Appendix 3 answers 2006 · 3.1 Dr Bank Account Cr 20-2 £ 20-2 £ 1 May Capital 7,500 3 May Purchases 1,000 4 May Sales 750 6 May Shop fittings 2,000 26 May Sales 550 10 May Rent

BUSINESSACCOUNTS4th edition

Question bank answerssourced from www.osbornebooks.co.uk

1

Contentschapter answersnumber page

1 22 23 34 45 46 67 78 99 9

10 1011 -12 1213 1314 1615 1816 2017 2118 2219 2320 2521 2722 3023 3224 3525 3626 3827 4128 43

1.1 • asset of bank increases by £9,000asset of cash increases by £1,000capital increases by £10,000assets £10,000 – liabilities £0 = capital £10,000

• asset of office equipment increases by £2,500asset of bank decreases by £2,500assets £10,000 – liabilities £0 = capital £10,000

• asset of bank increases by £2,000liability of loan increases by £2,000assets £12,000 – liabilities £2,000 = capital £10,000

• asset of factory machinery increases by £8,000asset of bank decreases by £8,000assets £12,000 – liabilities £2,000 = capital £10,000

• asset of office equipment increases by £2,000liabilities of creditors increases by £2,000assets £14,000 – liabilities £4,000 = capital £10,000

1.2 (a) capital £10,000(b) capital £12,500(c) liabilities £6,250(d) assets £17,030(e) liabilities £5,425(f) assets £24,003

1.3 (a) Owner started in business with capital of £8,000, comprising £7,000 in the bank and £1,000 in cash(b) Bought office equipment for £5,000, paying by cheque(c) Received a loan of £5,000 by cheque(d) Bought office equipment for £500, paying in cash(e) Bought machinery for £6,000, paying by cheque(f) Owner introduces £2,000 additional capital by cheque

2.1 ANDREW KING(a)

Dr Bank Account Cr20-9 £ 20-9 £

1 Oct Capital 7,500 4 Oct Machinery 4,00012 Oct T Richards: loan 1,500 6 Oct Office equipment 2,25018 Oct Commission received 200 11 Oct Rent paid 400

15 Oct Wages 50020 Oct Drawings 25025 Oct Wages 450

(b)Dr Capital Account Cr20-9 £ 20-9 £

1 Oct Bank 7,500

Dr Machinery Account Cr20-9 £ 20-9 £4 Oct Bank 4,000

Dr Office Equipment Account Cr20-9 £ 20-9 £6 Oct Bank 2,250

Dr Rent Paid Account Cr20-9 £ 20-9 £11 Oct Bank 400

Dr Tina Richards: Loan Account Cr20-9 £ 20-9 £

12 Oct Bank 1,500

Dr Wages Account Cr20-9 £ 20-9 £15 Oct Bank 50025 Oct Bank 450

Dr Commission Received Account Cr20-9 £ 20-9 £

18 Oct Bank 200

Dr Drawings Account Cr20-9 £ 20-9 £20 Oct Bank 250

2.2 20-41 Jan Started in business with capital of £10,000 in the bank2 Jan Bought office equipment for £3,000, paying by cheque3 Jan Paid rates of £1,500, by cheque4 Jan Commission received £500, by cheque5 Jan Withdrew £250 cash from the bank6 Jan Drawings £500, by cheque7 Jan Received a bank loan £2,500, by cheque8 Jan Bought a van for £7,500, paying by cheque

Note: the name of the other account in the double-entry accounts is shown in italics

2

CHAPTER 1 What are Business Accounts? CHAPTER 2 Double-entry Book-keeping: First Principles

3.1

Dr Bank Account Cr

20-2 £ 20-2 £1 May Capital 7,500 3 May Purchases 1,000 4 May Sales 750 6 May Shop fittings 2,000

26 May Sales 550 10 May Rent paid 75028 May Gordano Giftware 1,250 16 May Wages 1,500

18 May Bristol Supplies Ltd 1,10024 May Rent paid 750

Dr Capital Account Cr

20-2 £ 20-2 £1 May Bank 7,500

Dr Purchases Account Cr

20-2 £ 20-2 £3 May Bank 1,0007 May Bristol Supplies Ltd 1,250

Dr Sales Account Cr

20-2 £ 20-2 £4 May Bank 750

12 May Gordano Giftware 1,50026 May Bank 550

Dr Shop Fittings Account Cr

20-2 £ 20-2 £6 May Bank 2,000

Dr Bristol Supplies Limited Cr

20-2 £ 20-2 £14 May Purchases returns 150 7 May Purchases 1,25018 May Bank 1,100

Dr Rent Paid Account Cr

20-2 £ 20-2 £10 May Bank 75024 May Bank 750

Dr Gordano Giftware Cr

20-2 £ 20-2 £12 May Sales 1,500 21 May Sales returns 250

28 May Bank 1,250

Dr Purchases Returns Account Cr

20-2 £ 20-2 £14 May Bristol Supplies Ltd 150

Dr Wages Account Cr

20-2 £ 20-2 £16 May Bank 1,500

Dr Sales Returns Account Cr

20-2 £ 20-2 £21 May Gordano Giftware 250

3.2

Transaction Account debited Account credited

(a) purchases Armscott Limited(b) Orion Limited sales(c) carriage outwards bank(d) office equipment Office Products Limited(e) Armscott Limited purchases returns(f) sales returns Orion Limited(g) Armscott Limited bank(h) bank Orion Limited

3

CHAPTER 3 Double-entry Book-keeping: Further Transactions

4.1 (a) F Ramsey & Son(b) 12 Jul: goods sold on credit by F Ramsey & Son to W Hoddle Ltd

14 Jul: payment received by F Ramsey & Son from W Hoddle Ltd, including cash discount allowed to W Hoddle Ltd

20 Jul: goods returned by W Hoddle Ltd to F Ramsey & Son; credit note no 864 issued by F Ramsey & Son(c) £54(d) as a creditor

(e) Dr W Hoddle Ltd Cr20-7 £ 20-7 £

1 Jul Balance b/d 522.80 14 Jul Cash/discount allowed 522.808 Jul Sales 178.00

12 Jul Sales 132.80

4.2 (i) total trade discount net total VAT invoice total

£ £ £ £ £

(a) 160.00 32.00 128.00 25.60 153.60

(b) 400.00 80.00 320.00 64.00 384.00

(c) 40.00 none 40.00 8.00 48.00

(d) 8,000.00 1,600.00 6,400.00 1,280.00 7,680.00

(ii) net total cash total after VAT invoice total*discount cash discount

(a) 128.00 3.20 124.80 24.96 152.96

(b) 320.00 8.00 312.00 62.40 382.40

(c) 40.00 1.00 39.00 7.80 47.80

(d) 6,400.00 160.00 6,240.00 1,248.00 7,648.00

VAT is added to the total before deduction of cash discount.

5.1 (a) Dr Bank Account Cr20-0 £ 20-0 £

1 Feb Capital 500 1 Feb Purchases 15010 Feb Sales 290 5 Feb Rent paid 5027 Feb Sales 240 22 Feb Advertising 25

26 Feb Drawings 10028 Feb Balance c/d 705

1,030 1,030

1 Mar Balance b/d 705 2 Mar Purchases 10014 Mar J Lock: loan 450 5 Mar Rent paid 5016 Mar Sales 330 23 Mar Drawings 7526 Mar Sales 180 29 Mar Advertising 30

31 Mar Balance c/d 1,4101,665 1,665

1 Apr Balance b/d 1,410

(b) Dr Capital Account Cr20-0 £ 20-0 £ 31 Mar Balance c/d 500 1 Feb Bank 500

1 Apr Balance b/d 500

Dr Purchases Account Cr20-0 £ 20-0 £

1 Feb Bank 150 31 Mar Balance c/d 2502 Mar Bank 100

250 250


Dr Rent Paid Account Cr20-0 £ 20-0 £

5 Feb Bank 50 31 Mar Balance c/d 1005 Mar Bank 50

100 100


4

CHAPTER 4 Business Documents CHAPTER 5 Balancing Accounts – the Trial Balance

Dr Sales Account Cr

20-0 £ 20-0 £ 31 Mar Balance c/d 1,040 10 Feb Bank 290

27 Feb Bank 24016 Mar Bank 33026 Mar Bank 180

1,040 1,040

1 Apr Balance b/d 1,040

Dr Advertising Account Cr

20-0 £ 20-0 £ 22 Feb Bank 25 31 Mar Balance c/d 5529 Mar Bank 30

55 55


Dr Drawings Account Cr

20-0 £ 20-0 £ 26 Feb Bank 100 31 Mar Balance c/d 17523 Mar Bank 75

175 175


Dr J Lock: Loan Account Cr

20-0 £ 20-0 £ 31 Mar Balance c/d 450 14 Mar Bank 450


(c) Trial balance of A Thompson as at 31 March 20-0Dr Cr £ £

Bank 1,410Capital 500Purchases 250Rent paid 100Sales 1,040Advertising 55Drawings 175J Lock: loan 450

1,990 1,990

5.2 (a) 3 Feb Celia Donithorn receives a cheque for £190 from Georgina Harrison, and allows her cash discount of £10

6 Feb Celia Donithorn sells goods £80, on credit to Georgina Harrison10 Feb Georgina Harrison returns goods £15 to Celia Donithorn, who issues a credit note

(b) £10 on £200 = 5%(c) Georgina Harrison owes Celia Donithorn £65

5.3 (a) (i) M Johnston is a debtor of Devenish Interiors: the balance of £150 is brought down from the previousmonth.

(ii) J Kelly is a creditor of Devenish Interiors: the balance of £220 is brought down from the previousmonth.

(b) M Johnston.

(c) M Johnston has returned goods £10 to Devenish Interiors, who have issued a credit note.

(d) Devenish Interiors have paid for the purchases made on 6 April from J Kelly: the amount of the chequewas £105, and Devenish Interiors have received £5 discount from J Kelly for quick settlement.

(e) Credit note.

5

6.1 Purchases Day Book

Date Details Invoice Folio Net VAT Gross20-2 £ £ £2 Jan T F Day 850.45 – 850.45

10 Jan B G Moon 1,226.48 – 1,226.4814 Jan D S Cox 912.14 – 912.1418 Jan T F Day 1,009.63 – 1,009.6325 Jan B G Moon 461.92 – 461.9228 Jan T F Day 227.39 – 227.3930 Jan D S Cox 1,013.27 – 1,013.27

31 Jan Totals for month 5,701.28 – 5,701.28

PURCHASES LEDGER

Dr T F Day Cr20-2 £ 20-2 £31 Jan Balance c/d 2,087.47 2 Jan Purchases 850.45

18 Jan Purchases 1,009.6328 Jan Purchases 227.39

2,087.47 2,087.47

1 Feb Balance b/d 2,087.47

Dr B G Moon Cr20-2 £ 20-2 £31 Jan Balance c/d 1,688.40 10 Jan Purchases 1,226.48

25 Jan Purchases 461.921,688.40 1,688.40


Dr D S Cox Cr20-2 £ 20-2 £31 Jan Balance c/d 1,925.41 14 Jan Purchases 912.14

30 Jan Purchases 1,013.271,925.41 1,925.41


GENERAL LEDGER

Dr Purchases Account Cr20-2 £ 20-2 £31 Jan Purchases Day Book 5,701.28

6.2 PURCHASES LEDGER

Dr C Hills Cr20-8 £ 20-8 £

8 Dec Bank 154 1 Dec Balance b/d 15431 Dec Balance c/d 275 13 Dec Purchases 110

20 Dec Purchases 165429 429

20-9 20-91 Jan Balance b/d 275

Dr L Howe Cr20-8 £ 20-8 £31 Dec Balance c/d 341 1 Dec Balance b/d 275

21 Dec Purchases 66341 341


SALES LEDGER

Dr K Harris Cr20-8 £ 20-8 £

1 Dec Balance b/d 330 16 Dec Bank 59411 Dec Sales 264 31 Dec Balance c/d 8815 Dec Sales 88

682 682


GENERAL LEDGER

Dr Bank Account Cr20-8 £ 20-8 £

1 Dec Balance b/d 740 8 Dec C Hills 15416 Dec K Harris 594 15 Dec Printing expenses 20

31 Dec Balance c/d 1,1601,334 1,334

20-9 20-91 Jan Balance b/d 1,160

Dr Printing Expenses Account Cr20-8 £ 20-8 £15 Dec Bank 20

Dr Capital Account Cr20-8 £ 20-8 £

1 Dec Balance b/d 641

6

CHAPTER 6 Division of the Ledger – Primary Accounting Records

Dr Purchases Account Cr20-8 £ 20-8 £31 Dec Purchases Day Book 310

Dr Sales Account Cr20-8 £ 20-8 £

31 Dec Sales Day Book 320

Dr Value Added Tax Account Cr20-8 £ 20-8 £31 Dec Purchases Day Book 31 31 Dec Sales Day Book 3231 Dec Balance c/d 1

32 32


Trial balance of C Emberson as at 31 December 20-8

Dr Cr£ £

Name of accountC Hills 275L Howe 341K Harris 88Bank 1,160Printing expenses 20Capital 641Purchases 310Sales 320Value Added Tax 1

1,578 1,578

7.1 (a)VAT amounts:

Month Purchases Expenses Fixed assets Sales20-5 £ £ £ £October 1,440 472 640 2,560November 1,520 384 – 2,800December 1,680 728 – 3,120

(b)Dr Value Added Tax Account Cr

20-5 £ 20-5 £31 Oct Purchases Day Book 1,440 31 Oct Sales Day Book 2,560

Expenses 472 30 Nov Sales Day Book 2,800Fixed assets 640 31 Dec Sales Day Book 3,120

30 Nov Purchases Day Book 1,520Expenses 384

31 Dec Purchases Day Book 1,680Expenses 728

31 Dec Balance c/d 1,6168,480 8,480

20-6 20-61 Jan Balance b/d 1,414

(c) VAT account has a credit balance of £1,616; this means that Trix Traders Limited owes the amount toHM Revenue & Customs. The amount is payable not later than 31 January 20-6. The book-keepingentries for payment will be– debit Value Added Tax Account– credit bank accountIf Trix Traders Limited prepares a balance sheet at 31 December 20-5, the amount owing to HMRevenue & Customs will be shown as a creditor.

7.2 (a)

Purchases Day Book

Date Details Invoice Folio Net VAT GrossNo

20-2 £ £ £10 Jun Paper Supplies Ltd 2472 400.00 80.00 480.0011 Jun Severn Traders 8771 141.00 28.20 169.2012 Jun Computer Services Ltd X 244 163.00 32.60 195.6013 Jun Paper Supplies Ltd 2491 466.00 93.20 559.2014 Jun Totals for week 1,170.00 234.00 1,404.00

7

CHAPTER 7 Value Added Tax

Sales Day Book

Date Details Invoice Folio Net VAT GrossNo

20-2 £ £ £10 Jun Wyvern Publishing 1347 520.50 104.10 624.6012 Jun House of Cards Ltd 1348 248.70 49.74 298.4413 Jun Lennox Publishers 1349 614.50 122.90 737.4014 Jun House of Cards Ltd 1350 215.30 43.06 258.3614 Jun Wyvern Publishing 1351 470.80 94.16 564.9614 Jun Totals for week 2,069.80 413.96 2,483.76

(b) PURCHASES LEDGER

Dr Paper Supplies Limited Cr

20-2 £ 20-2 £10 Jun Purchases 480.0013 Jun Purchases 559.20

Dr Severn Traders Limited Cr

20-2 £ 20-2 £11 Jun Purchases 169.20

Dr Computer Services Limited Cr

20-2 £ 20-2 £12 Jun Purchases 195.60

SALES LEDGER

Dr Wyvern Publishing Cr

20-2 £ 20-2 £10 Jun Sales 624.6014 Jun Sales 564.96

Dr House of Cards Limited Cr

20-2 £ 20-2 £12 Jun Sales 298.44

4 Jun Sales 258.36

Dr Lennox Publishers Cr

20-2 £ 20-2 £13 Jun Sales 737.40

GENERAL LEDGER

Dr Purchases Account Cr

20-2 £ 20-2 £14 Jun Purchases Day Book 1,170.00

Dr Sales Account Cr

20-2 £ 20-2 £14 Jun Sales Day Book 2,069.80

Dr Value Added Tax Account Cr

20-2 £ 20-2 £14 Jun Purchases Day Book 234.00 14 Jun Sales Day Book 413.9614 Jun Balance c/d 179.96

413.96 413.96

15 Jun Balance b/d 179.96

VAT account has a credit balance of £179.96; this means that Priory Printers owes the amount to HM Revenue& Customs. The amount will be paid at the end of the VAT quarter together with other VAT collected from sales,less VAT charged on purchases, expenses and fixed assets.

8

8.1 (a) Any three from:• bank giro credit• direct debit• standing order• exchange for other goods/services• pass on debt to a creditor

Dr Cash Book CrDate Details Folio Disc Cash Bank Date Details Folio Disc Cash Bank

20-7 £ £ £ 20-7 £ £ £

1 Jul Balances b/d 419 3,685 6 Jul Wages 102

2 Jul A Wood 296 9 Jul C Hill 13 211

12 Jul Sales 146 12 Jul T Jarvis 28 1,023

17 Jul Atlas & Co 500 13 Jul Wages 104

23 Jul Bank C 200 19 Jul Postages 21

28 Jul T Phillips 8 317 20 Jul Wages 102

31 Jul Cash C 260 23 Jul Cash C 200

25 Jul W Moore 429

26 Jul Wages 105

31 Jul Bank C 260

31 Jul Balances c/d 71 3,195

8 765 5,058 41 765 5,058

1 Aug Balances b/d 71 3,195

8.2 Cash Book (credit side only)

Discount Cash Bank £ £ £

2 Jan Balance b/d 380 (.........)4 Jan M Hughes 30 (.........) 570 (.........)9 Jan Bank 240 (.........)

16 Jan Motor van 5,850 (.........)20 Jan Purchases 735 (.........)31 Jan Balances c/d 25 (.........) 260 (.........)

30 1,000 7,060

9.1 Petty Cash Book

Receipts Date Details Voucher Total Analysis columns

No Payment Postages Travel Stationery Wages Misc Ledger

£ 20-7 £ £ £ £ £ £ £

18.26 1 Feb Balance b/d

131.74 1 Feb Cash received

3 Feb Postage 1 10.00 10.00

5 Feb Travelling exp 2 6.50 6.50

9 Feb Cleaner's wages 3 25.00 25.00

12 Feb Stationery 4 7.20 7.20

15 Feb Postage 5 10.00 10.00

18 Feb Travelling exp 6 7.30 7.30


24 Feb Stationery 8 4.75 4.75

26 Feb T B Collins 9 3.90 3.90

27 Feb Miscellaneous 10 4.15 4.15

27 Feb Postage 11 10.00 10.00


138.80 30.00 13.80 11.95 75.00 4.15 3.90

28 Feb Balance c/d 11.20

150.00 150.00

11.20 1 Mar Balance b/d

138.80 1 Mar Cash received

9

CHAPTER 8 Cash Book CHAPTER 9 Petty Cash Book

C

H

A

L F

I

K

B

9.2 Petty Cash Book

Receipts Date Details Voucher Total Analysis columns

No Payment Postages Travel Motor Van Stationery Misc Ledger

exps exps exps

£ 20-8 £ £ £ £ £ £ £

155 1 Nov Balance b/d

195 1 Nov Cash received

4 Nov Postage stamps 20 20

6 Nov Train fare 25 25

9 Nov Petrol 15 15

10 Nov Stationery 38 38

12 Nov Bus fares 2 2

15 Nov P Gates 16 16

16 Nov Postage stamps 30 30

18 Nov Motor van repairs 35 35

20 Nov Stationery 47 47

23 Nov Petrol 28 28

25 Nov Misc expenses 17 17

28 Nov Parcel post 19 19

30 Nov Travelling 38 38

330 69 65 78 85 17 16

30 Nov Balance c/d 20

350 350

20 1 Dec Balance b/d

330 1 Dec Cash received

10.1 Dr Cash Book (bank columns) Cr20-0 £ 20-0 £

1 May Balance b/d 4,200 2 May Cheque no 422 13614 May Sales 1,414 7 May Cheque no 423 20421 May Sales 1,240 27 May Cheque no 424 21428 May Sales 1,160 15 May National Insurance Co 284

31 May Bank service charges 10031 May Balance c/d 7,076

8,014 8,014

1 Jun Balance b/d 7,076

ANDREW CLARKBank Reconciliation Statement as at 31 May 20-0

£Balance at bank as per cash book 7,076Add: cheque drawn (no 424), not yet recorded on the bank statement 214

7,290Less: amount paid in, not yet recorded on the bank statement 1,160Balance at bank as per bank statement 6,130

10.2 (a)Dr Cash Book (bank columns) Cr

20-9 £ 20-9 £ 31 May Balance b/d* 270 31 May Mortgage standing order 90

31 May Bank charges 1431 May Balance c/d 166

270 270

1 Jun Balance b/d 166

* Total of debt entries – total of credit entries, ie £716 – £446 = £270

10

CHAPTER 10 Bank Reconciliation Statements

(b) C CODBank Reconciliation Statement as at 31 May 20-9

£ £ Balance at bank as per cash book 166Add: cheque drawn, not yet recorded on the bank statement N Fish 108

274

Less: amounts paid in, not yet recorded on the bank statement V Perch 90B Tench 48

138Balance at bank as per bank statement 136

10.3 (a)Dr Cash Book (bank columns) Cr

20-0 £ 20-0 £20 Nov Bank giro credit 246 30 Nov Balance b/d 20626 Nov Deposit account interest 84 9 Nov Direct debit 1830 Nov Balance c/d 285 23 Nov Loan interest 391

615 615

1 Dec Balance b/d 285

(b) KIRSTY McDONALDBank Reconciliation Statement as at 30 November 20-0

£ £Balance at bank as per cash book (285)Add: cheques drawn, not yet recorded on the bank statement

cheque no 224 692cheque no 227 27cheque no 228 91

810 525

Less: amounts paid in, not yet recorded on the bank statementA Palmer 29J Dixon 17

46 Balance at bank as per bank statement 479

10.4 (a) £ £ Balance of statement at 1 October 20-9 1,000Less: payment credited on statement on 5 October 220

discount received 4224

Balance of account at 1 October 20-9 776

(b) Balance of account at 31 October 20-9 248Add: payment made on 30 October 1,235

discount received 651,300

Balance of statement at 31 October 20-9 1,548

11

12.1 (a) (i) (ii)TRIAL BALANCE FINAL ACCOUNTS

Debit Credit Trading Profit/Loss Balance Sheet1. Rent paid ✓ ✓2. Van ✓ ✓3. Sales ✓ ✓4. Creditors ✓ ✓5. Purchases ✓ ✓6. Capital ✓ ✓7. Salaries ✓ ✓

(b) closing stock

12.2 JANE WALSHTRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 APRIL 20-0

£ £Sales 30,000Opening stock 4,700Purchases 15,700

20,400Less Closing stock 4,400Cost of Goods Sold 16,000Gross profit 14,000Less expenses:Shop wages* 4,420Light and heat 260Rent 4,500Insurance 120

9,300Net profit 4,700

* Shop wages could, alternatively, be shown as trading account expense.

BALANCE SHEET AS AT 30 APRIL 20-0

£ £Fixed AssetsShop fittings 13,000Current AssetsStock 4,400Debtors 120Bank 610Cash 100

5,230Less Current LiabilitiesCreditors 2,030Working Capital 3,200NET ASSETS 16,200

FINANCED BYCapitalOpening capital 15,000Add Net profit 4,700

19,700Less Drawings 3,500

16,200

12

CHAPTER 12 Final Accounts

13.1 JANE OSMANTRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 20-2

£ £Sales 60,800Less Sales returns 800Net sales 60,000Opening stock 9,400Purchases 31,400

40,800Less Closing Stock 8,800Cost of Goods Sold 32,000Gross profit 28,000Less expenses:Shop wages* £8,850 + £350 9,200Light and heat 520Rent 8,500Insurance £240 – £60 180


* Shop wages could, alternatively, be shown as a trading account expense.

BALANCE SHEET AS AT 31 MARCH 20-2

£ £ £Fixed AssetsShop fittings 26,000Current AssetsStock 8,800Debtors 230Prepayment 60Bank 1,220Cash 190

10,500Less Current LiabilitiesCreditors 4,550Accrual 350

4,900Working Capital 5,600NET ASSETS 31,600



31,600

13.2 PROFIT AND LOSS ACCOUNT OF SANDRA BLACKFOR THE YEAR ENDED 31 MAY 20-0

£ £ Income from clients 32,500Commissions from other sources 800Discount received 150

33,450Less expenses:Stationery £2,100 – £150 1,950Wages 7,600Rent and rates £2,350 – £120 2,230Vehicle expenses 2,000Light and heat £800 + £45 845Insurance 850Telephone £280 + £52 332Sundry expenses 175

15,982Net profit 17,468

BALANCE SHEET OF SANDRA BLACK AS AT 31 MAY 20-0£ £ £

Fixed AssetsEquipment 4,500Vehicles 6,500

11,000Current AssetsStock 150Debtors 760Prepayment 120Cash 175

1,205Less Current LiabilitiesCreditors 670Accruals £52 + £45 97Bank overdraft 250

1,017Working Capital 188NET ASSETS 11,188



11,188

13

CHAPTER 13 Accruals and Prepayments

13.3 (a)Dr Rates Account Cr20-1/-2 £ 20-1/-2 £ 31 Jan Balance b/d 500 31 Jan Profit and loss account 400

31 Jan Balance c/d 100500 500

20-2/-3 20-2/-31 Feb Balance b/d 100

Dr Rent Receivable Account Cr20-1/-2 £ 20-1/-2 £ 31 Jan Profit and loss account 300 31 Jan Balance b/d 225

31 Jan Balance c/d 75300 300

20-2/-3 20-2/-31 Feb Balance b/d 75

Dr Insurance Account Cr20-1/-2 £ 20-1/-2 £ 31 Jan Balance b/d 450 31 Jan Drawings 50

31 Jan Profit and loss account 400450 450

Dr Wages Account Cr20-1/-2 £ 20-1/-2 £ 31 Jan Balance b/d 5,200 31 Jan Profit and loss account 5,50031 Jan Balance c/d 300

5,500 5,500

20-2/-3 20-2/-31 Feb Balance b/d 300

(b) PROFIT AND LOSS ACCOUNT OF BILTON POTTERIESFOR THE YEAR ENDED 31 JANUARY 20-2

£ £ Gross profit 11,507Add Rent receivable 300

11,807Less expenses:Insurance 400Rates 400Wages 5,500


BALANCE SHEET OF BILTON POTTERIES AS AT 31 JANUARY 20-2£ £ £

Fixed AssetsPremises 5,000Current AssetsStock 1,000Debtors 434Prepayment 100Debtor for rent 75Bank 3,218

4,827Less Current LiabilitiesCreditors 870Accrual 300



12,507Less Drawings £3,800 + £50 3,850

8,657

14

13.4 (i) Dr Rent Payable Account Cr20-1/-2 £ 20-1/-2 £

1 Aug Bank 600 31 Jul Profit and loss account 2,4004 Nov Bank 600

31 Mar Bank 60031 Jul Balance c/d 600

2,400 2,400

20-2/-3 20-2/-38 Aug Bank 600 1 Aug Balance b/d 600

Dr Rates Account Cr20-1/-2 £ 20-1/-2 £31 Aug Bank 75 31 Jul Profit and loss account 47522 Oct Bank 220 31 Jul Balance c/d 9017 Apr Bank 270

565 565

20-2/-3 20-2/-31 Aug Balance b/d 90

Dr Electricity Account Cr20-1/-2 £ 20-1/-2 £17 Oct Bank 310 31 Jul Profit and loss account 1,48021 Jan Bank 39010 Apr Bank 36031 Jul Balance c/d 420

1,480 1,480

20-2/-3 20-2/-31 Aug Balance b/d 420

(ii) BALANCE SHEET (EXTRACT) AS AT 31 JULY 20-2

£ £ £Current AssetsPrepayment: rates 90Current LiabilitiesAccruals: rent payable 600

electricity 420

15

14.1 (a)(i) Straight-line methodDr Provision for Depreciation Account – Machinery Cr20-7 £ 20-7 £31 Dec Balance c/d 1,000 31 Dec Profit and loss account 1,000

20-8 20-831 Dec Balance c/d 2,000 1 Jan Balance b/d 1,000

31 Dec Profit and loss account 1,0002,000 2,000

20-9 20-91 Jan Balance b/d 2,000

(ii) Reducing balance methodDr Provision for Depreciation Account – Machinery Cr20-7 £ 20-7 £31 Dec Balance c/d 1,200 31 Dec Profit and loss account 1,200

20-8 20-831 Dec Balance c/d 2,220 1 Jan Balance b/d 1,200

31 Dec Profit and loss account 1,0202,220 2,220

20-9 20-91 Jan Balance b/d 2,220

(b) BALANCE SHEET (EXTRACT) AS AT 31 DECEMBER 20-7£ £ £

Fixed Assets Cost Dep'n to date NetMachinery 8,000 1,200 6,800

BALANCE SHEET (EXTRACT) AS AT 31 DECEMBER 20-8£ £ £

Fixed Assets Cost Dep'n to date NetMachinery 8,000 2,220 5,780

14.2 PAULO GAVINCITRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 APRIL 20-0

£ £ £ Sales 300,000 Opening stock 2,000Purchases 190,250Less Purchases returns 400Less Goods for own use 250Net purchases 189,600

191,600Less Closing stock 1,600Cost of Goods Sold 190,000 Gross profit 110,000 Less expenses:Wages* £45,000 + £1,000 46,000Rent £31,800 – £2,000 29,800General expenses 17,200Provision for depreciation:

fixtures and fittings 19,000delivery vehicle 2,000

114,000 Net loss (4,000)

* Wages could, alternatively, be shown as a trading account expense. As it is a restaurant, the cost ofwages is closely related to sales and purchases.

16

CHAPTER 14 Depreciation of Fixed Assets

BALANCE SHEET AS AT 30 APRIL 20-0£ £ £

Fixed Assets Cost Dep'n to date NetFixtures and fittings 95,000 19,000 76,000 Delivery vehicle 8,000 2,000 6,000

103,000 21,000 82,000

Current AssetsStock 1,600Prepayment 2,000Cash 450

4,050Less Current LiabilitiesCreditors 5,000Accrual 1,000Bank overdraft 4,300

10,300Working Capital (6,250)

75,750 Less Long-term LiabilitiesBank loan 30,000 NET ASSETS 45,750

FINANCED BYCapitalOpening capital 75,000 Less Net loss 4,000

71,000 Less Drawings 25,000

Goods for own use 25025,250 45,750

14.3 Dr Vehicles Account Cr20-8 £ 20-8 £

1 Jan Balance b/d 90,000 30 Jun Disposals account 30,0001 Jan Bank 48,000 31 Dec Balance c/d 108,000

138,000 138,000

20-9 20-91 Jan Balance b/d 108,000

Dr Provision for Depreciation Account – Vehicles Cr20-8 £ 20-8 £30 Jun Disposals account† 14,640 1 Jan Balance b/d* 43,92031 Dec Balance c/d 45,024 31 Dec Profit and loss account 15,744

59,664 59,664

20-9 20-91 Jan Balance b/d 45,024

Cost Dep'n 20-5 Dep'n 20-6 Dep'n 20-7 Dep'n 20-8£ £ £ £ £

Transit van 1 30,000 6,000 4,800 3,840 soldTransit van 2 30,000 6,000 4,800 3,840 3,072Transit van 3 30,000 6,000 4,800 3,840 3,072Transit van 4 48,000 - - - 9,600

18,000 14,400 11,520 15,744

* Provision for depreciation at 1 January 20-8:£18,000 + £14,400 + £11,520 = £43,920

† Transfer to disposals account on 30 June 20-8:£6,000 + £4,800 + £3,840 = £14,640

Dr Disposal of Motor Vehicles Account Cr20-8 £ 20-8 £30 Jun Vehicles 30,000 30 Jun Provision for dep'n account 14,640

30 Jun Bank 10,00031 Dec Profit and loss account

(loss on sale) 5,36030,000 30,000

14.4 A The owner has introduced £30,000 of additional capital, which has been paid into the bank account.B £4,000 of stock has been purchased on credit.C Property has been purchased (or improvements made to property) costing £50,000; financed by a bank

loan.D Stock which originally cost £5,000 has been sold on credit for £7,000; profit of £2,000 made.E £3,000 cash withdrawn from the bank for use in the business.F Accrued expense of £10,000 paid by cheque.G A motor van (or vans) which had cost £3,000 has been sold for £4,000 – a cheque received for this

amount. The profit on sale of £1,000 has been credited to capital account.H A creditor for £6,000 has been paid, £5,000 by cheque and £1,000 discount received.I A loan repayment of £1,000 has been made by cheque.J A debtor (or debtors) has paid £7,000 by cheque.

17

15.1 PAULA JONESTRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 20-0

£ £ £ Sales 168,000Less Sales returns 1,000Net sales 167,000Opening stock 6,400Purchases 96,000Carriage inwards 400Net purchases 96,400

102,800Less Closing stock 6,800Cost of Goods Sold 96,000Gross profit 71,000Discount received 250

71,250Less expenses:Discount allowed 380Rates £4,400 – £600 3,800Insurance 1,200Wages and salaries* £22,000 + £1,000 23,000Bad debt written off 120Provision for depreciation: fixtures 2,000

30,500Net profit 40,750

* Wages and salaries could, alternatively, be shown as a trading account expense.

BALANCE SHEET AS AT 31 MARCH 20-0£ £ £

Fixed Assets Cost Dep'n to date Net Premises 187,000 - 187,000Fixtures and fittings 20,000 8,000 12,000

207,000 8,000 199,000

Current AssetsStock 6,800Debtors 5,880Prepayment 600Cash 100

13,380Less Current LiabilitiesCreditors 4,000Accrual 1,000Bank overdraft 4,630




202,750

15.2 SANDRA SHENSTONETRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 20-5

£ £ Sales 26,700Less Sales returns 340Net sales 26,360Opening stock 2,930Purchases 12,830


14,100Less expenses:Wages and salaries 6,800Discount allowed 260Rent 2,600Bad debts written off 420Van running expenses 780Rates and insurance 760General office expenses 320Provision for depreciation: delivery van 600

office furniture and equipment 400Provision for bad debts 93


BALANCE SHEET AS AT 30 JUNE 20-5£ £ £

Fixed Assets Cost Dep'n to date Net Delivery van 1,800 600 1,200Office furniture and equipment 1,600 400 1,200

3,400 1,000 2,400

Current AssetsStock 3,160Debtors 4,650Less Provision for bad debts 93

4,557Cash 50

7,767Less Current LiabilitiesCreditors 2,950Bank overdraft 2,200




5,017

18

CHAPTER 15 Bad Debts and Provision for Bad Debts

15.3 STAMPERTRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 20-9

£ £ Sales 150,750Opening stock 25,600Purchases £112,800 – £450 112,350

137,950Less Closing stock 27,350Cost of Goods Sold 110,600Gross profit 40,150Less expenses:Wages 12,610Rent £2,500 – £500 2,000Motor expenses £1,240 + £140 1,380Provision for depreciation: motor vehicle 3,000

equipment 3,150Bad debt written off 200Insurance £1,000 + £450 1,450

23,790Net profit 16,360

BALANCE SHEET AS AT 31 DECEMBER 20-9£ £ £

Fixed Assets Cost Dep'n to date NetMotor vehicle 17,000 6,000 11,000Equipment 15,000 7,650 7,350

32,000 13,650 18,350Current AssetsStock 27,350Debtors 9,750Prepayment 500Bank 900Cash 250

38,750Less Current LiabilitiesCreditors 8,100Accrual 140




48,860

15.4 PERCIVAL PORTEOUSTRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MAY 20-0

£ £ £Sales 145,185Less Sales returns 780Net sales 144,405Opening stock 11,100Purchases 102,000Carriage in 2,190Less Purchases returns 1,440Net purchases 102,750

113,850Less Closing stock 12,600Cost of Goods Sold 101,250Gross profit 43,155Rent receivable 960

44,115Less expenses:Salaries £5,280 + £1,800 7,080Carriage outwards 2,340Rates and insurance £2,790 – £310 2,480Advertising 1,041Bad debts written off 240Increase in provision for bad debts £375 – £300 75Provision for depreciation: office equipment 600

shop fittings 66014,516

Net profit 29,599

BALANCE SHEET AS AT 31 MAY 20-0£ £ £

Fixed Assets Cost Dep'n to date Net Premises 54,000 - 54,000Office equipment 6,000 1,800 4,200Shop fittings 18,000 5,460 12,540

78,000 7,260 70,740


7,125Prepayments 310Cash 1,020

21,055Less Current LiabilitiesCreditors 6,228Accruals 1,800Bank overdraft 7,488




76,279

19

20

CHAPTER 16 The Extended Trial Balance20

-8 20-9

16.1 16.2

20-9

20-8

LIFO

Date

Rece

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Issue

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21

17.2 (a)17.1(i) FIFODate Receipts Issues Balance

20-1/-2 Quantity Price Quantity Price Quantity Price Total

June 800 @ £6.00 800 x £6.00 = £4,800

July 700 @ £6.00 100 x £6.00 = £600

September 1,200 @ £7.00 100 x £6.00 = £6001,200 x £7.00 = £8,4001,300 £9,000

December 100 @ £6.00 700 x £7.00 = £4,900500 @ £7.00

February 1,000 @ £8.00 700 x £7.00 = £4,9001,000 x £8.00 = £8,0001,700 £12,900

April 400 @ £7.00 300 x £7.00 = £2,1001,000 x £8.00 = £8,0001,300 £10,100

May 700 @ £10.00 300 x £7.00 = £2,1001,000 x £8.00 = £8,000700 x £10.00 = £7,000

2,000 £17,100

(ii) LIFO

Date Receipts Issues Balance

20-1/-2 Quantity Price Quantity Price Quantity Price Total

June 800 @ £6.00 800 x £6.00 = £4,800

July 700 @ £6.00 100 x £6.00 = £600

September 1,200 @ £7.00 100 x £6.00 = £6001,200 x £7.00 = £8,4001,300 £9,000

December 600 @ £7.00 100 x £6.00 = £600600 x £7.00 = £4,200700 £4,800

February 1,000 @ £8.00 100 x £6.00 = £600600 x £7.00 = £4,200

1,000 x £8.00 = £8,0001,700 £12,800

April 400 @ £8.00 100 x £6.00 = £600600 x £7.00 = £4,200600 x £8.00 = £4,800

1,300 £9,600

May 700 @ £10.00 100 x £6.00 = £600600 x £7.00 = £4,200600 x £8.00 = £4,800700 x £10.00 = £7,000

2,000 £16,600

CHAPTER 17 The Regulatory Framework of Accounting

17.3 Item DW/04 STOCK CARDDate Details Receipts Issues Balance

Units £ Units £ Units £20-9

1 Sep Balance 12 1446 Sep Issue note no A237 8 96 4 488 Sep Invoice no 784 20 240 24 288

15 Sep Invoice no 847 48 576 72 86417 Sep Issue note no D534 18 216 54 64822 Sep Invoice no 984 20 240 74 88824 Sep Issue note no B631 64 768 10 12030 Sep Stock loss 2 24 8 96

Note: A stock loss of two units has occurred during the month. This will have been caused by:– short delivery, ie incorrect number of units received, two units short, or– over-issue, ie incorrect number of units issued, two units extra, or– theft, if continued stock losses are detected, the matter will need further investigation

18.1

Date Details Folio Dr Cr

20-0 £ £1 May Freehold premises account GL 45,000

Fixtures and fittings account GL 12,500Motor vehicles account GL 9,500Bank account CB 2,800Cash account CB 650Stock account GL 1,320F Hardy SL 160A Darby PL 270Capital account* GL 66,060

69,130 69,130

Assets and liabilities on 1 May 20-0

* balancing figure, ie assets minus liabilities

22

CHAPTER 18 The Journal

AVCO

Date

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18.2 (a)Dr Vehicle Account Cr20-5/-6 £ 20-5/-6 £

1 Nov Bank 12,000 31 Oct Balance c/d 12,000

20-6/-7 20-6/-71 Nov Balance b/d 12,000 1 Jan Disposals account 12,0006 Dec Bank 18,000 31 Oct Balance c/d 18,000

30,000 30,000

20-7/-8 20-7/-81 Nov Balance b/d 18,000 7 Mar Disposals account 18,0007 Mar Disposals account 13,500 31 Oct Balance c/d 28,000

(part-exchange allowance)7 Mar Supatruks Ltd 14,500

(balance due)46,000 46,000

20-8/-9 20-8/-91 Nov Balance b/d 28,000

Dr Provision for Depreciation Account - Vehicle Cr20-5/-6 £ 20-5/-6 £ 31 Oct Balance c/d 3,000 31 Oct Profit and loss account 3,000

20-6/-7 20-6/-71 Jan Disposals account 3,000 1 Nov Balance b/d 3,000

31 Oct Balance c/d 4,500 31 Oct Profit and loss account 4,5007,500 7,500

20-7/-8 20-7/-87 Mar Disposals account 4,500 1 Nov Balance b/d 4,500

31 Oct Balance c/d 7,000 31 Oct Profit and loss account 7,00011,500 11,500

20-8/-9 20-8/-91 Nov Balance b/d 7,000

BALANCE SHEET (EXTRACT) OF W E CARRYIT AS AT 31 OCTOBER 20-6£ £ £

Fixed Assets Cost Dep'n to date NetVehicle 12,000 3,000 9,000





(b)

Date Details Folio Dr Cr20-7 £ £1 Jan Disposals account 12,000

Vehicle 12,000Provision for depreciation – vehicle 3,000Disposals account 3,000Bank 8,450Disposals account 8,450Profit and loss account 550Disposals account 550

24,000 24,000Lorry, registration no .......... written offin accident. Insurance proceeds £8,450received. Loss of £550 transferred toprofit and loss account.

20-87 Mar Disposals account 18,000

Vehicle 18,000Provision for depreciation – vehicle 4,500Disposals account 4,500Vehicle 13,500Disposals account 13,500Vehicle 14,500Supatruks Ltd 14,500

50,500 50,500Purchase of new lorry, registration no............, for £28,000. Part-exchangeallowance of £13,500 against lorry,registration no .............; balance of£14,500 payable on 7 March 20-9.

19.1 Dr Suspense Account Cr£ £

Forest and Co 70 Sales 70Drystone Brothers 210 Trial balance difference (missing figure) 350Clair and Sons 140

420 420

Notes:(a) Debit suspense account £70; credit Forest and Co £70. (It is probably better to show this as two debits

and two credits of £35 each.)(b) Debit suspense account £210; credit Drystone Brothers £210. (Instead of recording the difference, it is

probably better in practice to take out the wrong amount of £700, and then put through a transaction forthe correct amount for £910.)

(c) Debit sales account £70; credit suspense account £70. (As the sales day book has been overcast, theerror will have been taken into sales account.)

(d) Debit suspense account £140; credit Clair and Sons £140. (As before, it is better in practice to take outthe wrong amount, and then put through a transaction for the correct amount.)

23

CHAPTER 19 Correction of Errors

19.2 (a)

Date Details Folio Dr Cr20-0 £ £30 Apr Sales account GL 700

Disposals account GL 700

Sale proceeds of van credited in error to sales account

30 Apr Discount allowed account GL 800Suspense account GL 800

Discount allowed entered in error as a credit balance to the trial balance

30 Apr Sundry debtors SL 500Suspense account GL 500

Debtors omitted in error from the trial balance

(b) Dr Suspense Account Cr20-0 £ 20-0 £30 Apr Trial balance difference 1,300 30 Apr Discount allowed 800

30 Apr Sundry debtors 5001,300 1,300

Date Details Folio Dr Cr20-0 £ £30 Apr Profit and loss account 500

Provision for bad debts account GL 500

Creation of a provision for bad debts

30 Apr Bad debts written off account GL 250S Joseph SL 250

Bad debt written off

19.3 (i)Date Details Folio Dr CrYear 12 £ £30 Sep Returns inwards account GL 124

Suspense account GL 124Returns outwards account GL 124Suspense account GL 124

Goods returned by F Mortimer entered in error to returns outwards account

30 Sep L Johnson SL 47General expenses account GL 47

Dishonoured cheque from L Johnson for £47 debitedin error to general expenses account

30 Sep Drawings GL 225Goods for own use account GL 225(or purchases account could be used)

Goods, value £225 at cost, taken by Trent for personal use

30 Sep Sales account GL 850Suspense account GL 850

Trade in allowance on motor van debited in error to sales account

30 Sep Computer expenses account GL 45Computer account GL 45

Payment of £45 for servicing of computer debited in error to computer account

(ii) Dr Suspense Account CrYear 12 £ Year 12 £30 Sep Trial balance difference 1,098 30 Sep Returns inwards account 124

30 Sep Returns outwards account 12430 Sep Sales account 850

1,098 1,098

The following do not appear in suspense account:• L Johnson's dishonoured cheque is an error of principle – the wrong class of account was debited,

general expenses account in the general ledger instead of L Johnson's account in the sales ledger.• Goods taken for personal use by W Trent is an error of omission – no entries have been made in the

accounts.• Payment for servicing the computer is an error of principle – computer account was debited instead of

computer expenses account.

24

25

(iii) Profit under-stated Profit over-stated£ £

1. – 248 2. 47 –3. 225 –4. – 850 5. – 45

20.1 Dr Sales Ledger Control Account: Section 1 Cr20.. £ 20.. £

1 Jan Balances b/d 84,200 1 Jan Balances b/d 190Sales for year 678,672 Cash received from debtors 697,384

31 Dec Balances c/d 281 Sales returns 3,475Discount allowed 2,760Bad debts written off 3,660

31 Dec Balances c/d 55,684763,153 763,153

20.. 20..1 Jan Balances b/d 55,684 1 Jan Balances b/d 281

Dr Sales Ledger Control Account: Section 2 Cr20.. £ 20.. £

1 Jan Balances b/d 136,200 1 Jan Balances b/d 1,260Sales for year 497,285 Cash received from debtors 526,294

31 Dec Balances c/d 1,328 Sales returns 1,226Discount allowed 887Bad debts written off 1,284

31 Dec Balances c/d 103,862634,813 634,813

20.. 20..1 Jan Balances b/d 103,862 1 Jan Balances b/d 1,328

CHAPTER 20 Control Accounts

20.2 (a)

Dr Bought Ledger (Purchases Ledger) Control Account Cr20-7 £ 20-7 £

Cash paid to creditors 59,328 1 Jan Balances b/d 13,140Discount received 2,472 Purchases 69,010Purchases returns 930 Interest charged by creditors 150Transfers to credit Cash overpaid returned 20

accounts in sale ledger 22030 Jun Balances c/d 19,370

82,320 82,320

1 Jul Balances b/d 19,370

(b) Control accounts:• give a summary of the transactions in a large number of accounts• help in locating errors within the accounts which they control• make fraud more difficult• are an aid to management by giving up-to-date information on the total of debtors or creditors• preparation of final accounts is speeded up, as the control account balances can be used for

debtors and creditorsNote: the question asked for two reasons

20.3

Dr Sales Ledger Control Account Cr20-0 £ 20-0 £

1 Apr Balances b/d 95,617 1 Apr Balances b/d 613Credit sales 759,348 Sales returns 3,549

30 Apr Balances c/d 161 Cash received from debtors 703,195Discount allowed 25,355Bad debts written off 5,123

30 Apr Balances c/d 117,291855,126 855,126

1 May Balances b/d 117,291 1 May Balances b/d 161

Dr Purchases Ledger Control Account Cr20-0 £ 20-0 £

1 Apr Balances b/d 782 1 Apr Balances b/d 78,298Purchases returns 4,581 Credit purchases 621,591Cash paid to creditors 612,116 30 Apr Balances c/d 329Discount received 8,570

30 Apr Balances c/d 74,169700,218 700,218

1 May Balances b/d 329 1 May Balances b/d 74,169

Note:• cash sales and cash purchases do not go through the control accounts• change in provision for bad debts is not entered in the sales ledger control account

26

20.4 Dr Sales Ledger Control Account Cr20-0 £ 20-0 £

1 May Balances b/d 9,134 1 May Balances b/d 44Credit sales 11,524 Cash received from debtors 970Dishonoured cheques 58 Cheques received from debtors 9,564

31 May Balances c/d 80 Discount allowed 382Bad debts 250Sales returns 200Set-off 160

31 May Balances c/d 9,22620,796 20,796

1 Jun Balances b/d 9,226 1 Jun Balances b/d 80

Dr Purchases Ledger Control Account Cr20-0 £ 20-0 £

1 May Balances b/d 53 1 May Balances b/d 13,086Cheques paid to creditors 10,532 Credit purchases 21,555Discount received 532 31 May Balances c/d 116Purchases returns 908Set-off 160

31 May Balances c/d 22,57234,757 34,757

1 Jun Balances b/d 116 1 Jun Balances b/d 22,572

Control accounts:• give a summary of the transactions in a large number of accounts• help in locating errors within the accounts which they control• make fraud more difficult• are an aid to management by giving up-to-date information on the total of debtors or creditors• speed up the preparation of final accounts, as the balances can be used for debtors and creditors

Credit balances on debtors' accounts may be caused because:• the customer has overpaid in error• goods have been paid for, and later the goods are returned and a credit note issued• the customer has made a payment in advance

21.1JAMES HARVEY

CALCULATION OF STOCK LOSS FOR THE YEAR£ £

Opening stock 21,500Purchases 132,000Cost of stock available for sale 153,500Sales 180,000Less Normal gross profit margin (30%) 54,000Cost of sales 126,000Estimated closing stock 27,500Less Actual closing stock 26,000Value of stock loss 1,500

21.2 (a) STATEMENT OF ASSETS AND LIABILITIES OF BILL BROWN AS AT 1 APRIL 20-8£

AssetsFurniture and fittings 2,655Stock 1,350Debtors 7,200Cash and bank 450

11,655Less LiabilitiesCreditors 8,505Capital at 1 April 20-8 3,150

STATEMENT OF ASSETS AND LIABILITIES OF BILL BROWN AS AT 31 MARCH 20-9£

AssetsFurniture and fittings 2,390Stock 840Debtors 5,400Cash and bank 1,350

9,980Less LiabilitiesCreditors 6,831Capital at 31 March 20-9 3,149

(b) Capital at 1 April 20-8 3,150Add Additional capital 500


1,400Profit for year (missing figure) 1,749Capital at 31 March 20-9 3,149

21.3 (a) STATEMENT OF ASSETS AND LIABILITIES OF BRIAN WITHERS AS AT 1 MAY 20-7£ £

AssetsFixed assets 45,000Stock 6,400Debtors 6,240Expenses prepaid 140Bank 720

58,500Less LiabilitiesCreditors 1,330Expenses owing 70Loan from father 5,000

6,400Capital at 1 May 20-7 52,100

(b) STATEMENT OF ASSETS AND LIABILITIES OF BRIAN WITHERS AS AT 30 APRIL 20-8£ £

AssetsFixed assets 46,500Stock 6,700Debtors 6,430Expenses prepaid 180Bank 790

60,600Less LiabilitiesCreditors 1,450Expenses owing 50Loan from father 4,000

5,500Capital at 30 April 20-8 55,100

(c) net profit or loss for the year = closing capital – opening capital + drawings – capital introduced£55,100 – £52,100 + £8,400 (£700 x 12) – £2,000 = £9,400

(d) • greater accuracy – trial balance can be extracted at any time• receipts and payments correctly recorded• control of debtors and creditors

(e) expenses matched to the financial year, ie the accruals concept

27

CHAPTER 21 Incomplete Records

21.4 STATEMENT OF ASSETS AND LIABILITIES OF D BRADLEY AS AT 30 JUNE 20-4£ £

AssetsFixtures 1,800Stock 13,680Debtors 4,250Prepaid rates 280Cash 120

20,130Less LiabilitiesCreditors 2,575Accrued electricity 485Bank overdraft 2,025

5,085Capital at 30 June 20-4 15,045

Dr Sales Ledger Control Account Cr20-4/-5 £ 20-4/-5 £

1 Jul Balances b/d 4,250 Bank receipts 22,820Sales* 35,315 Cash receipts (see below) 11,820

30 Jun Balances c/d 4,92539,565 39,565

20-5/-6 20-5/-61 Jul Balances b/d 4,925

Note: cash receipts during the year are £5,280 (wages) + £1,250 (general expenses) + £5,200 (drawings of£100 per week) + £90 (increase in cash balance) = £11,820.

Dr Purchases Ledger Control Account Cr20-4/-5 £ 20-4/-5 £

Payments to creditors 18,682 1 Jul Balances b/d 2,57530 Jun Balances c/d 3,520 Purchases* 19,627

22,202 22,20220-5/-6 20-5/-6

1 Jul Balances b/d 3,520

Dr Electricity Control Account Cr20-4/-5 £ 20-4/-5 £

Bank 1,825 1 Jul Balance b/d 48530 Jun Balance c/d 520 30 Jun Profit and loss account* 1,860

2,345 2,34520-5/-6 20-5/-6

1 Jul Balance b/d 520

Dr Rent and Rates Control Account Cr20-4/-5 £ 20-4/-5 £

1 Jul Balance b/d 280 30 Jun Profit and loss account* 2,290Bank 2,350 30 Jun Balance c/d 340

2,630 2,63020-5/-6 20-5/-6

1 Jul Balance b/d 340* Missing figure

D BRADLEYTRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 20-5

£ £Sales 35,315Opening stock 13,680Purchases 19,627

33,307Less Closing stock 12,790Cost of Goods Sold 20,517Gross profit 14,798Less expenses:Electricity 1,860Rent and rates 2,290Wages 5,280General expenses 1,250Provision for depreciation:

fixtures £1,800 x 10% 180motor van £2,400 x 25% 600


BALANCE SHEET AS AT 30 JUNE 20-5£ £ £

Fixed Assets Cost Dep'n to date Net Fixtures 1,800 180 1,620Motor van 2,400 600 1,800

4,200 780 3,420

Current AssetsStock 12,790Debtors 4,925Prepayment (rates) 340Bank 1,038Cash 210

19,303Less Current LiabilitiesCreditors 3,520Accrual (electricity) 520


FINANCED BYCapitalOpening capital 15,045Additional capital 5,500

20,545Add Net profit 3,338


18,683

28

21.5 (a) JOHN MARCUS

TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 20-7£ £

Sales 117,460Opening stock 12,400Purchases (missing figure) 91,195

103,595Less Closing stock (£12,400 + 25%) 15,500Cost of Goods Sold 88,095Gross profit (25% of sales) 29,365Discount received 560

29,925Less expenses:Discount allowed 720Wages 12,680Rent, rates and electricity £8,950 + £340 – £290 + £260 – £520 8,740Bad debts written off 180Provision for depreciation:

fixtures and fittings 1,600motor van 1,050

Provision for bad debts 26025,230

Net profit 4,695

(b) BALANCE SHEET AS AT 30 JUNE 20-7£ £ £

Fixed Assets Cost Dep'n to date Net Fixtures and fittings 16,000 8,000 8,000Motor van 4,200 1,050 3,150

20,200 9,050 11,150


4,940Prepayment (rent) 520Bank 5,495

26,455Less Current LiabilitiesCreditors 4,650Accrual (electricity) 260



32,695

Dr Sales Ledger Control Account Cr20-6/-7 £ 20-6/-7 £

1 Jul Balances b/d 2,900 Bad debts written off 180Sales 117,460 Discount allowed 720

Bank receipts (missing figure) 114,26030 Jun Balances c/d 5,200

120,360 120,360

20-7/-8 20-7/-81 Jul Balances b/d 5,200

Dr Purchases Ledger Control Account Cr20-6/-7 £ 20-6/-7 £

Discount received 560 1 Jul Balances b/d 3,050Bank payments Purchases 91,195(missing figure) 89,035

30 Jun Balances c/d 4,65094,245 94,245

20-7/-8 20-7/-81 Jul Balances b/d 4,650

Dr Cash Book Summary Cr20-6/-7 £ 20-6/-7 £

1 Jul Balance b/d 6,100 Payments to creditors 89,035Receipts from debtors 114,260 Wages 12,680

Rent, rates and electricity 8,950Motor van 4,200

30 Jun Balance c/d 5,495120,360 120,360

20-7/-8 20-7/-81 Jul Balance b/d 5,495

Tutorial noteThe trading account in this question is reconstructed by calculating gross profit (25% of sales), and thenworking back to calculate cost of goods sold and purchases.When purchases is known, the control accounts for purchases ledger and sales ledger are completed to givethe missing figures of payments to creditors and receipts from debtors. The cash book summary for the yearcan then be constructed.

21.6 Calculation of stock loss on 30 November£ £

Opening stock 94,300Purchases 187,600COST OF STOCK AVAILABLE FOR SALE 281,900Sales 251,200Less Normal gross profit percentage (22%) 55,264COST OF GOODS SOLD 195,936ESTIMATED CLOSING STOCK 85,964Less Value of stock salvaged 6,800VALUE OF STOCK LOST (ie insurance claim) 79,164

29

22.1 (a) MUSIC SOCIETYEstimated Receipts and Payments Account for the year ending 31 August 20-1

20-0/-1 £ 20-0/-1 £Receipts PaymentsSubscriptions (150 x £20) 3,000 Hire of hall (52 x £20) 1,040Sale of refreshments Light and heat (52 x £5) 260(150 x £40) 6,000 Stereo equipment 1,200

Insurance 90Records 1,000Purchase of refreshments(150 x £20) 3,000

31 Aug Balance c/d 2,4109,000 9,000

20-1/-2 20-1/-21 Sep Balance b/d 2,410

(b) ESTIMATED INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDING 31 AUGUST 20-1

£ £IncomeSubscriptions 3,000RefreshmentsSales 6,000Less purchases 3,000Profit on refreshments 3,000

6,000Less ExpenditureHire of hall 1,040Light and heat 260Provision for depreciation: stereo equipment 300Insurance 90Records 1,000

2,690Surplus of income over expenditure 3,310

(c) ESTIMATED BALANCE SHEET AS AT 31 AUGUST 20-1£ £ £

Fixed Assets Cost Dep'n to date Net Stereo equipment 1,200 300 900

Current AssetsBank 2,410NET ASSETS 3,310

REPRESENTED BYAccumulated fund –Add surplus of income over expenditure for year 3,310

3,310

22.2 GREENROOM SOCIAL CLUBINCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 30 JUNE 20--

£ £IncomeSubscriptions £22,410 – £180 – £72 + £225 22,383Games' fees £270 – £27 243Drink machine receipts 936

23,562Less ExpenditureWages £15,300 + £108 15,408Secretary's salary 2,700Rent of hall 900Printing and postage £2,115 – £180 1,935Loss on dance 198Provision for depreciation: furniture £3,240 – £3,105 135

21,276Surplus of income over expenditure 2,286

BALANCE SHEET AS AT 30 JUNE 20--£ £ £

Fixed Assets Cost Dep'n to date NetFurniture 3,240 135 3,105

Current AssetsStock of stationery 180Subscriptions due 225Bank 5,283

5,688Less Current LiabilitiesPrepayment of subscriptions 72Prepayment of games' fees 27Accrued wages 108

207Working Capital 5,481

8,586Less Long-term LiabilitiesBank loan 4,500NET ASSETS 4,086

REPRESENTED BYAccumulated fund 1,800Add surplus of income over expenditure for year 2,286

4,086

30

CHAPTER 22 Club and Society Accounts

22.3 (a) Calculation of the accumulated fund as at 1 November 20-8£

AssetsFurniture and equipment 420Bar stock 120Bank 380

920Less LiabilitiesAccrual (rent) 30Accumulated fund as at 1 November 20-8 890

(b) EAST SUTTON SOCIAL CLUBINCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 OCTOBER 20-9

£ £ £ IncomeSubscriptions 1,420BarSales 2,040Opening stock 120Purchases 1,485

1,605Less Closing stock 150

1,455Profit 585DanceReceipts 750Less expenses 580Profit 170

2,175Less ExpenditureRent of premises £840 + £110 – £30 920Secretary's expenses 225Wages of caretaker 580

1,725Surplus of income over expenditure 450

(c) BALANCE SHEET AS AT 31 OCTOBER 20-9£ £

Fixed AssetsFurniture and equipment 420Additions in year 200

620Current AssetsBar stock 150Bank 680

830Less Current LiabilitiesAccrual (rent) 110Working Capital 720NET ASSETS 1,340

REPRESENTED BYAccumulated fund 890Add surplus of income over expenditure for year 450

1,340

22.4 (a) Calculation of the accumulated fund as at 1 June 20-7£ £

AssetsCash/bank 410Subscriptions in arrears 200Stocks of music 6,160Grants and subsidies receivable 950

7,720Less LiabilitiesSubscriptions in advance 50Owing to suppliers of music 510

560Accumulated fund as at 1 June 20-7 7,160

(b) Dr Subscriptions Account Cr20-6/-7 £ 20-6/-7 £

1 Jun Balance b/d 200 1 Jun Balance b/d 5031 May Income & expenditure account 1,310 Cash/bank 1,48031 May Balance c/d 140 31 May Balance c/d 120

1,650 1,650

20-7/-8 20-7/-81 Jun Balance b/d 120 1 Jun Balance b/d 140

31

(c) Dr Purchases of Music Account Cr20-6/-7 £ 20-6/-7 £

Cash/bank 1,300 1 Jun Balance b/d 51031 May Balance c/d 660 Purchases for year 1,450

(missing figure)1,960 1,960

20-7/-8 20-7/-81 Jun Balance b/d 660

Depreciation of music: £Stocks of music (valuation) at 1 June 20-7 6,160Purchases for year 1,450

7,610Less Stocks of music (valuation) at 31 May 20-8 7,100Therefore Depreciation of music for the year 510

Dr Grant and Subsidies Account Cr20-6/-7 £ 20-6/-7 £

1 Jun Balance b/d 950 Cash/bank 2,50031 May Income & expenditure account 2,950 31 May Balance c/d 1,400

3,900 3,900

20-7/-8 20-7/-81 Jun Balance b/d 1,400

(d) CAPELLA CHOIRINCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 MAY 20-8

£ £ IncomeSubscriptions 1,310Donations 220Sale of concert tickets 2,680Grants and subsidies 2,950

7,160Less ExpenditureSecretarial expenses 550Rent of rehearsal room 850Other rehearsal expenses 350Fees and expenses 2,870Travelling expenses £490 + £210 700Stationery and printing 670Depreciation of music 510

6,500Surplus of income over expenditure 660

23.1 REXTON, SAREETA AND SONIAAPPROPRIATION ACCOUNT FOR THE YEAR ENDED 30 JUNE 20-9

£ £Net profit 38,000Less appropriation of profits:Interest allowed on partners' capitals:

Rexton 7,200Sareeta 4,200Sonia 2,400

13,800Salaries:

Sareeta 10,000Sonia 8,600

18,6005,600

Share of remaining profits:Rexton (4/8) 2,800Sareeta (3/8) 2,100Sonia (1/8) 700

5,600

Dr Partners' Current Accounts CrRexton Sareeta Sonia Rexton Sareeta Sonia

20-9 £ £ £ 20-9 £ £ £

30 Jun Balances b/d – 2,900 1,165 30 Jun Balance b/d 1,400 – –

Drawings 6,300 4,700 9,800 30 Jun Share of net profit 2,800 2,100 700

30 Jun Balances c/d 5,100 8,700 735 30 Jun Salary – 10,000 8,600

30 Jun Interest allowed on

capital 7,200 4,200 2,400

11,400 16,300 11,700 11,400 16,300 11,700

1 Jul Balances b/d 5,100 8,700 735

32

CHAPTER 23 Partnership Accounts

23.2 D BROOK AND T STREAMTRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 20-2

£ £Sales 72,620Purchases 48,200Carriage inwards 180


31,000Less expenses:Salaries 8,420Rates £2,100 – £700 1,400Advertising £320 + £60 380Motor van rental 1,260Discount allowed 320Bad debts written off 210Heating and lighting 530Provision for depreciation: equipment and fixtures 1,400

13,920Net profit 17,080

Less appropriation of profits:Commission on sales:

T Stream £72,620 x 2% 1,452Interest allowed on partners' capitals:

D Brook 1,600T Stream 1,200

2,80012,828

Share of remaining profits:D Brook (50%) 6,414T Stream (50%) 6,414

12,828

BALANCE SHEET AS AT 31 DECEMBER 20-2£ £ £

Fixed Assets Cost Dep'n to date Net Premises 25,000 – 25,000Equipment and fixtures 7,000 1,400 5,600

32,000 1,400 30,600

Current AssetsStock 6,280Debtors 2,000Prepayment (rates) 700Bank 1,260

10,240Less Current LiabilitiesCreditors 2,200Accrual (advertising) 60


FINANCED BYCapital AccountsD Brook 16,000T Stream £12,000 + £2,000 14,000

30,000Current Accounts (see below)D Brook 4,514T Stream 4,066

8,58038,580

Dr Partners' Current Accounts CrBrook Stream Brook Stream

20-2 £ £ 20-2 £ £

Drawings 3,500 3,000 31 Dec Share of net profit 6,414 6,414

31 Dec Capital account – 2,000 31 Dec Interest allowed on capital 1,600 1,200

31 Dec Balances c/d 4,514 4,066 31 Dec Commission on sales – 1,452

8,014 9,066 8,014 9,066

20-3 20-3

1 Jan Balances b/d 4,514 4,066

33

23.3 (a) GORE AND PRYOR

TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 20-9£ £ £

Sales 92,000Opening stock 8,500Purchases 53,000Carriage inwards 500Net purchases 53,500

62,000Less Closing stock 7,000Cost of Goods Sold 55,000Gross profit 37,000Less expenses:Staff salaries 4,200Administration expenses £7,200 – £400 6,800Selling expenses £5,400 + £600 6,000Bad debts written off 300Increase in provision for bad debts 90Provision for depreciation: equipment 1,000Loan interest (Gore) 840

19,230Net profit 17,770Add interest charged on partners' drawings:

Gore 60Pryor 50

11017,880

Less appropriation of profits:Commission on sales:

Gore £92,000 x 2% 1,840Interest allowed on partners' capitals:

Gore 1,200Pryor 800

2,000Salary:

Pryor 2,00012,040

Share of remaining profits:Gore (60%) 7,224Pryor (40%) 4,816

12,040

(b) BALANCE SHEET AS AT 31 DECEMBER 20-9£ £ £

Fixed Assets Cost Dep'n to date Net Premises 29,600 – 29,600Equipment 5,000 1,000 4,000

34,600 1,000 33,600


3,610Prepayment (administration expenses) 400Cash 820

11,830Less Current LiabilitiesCreditors 4,900Accrual (selling expenses) 600

5,500Working Capital 6,330

39,930Less Long-term LiabilitiesLoan account – Gore 7,000NET ASSETS 32,930

FINANCED BYCapital AccountsGore 12,000Pryor 8,000

20,000

Current Accounts GORE PRYOROpening balance 900 (1,080)Add: loan interest 840 –

commission on sales 1,840 – interest on capital 1,200 800 salary – 2,000 share of profit 7,224 4,816

12,004 6,536 Less: drawings 3,000 2,500

interest on drawings 60 50 8,944 3,986 12,930

32,930

34

24.1Dr Sundry Creditors Account Cr

£ £ Bank 3,815 Balance b/d 3,815

Dr Stock Account Cr£ £

Balance b/d 7,945 Realisation account 7,945

Dr Sundry Debtors Account Cr£ £


Dr Premises Account Cr£ £


Dr Loan from Crocus Cr£ £

Bank* 2,450 Balance b/d 2,450

* The partner's loan account is only repaid after the firm's other debts have been paid.

Dr Realisation Account Cr£ £

Stock 7,945 Bank: stock 7,812Sundry debtors 4,417 Bank: premises 21,000Premises 23,177 Bank: debtors 4,305

Loss on realisation:Rose (1/7) 346Tulip (2/7) 692Crocus (4/7) 1,384

35,539 35,539

Dr Partners' Capital Accounts Cr

Rose Tulip Crocus Rose Tulip Crocus£ £ £ £ £ £

Realisation account: loss 346 692 1,384 Balances b/d 9,170 10,290 12,432Bank 8,824 9,598 11,048

9,170 10,290 12,432 9,170 10,290 12,432

Dr Cash/Bank Account Cr£ £

Balance b/d 2,618 Creditors 3,815Stock 7,812 Loan: Crocus 2,450Premises 21,000 Capital accounts:Debtors 4,305 Rose 8,824

Tulip 9,598Crocus 11,048

35,735 35,735

24.2 (a) (i)

Dr Partners' Capital Accounts CrAlpha Beta Gamma Alpha Beta Gamma

20-8 £000 £000 £000 20-8 £000 £000 £00031 Dec Goodwill eliminated 4 4 4 31 Dec Balances b/d 30 25 – 31 Dec Balances c/d 44 39 16 31 Dec Loan account 20

31 Dec Goodwill created 6 6 – 31 Dec Revaluation 12 12 –

48 43 20 48 43 20

20-9 20-91 Jan Balances b/d 44 39 16

(ii)Dr Partners' Current Accounts Cr

Alpha Beta Alpha Beta20-8 £000 £000 20-8 £000 £000

Drawings 4 5 31 Dec Balances b/d 3 431 Dec Balances c/d 11 7 31 Dec Salary 4 –

31 Dec Share of profit 8 815 12 15 12

20-9 20-91 Jan Balances b/d 11 7

35

CHAPTER 24 Changes in Partnerships

(iii) ALPHA, BETA AND GAMMATRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 20-8

£000 £000 £000Sales £200,000 – £6,000 'sale or return' 194Opening stock 30Purchases 103

133Less Closing stock £24,000 + £2,000 'sale or return' 26Cost of Goods Sold 107Gross profit 87Less expenses:Operating expenses 64Loan interest: Beta 1

Gamma 23

67Net profit 20Less Appropriation of profits:Salary: Alpha 4

16

Share of remaining profits:Alpha (50%) 8Beta (50%) 8

16

(iv) BALANCE SHEET AS AT 31 DECEMBER 20-8

£000 £000 £000 Fixed Assets Cost Dep'n to date Net Land and buildings at revaluation 84 – 84Plant and machinery 70 40 30

154 40 114

Current AssetsStock £24,000 + £2,000 'sale or return' 26Debtors £40,000 – £6,000 'sale or return' 34

60Less Current LiabilitiesCreditors 33Accrual (loan interest) 3Bank overdraft 11

47Working Capital 13

127Less Long-term LiabilitiesLoan from Beta 10NET ASSETS 117

FINANCED BYCapital AccountsAlpha 44Beta 39Gamma 16

99Current AccountsAlpha 11Beta 7

18117

36

b) Memorandum to GammaThe capital accounts of Alpha and Beta have been credited with the unrecorded values of land andbuildings and goodwill. These increases were created when the business belonged to just the twopartners. With the introduction of you, Gamma, as a new partner, a premium has been charged forgoodwill. This is because you will start to share in the profits of the business immediately, and will benefitfrom the goodwill established by the existing partners. The decision not to leave a balance of goodwillshowing in the accounts causes a debit to your capital account of £4,000. Nevertheless, as owner of one-third of the business, you also own one-third of the goodwill.

25.1 PROTEM MANUFACTURING COMPANYMANUFACTURING AND TRADING ACCOUNT FOR THE YEAR ENDED 30 SEPTEMBER YEAR 9

£ £ Opening stock of raw materials 39,000Purchases of raw materials 214,760Less purchases returns 1,350

213,410252,410

Less Closing stock of raw materials 43,630COST OF RAW MATERIALS USED 208,780Factory wages 33,560PRIME COST 242,340Factory overheadsLighting and heating 14,460Power 7,600Rates and insurance 3,560Depreciation of plant and machinery 13,950

39,570281,910

Add Opening stock of work-in-progress 8,100290,010

Less Closing stock of work-in-progress 5,160MANUFACTURING COST OF GOODS COMPLETED 284,850

Sales 365,752Opening stock of finished goods 51,930Manufacturing cost of goods completed 284,850

336,780Less Closing stock of finished goods 57,400COST OF GOODS SOLD 279,380Gross profit 86,372

CHAPTER 25 Manufacturing Accounts

37

25.2 (a) and (b)CHESTERTON & COMPANY

MANUFACTURING AND TRADING ACCOUNT FOR THE YEAR ENDED 30 APRIL 20-9£ £

Opening stock of raw materials 17,500Purchases of raw materials 95,600

113,100Less Closing stock of raw materials 13,200COST OF RAW MATERIALS USED 99,900Direct factory wages and salaries 138,500PRIME COST 238,400

Factory overheadsIndirect factory wages and salaries 27,200Power and fuel £18,260 + £390 18,650Insurance (£3,680 – £240) x 5/8 2,150Provision for depreciation: machinery 11,000

59,000297,400



Sales 410,400Less Sales returns 5,200Net sales 405,200Opening stock of finished goods 24,800Manufacturing cost of goods completed 296,970

321,770Less Closing stock of finished goods 14,600COST OF GOODS SOLD 307,170Gross profit 98,030

25.3 MAKITMANUFACTURING, TRADING AND PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 30 OCTOBER 20-9£ £

Opening stock of raw materials 2,400Purchases of raw materials 87,900Carriage on raw materials 650Net purchases of raw materials 88,550

90,950Less Closing stock of raw materials 2,870COST OF RAW MATERIALS USED 88,080Manufacturing wages £94,000 + £600 94,600PRIME COST 182,680

Factory overheadsFactory expenses 22,670Rent and property insurance (£6,780 – £380) x 3/4 4,800Light and heat £6,000 x 3/4 4,500Provision for depreciation: plant and machinery 8,500

40,470223,150



Sales 300,000Opening stock of finished goods 16,750Manufacturing cost of goods completed 222,900

239,650Less Closing stock of finished goods 14,600COST OF GOODS SOLD 225,050Gross profit 74,950Less expenses:Rent and property insurance (£6,780 – £380) x 1/4 1,600Light and heat £6,000 x 1/4 1,500Office salaries 22,000Office expenses 7,800Selling and distribution costs 28,000Provision for depreciation: fixtures and fittings 950

vehicles 2,50064,35010,600

38

BALANCE SHEET AS AT 31 OCTOBER 20-9£ £ £

Fixed Assets Cost Dep'n to date Net Plant and machinery 85,000 30,500 54,500Office equipment 9,500 4,350 5,150Motor vehicles 14,500 7,000 7,500

109,000 41,850 67,150

Current AssetsStocks: raw materials 2,870

work-in-progress 4,750finished goods 14,600

22,220Debtors 6,400Prepayment (rent) 380Cash 780

29,780Less Current LiabilitiesCreditors 5,770Bank overdraft 8,680Accrual 600




81,880

26.1 (a) SWIFT TRADERS LIMITEDSTATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 20-9

£Retained earningsBalance at 1 November 20-8 12,890Profit for the year 52,000

64,890Less Dividends paid 18,000Less Transfer to general reserve 5,000Balance at 31 October 20-9 41,890

STATEMENT OF FINANCIAL POSITION (EXTRACT) AS AT 31 OCTOBER 20-9£ £

EQUITYAuthorised Share Capital200,000 ordinary shares of £1 each 200,000

Issued Share Capital150,000 ordinary shares of £1 each, fully paid 150,000

Capital ReserveShare premium account 37,500Revenue ReservesGeneral reserve* 27,760Retained earnings 41,890

69,650TOTAL EQUITY 257,150

* including transfer of £5,000

CHAPTER 26 Limited Company Financial Statements

39

26.2 (i) HIGHWOOD CO LTD

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 20-2£ £

Revenue 509,000Less Returns inwards 7,000Net revenue 502,000Opening inventories 28,000Purchases 327,000

355,000Less Closing inventories 29,000Cost of Goods Sold 326,000Gross profit 176,000Less Overheads:Wages and salaries £72,000 + £2,000 74,000General expenses 29,000Insurance £5,000 – £1,000 4,000Bad debts written off 2,000Increase in provision for doubtful debts 1,000Provision for depreciation: fixtures and fittings 7,000

117,000Profit from operations 59,000Less Finance costs (debenture interest) 6,000Profit for year 53,000

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20-2

£Retained earningsBalance at 1 January 20-2 17,000Profit for the year 53,000

70,000Less Dividends paid 30,000Balance at 31 December 20-2 40,000

(ii) STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20-2£ £ £

Non-current Assets Cost Dep'n to date Net Land 180,000 – 180,000Fixtures and fittings 70,000 22,000 48,000

250,000 22,000 228,000

Current AssetsInventories 29,000Trade receivables 79,000Less Provision for doubtful debts 3,000

76,000Prepayment (insurance) 1,000Cash and cash equivalents 3,000

109,000 continued

Less Current LiabilitiesTrade payables 32,000Accrual (wages) 2,000Debenture interest due 3,000

37,000

Net Current Assets 72,000300,000

Less Non-current Liabilities10% debentures 60,000NET ASSETS 240,000

£EQUITYAuthorised Share Capital500,000 ordinary shares of £1 each 500,000Issued Share Capital200,000 ordinary shares of £1 each 200,000Revenue ReservesRetained earnings 40,000TOTAL EQUITY 240,000

26.3 MAGINN CO LIMITEDSTATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20-9

£Retained earningsBalance at 1 January 20-9 17,400Profit for the year 36,720

54,120Less Dividends paid 17,500Less Transfer to general reserve 7,500Balance at 31 December 20-9 29,120

40

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20-9£ £ £

Non-current Assets Cost Dep'n to date NetLand and buildings 212,500 14,000 198,500Office equipment 6,750 2,550 4,200Vehicles 30,000 18,750 11,250

249,250 35,300 213,950

Current AssetsInventories 49,730Trade receivables 60,375Prepayments 1,800Cash and cash equivalents 5,005

116,910Less Current LiabilitiesCreditors 38,900Accruals 1,365

40,265Net Current Assets 76,645

290,595Less Non-current Liabilities8% debentures 73,975NET ASSETS 216,620

EQUITYAuthorised Share Capital175,000 ordinary shares of £1 each 175,000

Issued Share Capital150,000 ordinary shares of £1 each, fully paid 150,000

Capital ReserveShare premium account 15,000Revenue ReservesGeneral reserve* 22,500Retained earnings 29,120

51,620TOTAL EQUITY 216,620

* including transfer of £7,500

41

CHAPTER 27 Statement of Cash Flows

27.1JC LIMITED

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 SEPTEMBER 20-4£ £

Net cash (used in)/ from operating activities (see below) 32,150

Cash flows from investing activities

Purchase of non-current assets (vehicles*) (20,000)

Net cash (used in)/ from investing activities (20,000)

Cash flows from financing activities

Repayment of bank loan (12,500)

Dividends paid (15,500)

Net cash (used in)/ from financing activities (28,000)

Net increase/(decrease) in cash and cash equivalents (15,850)

Cash and cash equivalents at beginning of year 6,250

Cash and cash equivalents at end of year (9,600)

Reconciliation of profit from operations to net cash flow from operating activities £

Profit from operations (before tax and interest) 25,800

Adjustments for:

Depreciation for year** 17,500

Increase in inventories (10,500)

Increase in trade receivables (9,500)

Increase in trade payables 11,100

Cash (used in)/from operations 34,400

Interest paid (2,250)

Income taxes paid –

Net cash (used in)/ from operating activities 32,150

* Purchase of vehicles: £100,000 – £80,000 = £20,000

** Depreciation charged (£13,500 – £11,000) + (£40,000 – £25,000) = £17,500

27.2SIMPLEX LIMITED

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 DECEMBER 20-7£ £

Net cash (used in)/ from operating activities (see below) 20,400


Purchase of non-current assets (plant and equipment*) (18,900)

Net cash (used in)/ from investing activities (18,900)


Issue of ordinary shares at a premium

ie £15,000 + £5,000 = 20,000

Increase in debentures 10,000

Dividends paid (20,000)

Net cash (used in)/ from financing activities 10,000

Net increase/(decrease) in cash and cash equivalents 11,500

Cash and cash equivalents at beginning of year (6,500)

Cash and cash equivalents at end of year 5,000)

Reconciliation of profit from operations to net cash flow from operating activities £

Profit from operations (before tax and interest) 46,250

Adjustments for:

Depreciation for year** 7,900

Increase in inventories (17,000)

Increase in trade receivables (4,000)

Increase in trade payables 4,500

Cash (used in)/from operations 37,650

Interest paid (3,750)

Income taxes paid*** (13,500)

Net cash (used in)/ from operating activities 20,400

* Purchase of plant and equipment: £70,300 – £51,400 = £18,900** Depreciation charged (£12,000 – £10,000) + (£14,300 – £8,400) = £7,900*** The liability for tax – which is a current liability at 31 December 20-6 – is paid in 20-7.

42

27.3 (a)PANCHOLI LIMITED

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 20-3£000 £000

Net cash (used in)/ from operating activities (see below) 92


Purchase of non-current assets –

Net cash (used in)/ from investing activities –


Repayment of loans and debentures (50)

Dividends paid (20)

Net cash (used in)/ from financing activities (70)

Net increase/(decrease) in cash and cash equivalents 22

Cash and cash equivalents at beginning of year (16)

Cash and cash equivalents at end of year (6)

Reconciliation of profit from operations to net cash flow from operating activities £000

Profit from operations 104

Adjustments for:

Depreciation for year* 30

Increase in inventories (28)

Increase in trade receivables (14)

Increase in trade payables 24

Cash (used in)/from operations 116

Interest paid (5)

Income taxes paid (19)*

Net cash (used in)/ from operating activities 92

* Tax liability of £19,000 for 20-2 paid in 20-3

(b) From the point of view of the company’s shareholders, the following points are highlighted by the cashflow statement of Pancholi Limited for 20-3:• a good cash flow has been generated from operations, £116,000, which is well above the amounts

paid for tax, £19,000, and dividends, £20,000• inventories, trade receivables and trade payables have increased during the year, with a net

increase of £18,000 – an indication of an expanding business• loans and debentures of £50,000 have been repaid which has reduced the company’s long-term

liabilities to nil• interest paid is a low amount and will be even less next year following repayment of the loans and

debentures• during the year there has been no investment in non-current assets• the bank balance – cash and cash equivalents – has increased during the year from an overdraft

of £16,000 to a credit balance of £6,000.Conclusion:The cash flow statement shows that Pancholi Limited is a profitable company which is generating cash.There has been an expansion of net current assets and the company has repaid debt. The company isin a strong financial position and, although it has not invested in non-current assets this year, it has theability to do so in the future. Shareholders should hold their existing shares and should consider buyingmore as profits and dividends seem likely to increase in the future.

28.1 (a) Note:• gross profit is revenue, minus cost of goods sold:

for 20-6, £541,000 – £369,000 = £172,000for 20-7, £675,000 – £481,000 = £194,000

• profit for the year is increase in retained earningsfor 20-6, (£53,000 – £21,000) = £32,000for 20-7, (£82,000 – £53,000) = £29,000

• profit before tax is:for 20-6, £32,000 + £20,000 = £52,000for 20-7, £29,000 + £30,000 = £59,000

20-6 20-7Gross profit percentage 31.8% 28.7%Net profit percentage (before tax) 9.6% 8.7%Asset turnover ratio 1.8 times pa 1.6 times paReturn on net assets (before tax) 17.2% 13.7%Current assets/current liabilities 2.0:1 1.7:1Quick assets/current liabilities 1.1:1 0.6:1

(b) Gross profit percentage The fall in the percentage could be caused by an increase in buying prices notpassed on in higher selling prices, or by a change in products sold, or by pilfering.Net profit percentage The fall in caused partly by the lower gross profit percentage, and/or an increasein overheads.Asset turnover ratio During 20-7 there has been a considerable increase in net assets: revenue has notincreased by the same proportion. A doubling of year end inventories may indicate that the business ispreparing for a major sales campaign; alternatively, some of the inventories could be unsaleable.Return on net assets This percentage has declined for the same reasons as the previous two ratios.Current assets/current liabilities Despite the doubling of year end inventories and an increase in tradereceivables, this ratio has fallen because of the large increase in trade payables, and the higher taxliability.Quick assets/current liabilities This ratio has fallen quite dramatically, mainly because of the largeincrease in trade payables. It would appear that trade payables are being used to finance a part of theexpansion scheme.

CHAPTER 28 Interpretation of Financial Statements

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