ltd:
Income Statement for the year ended 31 December 2005
$’000 $’00
Revenue 0
Less: Cost of Sales 2,100
Opening Inventory 205
Purchases 927
1,132
Less: Closing Inventory 157 (975)
Gross Profit 1,125
Less: Expenses (Including debenture interest) (862)
Net Profit 263

Statement of Financial Position at as 31 December 2005

$’000 $’00
Non-Current 0
Assets Inventory 157 1,012
Trade Receivable 450
Bank 200 807
Total Assets 1,819

Equity & Liabilities

Capital & Reserves
Ordinary Shares of $1 each 900
Retained profits 319
1,219
Non-Current Liabilities
6% Debentures-Issued 2002 300
Current Liabilities
Trade Payable 300

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Total Equity & Liabilities 1,819

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Required
(a) Calculate the following ratios for Foster’s Garden Centre Ltd in respect of the year ended
31 December 2005. All workings must be shown.
(1) Liquidity Ratio
(i) Current Ratio
(ii) Liquid ratio
(iii) Rate of inventory collection turnover
(iv) Trade Receivable collection period
(v) Trade Payable collection period
(2) Profitability Ratio
(i) Gross profit to cost of sales (Mark-up)
(ii) Gross profit to Revenue (Margin)
(iii) Net Profit to Revenue
(iv) Return on total capital employed based on net profit before interest (ROCE)
(v) Revenue to Capital employed

All ratios must be calculated to two decimal places.

(b) At 31 December 2004, Foster’s gross profit margin was 46%. State two possible reasons for
the increases in the gross margin from 2004 to 2005.

Question -2
The account of Jackson Ltd, for the years 2007 and 2008, are summarized below:
Income Statement for the year ended 30 November
2007 2008
$’000 $’000 $’000 $’000
Revenue 800 1,120
Less: Cost of Sales
Opening Inventory 140 70
Purchases 530 870
670 940
Less Closing Inventory 70 600 100 840
Gross Profit 200 280
Less
Administration Expenses 154 186
Debenture interest 4 16
Net Profit 42 78

Statement of Financial Position at 30 November

2007 2008
$’000 $’000
Non-Current Assets 490 560
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(Carrying
Amount) Current
Assets 70 100
Trade Receivable 110 132
Bank - 20
Total Assets 670 812

Capital and Reserves

Ordinary Shares Capital 400 400
Profit and Loss 120 164

Non-Current
Liabilities 8% 50 200
Debenture
Current Liabilities
Trade Payable 60 48
Bank 40 -
Total Equity and Liabilities 670 812
Required
(a) Prepare the following ratios for 2007 and 2008 to the nearest TWO decimal places:
(i) Gross profit as % of Revenue
(ii) Net profit (before interest) as % of Revenue
(iii) Inventory turnover
(iv) Current /Working Capital
(v) Liquidity/Acid test
(vi) Return on Capital employed before interest
(vii) Trade Receivables’ collection
period (viii) Trade Payables’ settlement
period
(ix) Revenue to Capital employed.
(b) State one benefit to a business in calculation liquidity ratios.
Question -3
The following information is available for DMS Wholesaler at 31 March 2007. All purchases
and Revenue are on credit and all invoices should be paid within 30 days.
$
Revenue 250,000
Inventory 1 April 2006 21,000
Inventory 31 March 2007 21,000
Purchase 187,500
Cost of Sales 189,500

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Gross Profit 60,500

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Net Profit 30,000
Capital employed 300,000
Cash at bank 1,000
Trade Receivable 5,000
Trade Payable 20,000

Required
(a) Using the above calculate the following ratios to one place:
(i) Current/Working Capital
(ii) Liquidity/Acid Test
(iii) Gross profit margin
(iv) Net profit margin
(v) Return on capital employed
(vi) Rate of Inventory turnover
(vii) Trade Receivables’ collection period in
days (viii) Trade Payables’ settlement period
in days.
The following ratios have been calculated for a competitor, RHG
Wholesaler: Current Ratio 1.5:1
Liquidity/Acid test 0.6:1
Gross profit margin 20%
Net profit margin 9%
Return on Capital employed 8%
Trade Receivables’ collection period 30 days
Trade Payables’ settlement period 42 days
Required
(b)
(i) Which business performed better during the year ended 31 March 2007
(ii) Compare four of the ratios that you have calculated for DMS Wholesaler with the
same four ratios provided for RHG Wholesaler to justify your answer.

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 CHAPTER – 26
VALUATION OF INVENTORIES (AIS –
S)

IAS – 2
Inventories are assets
- Held for sale in the ordinary course of business
- In the process of production for such sales
- In the form of materials or supplies to be consumed in production or services
- Inventories include
1. Raw Materials
2. Work in Progress (WIP)
3. Finished Goods
Methods
(Price)
- FIFO (First In First Out)
- LIFO (Last In First Out) (Not acceptance by IAS -2)
- Average
Inventories Valuation Systems
- Periodic System
- Perpetual System
Periodic Inventory Valuation
- Do not keep detailed inventory records
- At the end of the period calculation the value of closing inventory
Perpetual Inventory system
- Keep detailed records for each item of inventory
- Value inventory balances entered after each transaction
Net Realizable Value
= Estimated Selling Price – Estimate cost of completion – Estimate cost necessary to make sales
Measurement
Inventories should be measured at the lower of cost and net realizable value (NRV)

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