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1 Accruals and prepayments – expenses

Exercise 1 On 1 January Year 4, the following were 3 of the account balances in E Parker’s ledger:

£ Rent 230 Dr Insurance 65 Dr Advertising 110 Cr

During the year ended 31 December Year 4, he paid the following amounts by cheque:

£ 31 Jan Advertising 110 28 Feb Rent 460 31 May Rent 690 31 Aug Rent 690 31 Aug Insurance 180 30 Sep Rent 250

Additional information: (1) The monthly rent was increased to £250 from 1 October Year 4. (2) An advertising bill amounting to £85 had not been paid by 31 December Year 4. (3) The insurance premium paid on 31 August Year 4 covered the year ended 31 August Year 5. Required Prepare accounts in the ledger of E Parker for the year ended 31 December Year 4, for: (i) rent (ii) insurance (iii) advertising. Give particular attention to dates, and show, in each account, the transfer to the Profit & Loss Account for the year ended 31 December Year 4.

Exercise 2 The following details are from the books of Melville & Co for the year ended 30 September Year 9:

£ Sales 279,300 Purchases 118,650 Stock at 1 Oct Yr 8 20,470 Stock at 30 Sep Yr 9 17,320 Wages and salaries 83,540 Heating and lighting 2,530 Rent and rates 9,860 Motor-vehicle expenses 11,940 Office expenses 3,970

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In addition, at 30 September Year 9:

- wages and salaries owing amount to £620 - rent payable accrued due, £250 - rates prepaid amount to £180 - heating and lighting accrued due, £60 - office stationery is in stock amounting to £380.

Required Prepare for Melville & Co a Trading and Profit & Loss Account for the year ended 30 September Year 9.

Exercise 3 The following are details relating to N Tulloch’s Rent Payable Account: Year 5 30 Jun Balance on the account of £300, representing 2 months’ rent paid in advance 8 Sep Paid £450 by cheque, being rent for the 3 months ended 30 November Year 5 27 Nov Paid £720 by cheque, being rent for the 4 months ended 31 March Year 6 Year 6 9 Apr Paid £360 by cheque, being rent for the 2 months ended 31 May Year 6 Required Prepare for N Tulloch the Rent Payable Account for the year ended 30 JuneYear 6. Balance the account at the year end and show the transfer to the Profit & Loss Account.

Exercise 4 Tan Lian, a sole trader, had the following account balances on 1 January Year 5:

£ Insurance 70 Dr Office expenses 160 Dr Rent payable 240 Cr

During Year 5, the following payments were made by cheque: Year 5 26 Jan Office expenses: purchase of stationery, £63 9 Feb Rent for 4 months ended 31 March Year 5, £960 25 Feb Insurance for 6 months ended 31 August Year 5, £210 12 Apr Office expenses, £92 8 Jun Rent for 4 months ended 31 July Year 5, £1,040 25 Aug Insurance for 6 months ended 28 February Year 6, £240 6 Nov Rent for 4 months ended 30 November Year 5, £1,040 11 Dec Office expenses, £280

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At 31 December Year 5, there was a stock of stationery valued at a cost of £90.There was no further increase in the monthly charge for rent in December Year 5. Required Open the 3 accounts listed above and enter the transactions that occurred in Year 5. Balance the accounts and make the appropriate transfers to the Profit & Loss Account for the year ended 31 December Year 5.

2 Accruals and prepayments – income

Exercise 1 M Paine, a sole trader, is about to prepare his final accounts. As book-keeper, you need to adjust the figures shown in certain accounts. M Paine’s financial year ends on 31 December Year 5. At that date, certain accounts carry the following balances:

£ Rates 1,960 (Dr) Telephone 215 (Dr) Insurance 760 (Dr) Rent receivable 3,840 (Cr) Wages 45,630 (Dr)

You ascertain the following information relating to the accounts above. (1) Rates – included in the Rates Account is a payment of £900 for the half-year to 31 March Year 6. (2) Telephone – the amount accrued due, not yet paid to 31 December Year 5, is £47. (3) Insurance – a premium of £720 paid for the year to 31 January Year 6 is included in the Insurance Account. (4) Rent receivable – the tenant owes £160 for rent outstanding at 31 December Year 5. (5) Wages – the amount accrued due at 31 December Year 5 was £840. Required (a) Open these accounts, enter the balances given, deal with the accrual or prepayment as necessary, and show the transfers to the Profit & Loss Account. (b) Show how any remaining balances on the above accounts would appear in the balance sheet of M Paine at 31 December Year 5.

Exercise 2 L Reinholdt is a theatrical agent whose accounting year ends on 31 December. He provides

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the following details for the year ended 31 December Year 10: (1) On 1 January, 3 months rent had been paid in advance – £1,200. On 1 April, he paid 6 months rent in advance – £2,400. On 1 October, he paid rent for the 6 months ending 31 March Year 11 – £2,700. (2) On 1 January, commission due to Reinholdt, and not yet received, amounted to £3,200. January–December: commission received – £64,300. At 31 December, commission due and not yet received in respect of Year 10 amounted to £4,700. (3) On 1 January, the estimated amount outstanding on the Telephone Account was £320. On 31 March, he paid the telephone bill in respect of the previous 6 months, £510. On 30 September, he paid the telephone bill in respect of the previous 6 months, £520. On 31 December, the estimated amount outstanding on the Telephone Account was £300. Required (a) Prepare the following accounts for Reinholdt for the year ended 31 December Year 10: (i) Rent Account (ii) Commission Receivable Account (iii) Telephone Account. (b) Prepare a balance sheet extract for Reinholdt at 31 December Year 10, showing how the 3 balances would appear.

Exercise 3 At 1 January Year 8, L Johnston, a trader, owed £320 for rent, but her rates were prepaid by £110. During Year 8, she made the following payments by cheque:

Rent £

2 Apr 600 28 Sep 630 Rates 7 Apr 160 5 Oct 180

At 31 December Year 8 there was accrued rent of £350 and rates were prepaid by £120. Required Prepare L Johnston’s combined Rent & Rates Account for Year 8, showing the transfer to the Profit & Loss Account and the account fully balanced.

Exercise 4 The following information relates to some of the expense and income accounts of

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Jan Goldsmith for the year ended 31 December Year 5:

£ Insurance Paid by cheque 23 Feb Yr 5 630 Prepaid 31 Dec Yr 4 85 Prepaid 31 Dec Yr 5 95 Stationery Paid by cheque 19 Mar Yr 5 765 Stock 31 Dec Yr 4 130 Stock 31 Dec Yr 5 160 Owing to stationery suppliers 31 Dec Yr 5 45 Telephone Paid by cheque 11 Jun Yr 5 295 Paid by cheque 4 Dec Yr 5 285 Owing 31 Dec Yr 4 64 Owing 31 Dec Yr 5 56 Rent payable Paid by cheque 16 Feb Yr 5 2,160 Paid by cheque 12 Aug Yr 5 2,510 Owing 31 Dec Yr 4 360 Prepaid 31 Dec Yr 5 740 Rent receivable Received by cheque 31 Mar Yr 5 450 Received by cheque 30 Sep Yr 5 375 Owing 31 Dec Yr 4 75 Owing 31 Dec Yr 5 150 Required (a) Prepare the 5 ledger accounts, incorporating the information given above, for the year ended 31 December Year 5. In each account, show the transfer to the Profit & Loss Account and bring down the balance(s) at 1 January Year 6. (b) Show how the balances on the accounts would be displayed in Jan Goldsmith’s balance sheet at 31 December Year 5.

Exercise 5 In the books of Frank Napier, a sole trader, the following account balances were brought forward on 1 July Year 4:

£ Advertising 260 (Cr) Insurance 40 (Dr) Office cleaning 260 (Cr) Rent receivable 350 (Dr)

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During the year ended 30 June Year 5, the following amounts were paid by cheque: Year 4 £ 25 Jul Office cleaning (3 months to 31 Jul Yr 4) 390 1 Aug Insurance premium (6 months to 31 Jan Yr 5) 270 5 Sep Advertising 260 24 Oct Office cleaning (3 months to 31 Oct Yr 4) 390 Year 5 26 Jan Office cleaning (3 months to 31 Jan Yr 5) 420 1 Feb Insurance premium (6 months to 31 Jul Yr 5) 300 8 Mar Advertising 210 21 Apr Office cleaning (3 months to 30 Apr Yr 5) 420 The following amounts were received by cheque during the year ended 30 June Year 5: Year 4 £ 17 Aug Rent (1 May – 31 Aug Yr 4) 700 3 Oct Rent (1 Sep – 31 Oct Yr 4) 350 15 Dec Rent (1 Nov – 31 Dec Yr 4) 380 Year 5 12 Jan Advertising (part refund) 40 3 Mar Rent (1 Jan – 31 Mar Yr 5) 570 19 May Rent (1 Apr – 31 Jul Yr 5) 760 Frank Napier was aware that, at the end of his financial year, 30 June Year 5, there was an outstanding advertising bill for £190 and 2 months’ payment outstanding on the office cleaning account, at £140 per month. Required (a) Open the following accounts: (i) Advertising (ii) Insurance (iii) Office Cleaning (iv) Rent Receivable. (b) Post the various items to the accounts. (c) Show the transfer entries to the Profit & Loss Account for the year ended 30 JuneYear 5. (d) Balance the accounts at 30 June Year 5. Note You are not required to show the Profit & Loss Account.

Exercise 6 The following information is from the books of Enterprise Services in respect of the year ended 30 June Year 9:

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Rent Receivable

Year 8 £ 1 Jul 3 months’ rent prepaid 630 1 Oct 8 months’ rent received by cheque 1,260 Year 9 1 Apr 6 months’ rent received by cheque at revised

rate of £2,960 per annum 1,480

Rates

Year 8 1 Jul 3 months’ rates prepaid 780 1 Oct Paid 6 months’ rates by cheque 1,680 Year 9 1 Apr Paid 6 months’ rates by cheque 1,680

Advertising

Year 8 1 Jul Accrued due 370 28 Aug Paid by cheque 1,250 Year 9 15 May Paid by cheque 2,100

Printing and Stationery

Year 8 1 Jul Stock of stationery 3,400 14 Sep Purchased stationery by cheque 850 Year 9 12 Feb Paid printing account by cheque 420 At 30 June Year 9: (1) Payments for advertising during the year included £580 for poster advertising that was due to be carried out in August Year 9. (2) The stock of stationery was valued at £3,100. There was also an unpaid invoice for £615 for printing. Required (a) Prepare the following accounts for the year ended 30 June Year 9, including transfers to the Profit & Loss Account and year-end balances. (i) Rent Receivable (ii) Rates (iii) Advertising (iv) Printing and Stationery (b) Show, in the form of a balance sheet extract, how the balances on these accounts would appear at 30 June Year 9.

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Question 1

From the following information prepare T Swinton’s office stationery account for the tow year

ended 31 December Year 3 and 31 December Year 4 respectively.

Year 3

Jan 1 Balance of stationery in stock £ 615

Jan 1 – Dec 31 Office stationery purchased by cheque during the year £ 2,020.

Dec 31 Stock of office stationery valued at £ 490.

Year 4

Jan 1 – Dec 31 Office stationery purchased by cheque during the year £1, 960

Dec 31 Stock of office stationery valued at £ 580.

Question 2

From the following details prepare K Laport’s rent account for the year ended 31 December

Year 5. Balance the account at the year-end, showing the transfer to profit and loss account.

Year 5

Jan 1 balance on the account £240, representing one quarter’s rent paid in advance.

Mar 25 Paid by cheque £ 480, rent for the half-year ended 30 September year 5.

Oct 2 Paid by cheque £ 540, rent for the half-year ended 31 March year 6.

Question 3

From the following particulars prepare office cleaning account for the year ended 30 September Year 6.

30 September Year 5 -Invoice for £160 received from cleaning company for 2

months ended 30 September year 5and not yet entered in the

books.

October Year 5- -Accounts paid by cheque for office cleaning £ 990.

September Year 6

30 September Year 6 -Invoice for £ 170 received from cleaning company for

2months ended 30 September Year 6and not yet entered in

the books.

Question 4

P Jones, a sole trader, had the following account balances on 1 January Year 7:

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- Rent payable Cr £ 70

- Insurance Dr £ 40

- Telephone Cr £ 45

- Rates Dr £ 210

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During the year, the following payments were made by cheque:

Year 7 £

Jun 1 Rent payable (quarterly, in advance) 210

Feb 1 Insurance premium for year to 31 January Year 8 600

Feb 1 Telephone bill 127

Mar 1 Rent payable (increased amount) 300

May 1 Telephone bill 146

May 1 rates for half year to 30 Sep year 7 540

Jun 1 rent payable 300

Aug 1 Telephone bill 163

Sep 1 Rent payable 300

Nov 1 rates for the half year to 31 March Year 8 540

Nov 1 Telephone bill 184

Dec 1 Rent payable 300

P Jones calculates that at the end of the financial year, 31 December Year 7, he owes £ 60

for telephone cells.

Required

Open the four accounts listed above, and post the necessary items to them. Balance the

accounts and make the appropriate transfers to the profit and loss account for the year

ended 31 December Year 7.

Question 5

On 1 January Year 6, the following were 3 of the account balances in K jordan’s ledger:

£

Insurance 130 Dr

Rent 320 Dr

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Commission Receivable 170 Dr

During the year ended 31 December Year 6, K Jordan’s received and paid the following

amounts by cheque.

Receipts Payments

£ £

26 Jan commission 170

8 Feb Rent 640

26 Mar Insurance 780

12 Apr Rent 960

3 July Rent 720

9 Aug Commission 165

5 Sept Rent 720

4 Nov Rent 1,080

Additional Information:

(1) -The insurance premium paid on 26 March Year 6 covered the period until 31

march year 7. The premium was treated as evenly spread over the year.

(2) -The monthly rent was increased to 360 from 1 July Year 6. The payment on 4

November covered the period until 31 January Year 7.

(3) -£ 210 of commission which was due had not been received by 31 December

Year 6.

Required

(a) Prepare Accounts in the Ledger of K Jordan for the year ended 31 December Year 6,

for:

(i) Insurance

(ii) Rent

(iii) Commission Receivable

(iv)

(b) Show how the balances on the above accounts would be displayed in K Jordan’s

balance sheet at 31 December Year 6.

3 Depreciation of fixed assets Exercise 1

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Jack Millard commenced business on 1 January Year 3 and on that date purchased a motor vehicle for £10,400. On 31 December Year 3, he wished to determine the depreciation expense for the year just completed. He is unsure whether to use the: (a) straight line method – the vehicle would have a 3-year life with an estimated resale value of £4,100; (b) reducing balance method – using a rate of 40% on cost. Required To help Jack Millard decide between the 2 methods, draw up and complete the following table:

Depreciation charge in Profit & Loss Account for the year ended Net book value 31 Dec Year 3 at 31 Dec Year 3 £ £

Method (a) (b)

Exercise 2 Charles Day started a business on 1 January Year 4. On that date, he purchased by cheque a motor van costing £9,600 from Greenaway Motors Ltd. He decided to depreciate this asset, using the rate of 40% per annum on the reducing balance method. He also Purchased, on the same day, on credit, fixtures and fittings costing £15,000 from P J Shop Fitters Ltd. He decided to depreciate these fixtures and fittings using the straight line method. He estimated that they would have a useful life of 15 years, and would have a scrap value of £2,100. He kept the asset accounts at cost, and used a provision for depreciation account for each asset. Required Prepare for Charles Day the following accounts for each of Years 4, 5, 6, and 7: (i) Motor Van (ii) Provision for Depreciation of Motor Van (showing calculations to the nearest £) (iii) Fixtures and Fittings (iv) Provision for Depreciation of Fixtures and Fittings.

Exercise 3 Required With reference to T/15.2, prepare an extract to show how both assets would appear in Charles Day’s balance sheet at 31 December Year 7.

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Exercise 4 On 8 February Year 5, Southern Stores bought a computer for use in the office, paying £8,600 by cheque. It was decided to provide for depreciation by use of the straight line method. It was estimated that, at the end of 5 years, the residual (scrap) value would be £600. On 12 September Year 5, Southern Stores purchased a motor vehicle for use in the business, paying £10,000 by cheque. The vehicle was to be depreciated at the rate of 40% per annum, using the reducing balance method. The business retained the asset accounts at cost and dealt with depreciation using a separate Provision for Depreciation Account for each asset.The financial year ends on 31 December. Any asset purchased in the first 6 months of a year has a whole year’s depreciation provided, while any asset purchased in the second half of the year has only half a year’s depreciation written off. Required (a) Prepare the following accounts for the years ended 31 December Years 5, 6, and 7: (i) Computer Equipment (ii) Provision for Depreciation of Computer Equipment (iii) Motor Vehicle (iv) Provision for Depreciation of Motor Vehicle. (b) Show a balance sheet extract at 31 December Year 7 for both the Computer Equipment and Motor Vehicle Accounts.

Exercise 5 D Amos purchased fixtures and fittings for £6,000 by cheque on 1 January Year 3. On 1 July of the same year, he purchased by cheque a motor vehicle for £18,000. He decided to depreciate his fixed assets as follows: (1) Fixtures and fittings – using the straight line method. He estimated that they would have a working life of 8 years, with a residual (scrap) value of £1,000. (2) Motor vehicle – using the reducing balance method. He set the rate at 40% on reducing balance each full year. He kept the asset accounts at cost and kept accumulated depreciation of each type of asset in a separate Provision for Depreciation Account. Assets acquired during the year were depreciated from the date of purchase. Required In the books of D Amos, prepare the following accounts for the 3 financial years ended 31 December Year 3,Year 4, and Year 5, balancing the accounts at the end of each year:

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(i) Fixtures and Fittings (ii) Provision for Depreciation of Fixtures and Fittings (iii) Motor Vehicle (iv) Provision for Depreciation of Motor Vehicle.

Exercise 6 On 1 January Year 4, Frank Saunders purchased furniture and equipment by cheque for £11,000. He decided to provide for depreciation on this asset using the straight line method over 8 years. He estimated that the scrap value at the end of that time would be £600. On 14 February Year 4, he purchased a motor van by cheque for £8,400, for use in the business. He decided to provide for depreciation on this asset at the rate of 40% per annum, using the reducing balance method. He allowed a full year’s depreciation in the year of purchase and calculated the depreciation to the nearest £. On 31 December Year 6, he sold the motor van for £3,200 and was paid by cheque. His practice is to record and leave the asset accounts at cost and to accumulate the depreciation in a Provision for Depreciation Account for each asset. His financial year ends on 31 December. Required In the books of Frank Saunders, open the following accounts and enter the transactions for the years ended 31 December Years 4, 5, and 6: (i) Furniture and Equipment (ii) Provision for Depreciation of Furniture and Equipment (iii) Motor Van (iv) Provision for Depreciation of Motor Van (v) Disposal of Motor Van.

Question: 1

A motor vehicle is bought for £ 12,800. It is planned to be used for 5 years and then sold for

£ 400. Calculate the depreciation for each year using

(a) The straight ling method; and

(b) The reducing balance method; applying a depreciation rate of 50%

Question: 2

A machine costing £ 20,000 was purchased by R Silvester by cheque on 1 July Year 3. He

decided to depreciate it at the rate of 40 % per annum using the reducing balance method.

a) Show the

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i) Machine account

ii) Provision for depreciation of machine account for the three years ending 30

June Years 4, 5 and 6.

b) Show how the asset would appear in the balance sheet of R Silvester on 30 June Year

6.

Question: 3

On 1 January year 6, Tanya Green bought a motor vehicle for £ 6,500 by cheque. She

decided to depreciate 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 ash.

Show the

(a) Motor vehicle account

(b) Provision for depreciation of motor vehicle account, and

(c) Disposal account for financial years ending 31 December year 6, 7 and 8.

4 Bad debts and provision for doubtful debts

Exercise 1 F Openshaw submitted the following information at 31 March for Years 4, 5, and 6:

Total debtors before writing off Bad debts

Date bad debts to be written off £ £

31 Mar Yr 4 18,640 F Dale 117

T Wylie 163 31 Mar Yr 5 20,835 G Block 315 31 Mar Yr 6 17,694 A Dolt 78

E Fox 216

Openshaw provides for doubtful debts at the rate of 21/2% of the remaining debtors at the end of each financial year. At 31 March Year 3, the provision for doubtful debts was £380. Required

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(a) In the books of F Openshaw, prepare the following accounts for the years ended 31 March Years 4, 5, and 6, including the transfers to the Profit & Loss Account at the end of each financial year:

(i) Bad Debts (ii) Provision for Doubtful Debts.

(b) Show extracts from the balance sheets of F Openshaw at 31 March Years 4, 5, and 6, placing debtors under current assets.

Exercise 2 (a) It is the practice of Coniston & Son to write off bad debts as they occur and to provide for doubtful debts. For the 3 years from the commencement of business to 31 December Year 3, the following information is available: At year ended 31 December:

Year 1 Year 2 Year 3 £ £ £

Balance of debtors before writing off bad debts 47,800 76,300 91,400 Bad debts to be written off 800 1,100 1,500 Provision for doubtful debts, as a percentage of debtors 3% 4% 2% Required (i) Prepare the following accounts for Years 1, 2, and 3, showing the transfers to the Profit & Loss Account at the end of each year:

● Bad Debts ● Provision for Doubtful Debts.

(ii) Show the balance sheet extract in respect of debtors at 31 December each year. (b) On 7 June Year 4, Coniston & Son received a payment of £129 from S Atkins for an outstanding debt of £320. Coniston wrote off the balance as a bad debt. Required Show the account of S Atkins in Coniston’s ledger.

Exercise 3 At 31 December Year 8, AB & Co has debtors totalling £42,560. Debts amounting to £760 have yet to be written off as bad. A specific provision is to be created covering in full the following debts:

D £620 E £570 F £710

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A general doubtful debts provision of 4% of remaining debts is also to be created. No provision exists as yet. Required (a) Show in a statement:

(i) how the 2 provisions are calculated (ii) the amount of net debtors.

(b) Show as an extract how the item ‘debtors’would appear in the balance sheet of AB & Co at 31 December Year 8.

Exercise 4 Donald Lisher, a sole trader, maintains a provision for doubtful debts that he adjusts at the end of each financial year. At 1 January Year 8, the balance on the account was £860. The following additional information is available:

Bad debts written off Debtor year-end Provision for

Year ended during year balances doubtful debts £ £ %

31 Dec Yr 8 1,235 25,300 4 31 Dec Yr 9 1,640 29,600 6 31 Dec Yr 10 1,320 28,800 5 On 12 October Year 10, Donald Lisher received a cheque for £240 in respect of a debt which had been written off in Year 9. Required (a) From the above information, prepare for the years ended 31 December Years 8, 9, and 10:

(i) the Bad Debts Account, including the closing entries; (ii) the Provision for Doubtful Debts Account, showing the balance carried forward each year.

(b) Show, in a brief statement, the entries which would be made in the books of Donald Lisher to record the recovery of £240 for the debt written off in Year 9. Note Bad debts written off should not be taken to the Provision for Doubtful Debts Account.

Exercise 5 The accounting year of R Cleaver, a trader, ends on 31 December.At 31 December Year 3, his trade debtors amounted to £37,500 and he had a provision for doubtful debts amounting to 2% of debtors.

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During Year 4, Cleaver wrote off debts as follows: (1) The whole of the debt of £460, due from L Paul, was written off as irrecoverable on 15 August Year 4. (2) Another debtor,K Sang, who owed £220, paid a contribution of 25%; the balance was immediately written off as irrecoverable on 26 November Year 4. At 31 December Year 4, debtors amounted to £41,000 and the provision for doubtful debts was adjusted to 2.5% of this figure. In Year 5, bad debts written off amounted to £560. In addition, on 20 October, K Sang paid the balance of his debt, which had been written off in Year 4. It was the practice of Cleaver to keep a Bad Debts Recovered Account for recording debts recovered in a year following the one in which they were written off. At 31 December Year 5, debtors amounted to £39,000 and the Provision for Doubtful Debts was adjusted to 2% of this figure. Required Prepare the following accounts to include the above information relating to the years ended 31 DecemberYear 4 and 31 December Year 5:

(i) L Paul (ii) K Sang (iii) Bad Debts (iv) Provision for Doubtful Debts (v) Bad Debts Recovered.

Question: 1 On 30 June Year 4, the end of his financial year, T Smithers found that his debtors mounted

to £ 26,760. Included in this figure were debts amounting to £ 460 which Smithers regarded

as irrecoverable and which he now decided to write off. He also decided to create a rovision

for doubtful debts at 4% of total debtors.

Prepare:

(a) The bad debts account; and

(b) The provision for doubtful debts account in both cases balanced at the end of the

financial year.

Question: 2

At 31 March 2002 William john’s trade debtors amounted to £ 60,000. Included in this

amount were irrecoverable debts of £ 5,000, which William decided to write off following this

write off, William adjusted his Provision for doubtful Debts to 2% of debtors.

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At 31 March 2003, William’s debtors had increased in total to £ 80,000 and included in this

amount were irrecoverable debts of £ 10,000, which William decided to write off as bad

debts. The Provision for Doubtful debts was than adjusted to 4% of debtors.

At 31 March 2004, William’s debtors had increased further in total to £ 90,000 and this was

after writing off bad debts of £ 250. The Provision for doubtful debts was reduced to 3% of

debtors.

Required:

Prepare the following accounts for each of the years ended 31 March 2002, 2003 and 2004:

(i) Bad Debts

(ii) Provision for Doubtful Debts

The balance on the provision for doubtful Debts account at 1 April 2001 was £ 800.

Question: 3

B Tanner owns a wholesaling business. He adjusts the provision for doubtful debts at the

end of each financial year. Irrecoverable debts are written off debtors’ accounts as they

become known. The following information is available:

B debts Net total Percentage rate

For the Written off debtors of provision

Year ended during year at year end for doubtful debts

£ £

31 March year 5 1,120 19,700 6%

31 March year 6 2,370 26,500 5%

31 march year 7 1,680 24,300 4%

Required:

From the above information, prepare:

(a) The bad debts account including the closing entries for the years ended 31 march year

5, 6 and 7.

(b) The provision for doubtful debts account for the same years showing the provision

carried forward each year. The balance on the account at 1 April Year 4 was £ 910.

(c) An extract from each year’s balance sheet, showing the entry for debtors.

Question: 4

Ruper Tancred, whose financial year end is 31 March, summarized the following information

in respect of the last three trading years:

Year 13 year 14 year 15

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£ £ £

Customer balances at 31 March 122,000 138,000 14,000

Bad debts:

written off during the year 962 1,739 1,248

To be written off at 31 march 240 1,010 850

Doubtful debts:

Specific provision required at 31 March1, 260 1,090 350

General Provision at 31 march to be adjusted to: 2% 2% 2.5%

At 1 April year 12, the provision for doubtful debts brought forward was £ 1, 970.

Required:

(a) Prepare ledger accounts for each of the three years for: (i) had debts: and (ii)

provision for doubtful debts.

(b) Show how debtors would appear in the balance sheet at 31 March year 15.

5 Bank reconciliation statements

Exercise 1 The following information is available in respect of A Wolfson, a trader:

CASH BOOK (bank only) Year 5 £ Year 5 £ 1 Sep Balance b/f 2,806 4 Sep Purchases (915) 234 5 Sep Sales 1,020 9 Sep Wages (916) 635 10 Sep T Swithin 857 16 Sep N Victor (917) 526 15 Sep Sales 1,370 24 Sep Rent (918) 370 23 Sep K Smart 524 26 Sep Wages (919) 680 25 Sep T Hunt 413 27 Sep N Hills (920) 416 28 Sep Sales 1,245 29 Sep S Twitchin (921) 285

30 Sep Purchases (922) 540 30 Sep Balance ?

Bank statement Paid out Paid in Balance

Year 5 £ £ £ 1 Sep Balance 2,806 Cr 7 Sep Cash: 915 234 2,572 Cr 9 Sep Credit 1,020 3,592 Cr 12 Sep Cash: 916 635 2,957 Cr 15 Sep Credit 857 3,814 Cr 17 Sep Credit transfer – P Mott 271 4,085 Cr

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19 Sep Credit 1,370 5,455 Cr 21 Sep Standing order – Minster 96 5,359 Cr

Publications 23 Sep Credit transfer – T Lennox 870 4,489 Cr 26 Sep Direct debit – Insurance 230 4,259 Cr 28 Sep Cash: 919 680 3,579 Cr 30 Sep Bank interest 8 3,587 Cr Required (a) Calculate the missing balance in the Cash Book and enter it in your answer book as the balance brought down at 30 September Year 5. (b) Bring the Cash Book up to date by entering in it the items you consider appropriate from the bank statement. Balance the Cash Book and bring down the new balance at 1 October Year 5. (c) Prepare the bank reconciliation statement at 30 September Year 5.

Exercise 2 The following is a copy of F Holme’s Cash Book for April Year 5:

CASH BOOK Cheque

Bank no Bank Year 5 £ Year 5 £ 1 Apr Balance b/d 3,240 3 Apr Purchases 10648 1,060 4 Apr Sales 1,250 6 Apr Rates 10649 650 10 Apr Sales 2,610 9 Apr Electricity 10650 196 16 Apr Sales 1,925 12 Apr Purchases 10651 1,400 24 Apr Sales 1,368 15 Apr Telephone 10652 245 28 Apr Sales 1,701 18 Apr Stationery 10653 98 30 Apr F Tait 450 20 Apr Travelling 10654 72 30 Apr Sales 1,116 25 Apr Salary 10655 1,057

27 Apr G Stewart 10656 746 29 Apr D Usher 10657 2,360 29 Apr Fixtures 10658 2,200 30 Apr Balance c/d 3,576

13,660 13,660 1 May Balance b/d 3,576 He received the following bank statement for April Year 5:

Bank statement Date Details Paid out Paid in Balance Year 5 £ £ £ 1 Apr Balance 3,240 Cr 3 Apr Cash:10648 1,060 2,180 Cr 4 Apr Standing order –

Insurance Co 260 1,920 Cr 5 Apr Credit 1,250 3,170 Cr

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9 Apr 10649 650 2,520 Cr 11 Apr Credit 2,610 5,130 Cr 12 Apr 10651 1,400 3,730 Cr 13 Apr 10650 196 3,534 Cr 16 Apr Direct debit – Water 50 3,484 Cr 17 Apr Credit 1,925 5,409 Cr 19 Apr 10652 245 5,164 Cr 22 Apr Credit transfer –

John Bates 360 5,524 Cr 23 Apr 10654 72 5,452 Cr 25 Apr Credit 1,368 6,820 Cr 27 Apr Dividends 400 7,220 Cr 29 Apr 10655 1,057 6,163 Cr 30 Apr Credit 1,701 7,864 Cr 30 Apr Charges 60 7,804 Cr Required (a) Starting with the balance of £3,576, bring F Holme’s Cash Book up to date by posting to it the items you consider appropriate from the bank statement. Balance the Cash Book and bring down the new balance on 1 May Year 5. (b) Prepare a bank reconciliation statement at 30 April Year 5, commencing with the bank statement balance of £7,804.

Exercise 3 The following information relates to the business of M Rhodes:

Bank statement at 30 June Year 5 Date Details Debits Credits Balance

£ £ £ 1 Jun Balance 4,619 Cr 5 Jun 10659 230 4,389 Cr 5 Jun 10658 176 4,213 Cr 8 Jun Counter credits 813 5,026 Cr 11 Jun Standing order –

Ajax Insurance 242 4,784 Cr 13 Jun 10660 459 4,325 Cr 15 Jun Counter credits 1,121 5,446 Cr 15 Jun 10661 150 5,296 Cr 19 Jun Standing order – L White 462 5,758 Cr 24 Jun Direct debit

– Town Council 517 5,241 Cr 26 Jun 10663 324 4,917 Cr 29 Jun 10665 138 4,779 Cr 30 Jun Charges 74 4,705 Cr

Cheque book counterfoils

£ 1 Jun 10658 A Parry 176 1 Jun 10659 C Harris 230

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7 Jun 10660 L Goddard 459 11 Jun 10661 A Parry 150 22 Jun 10662 D Fletcher 376 23 Jun 10663 Lines Ltd 324 23 Jun 10664 Star & Co 289 25 Jun 10665 A Parry 138 29 Jun 10666 C Thorpe 247

Paying-in book counterfoils £ £

8 Jun S Moon 611 G Race 202 813

15 Jun Rayne & Co 129 C Mills 325 T Orchard 667 1,121

Note Cheques are paid into the bank on the day they are received. Required (a) Write up the bank account in the books of M Rhodes starting with a debit balance of £4,619 on 1 June Year 5. Entries should be in date order. (b) Prepare a bank reconciliation statement at 30 June Year 5, commencing with the bank statement balance of £4,705.

Exercise 4 You are required to prepare a bank statement from the details below. Thomas Snodden banks at Wilmster Bank, 46 High Street, Ledbury, Eastshire LE2 5SR – account number 96015. On 1 September Year 2, he had a balance at the bank of £126.00 (Dr).The following were his transactions with the bank during Setpember Year 2: 4 Sep Received cheque from R Grafton for £57.00 6 Sep Drew cheque no 100567 payable to T Lucas for £95.50

This was debited to Snodden’s account on 11 September 9 Sep The bank made a standing order payment to Moody Publishers for £162.00 12 Sep Drew cheque no 100568 payable to N Swift for £73.00

This was debited to Snodden’s account on 16 September 14 Sep Received by credit transfer from K Hanson £214.00 17 Sep Drew cheque no 100569 payable to T Cavendish for £106.50

This was debited to Snodden’s account on 21 September 20 Sep Received cheque from N Speedy for £165.00 22 Sep The bank made direct debit payment to Eastwise Electricity for £89.00 25 Sep The bank made credit transfer payment to Spacewell Ltd for £105.00 27 Sep Received cheque from L Morsewell for £235.00 30 Sep The bank charged interest of £17.00 Note Any cheques received by Thomas Snodden are paid into the bank on the day of receipt. In

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each instance above, the bank credited Snodden’s account on the same day.

Question: 1

Suppose that Sandra Renton’s cash book for the month of March Year 3 appears as follows:

Cash Book (Bank Columns)

Year 3 £

Mar 1 Balance 560

Mar 4 J ogden 150

Mar 10 A Lancaster 215

Mar 20 N Wells 86

Mar 30 T Malone 54

Year 3 £

Mar 6 T Lyle (236715) 320

Mar 14 R Brown (236716) 180

Mar 24 T Brentomre (236717) 95

Mar 28 F wragg (236718) 120

The balance at this state, shown as a separate note, is a debit balance of £ 350. Sandra

receives the following bank statement.

Dr Cr Balance

Year 3 £ £ £

Mar 1 balance b/f 560 Cr

Mar 6 J Ogden 150 710 Cr

Mar 8 Standing order Block & Trent 80 630 Cr

Mar 10 T Lyle (236715) 320 310 Cr

Mar 12 A Lancaster 215 525 Cr

Mar 14 Credit transfer: A Zimm 110 635 Cr

Mar 19 R Brown (236716) 180 455 Cr

Mar 21 N Wells 86 541 Cr

Mar 26 Direct debit: B Traders Association 90 451 Cr

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Question: 2 The following information relates to the banking transactions of N Swann for the month of August year 5:

Cash book (bank columns only)

Year 5 £

Aug 1 balance b/d 2,420

Aug 4 Sales 835

Aug 23 sales 716

Aug 29 R Quaile 185

Aug 31 sales 640

Year 5 £

Aug 2 General expenses (1012) 67

Aug 9 wages (1013) 330

Aug 12 drawings (1014) 140

Aug 15 purchases (1015) 406

Aug 24 rent (1016) 290

Aug 25 wages (1017) 345

Aug 27 T Wagstaffe (1018) 502

Provisional Dr balance £ 2,716

Bank statement Dr Cr Balance Year 5 £ £ £

Aug 1 Balance 2,420 Cr

Aug 3 1012 67 2,353

Aug 4 Credit 835 3,188

Aug 7 standing order (rates) 136 3,052

Aug 11 1013 330 2,722

Aug 15 1014 140 2,582

Aug 20 1015 406 2,176

Aug 22 direct debit (insurance) 153 2,023

Aug 23 Credit 716 2,739

Aug 27 1017 345 2,394

Aug 29 Credit transfer – T Palmer 268 2662

Aug30 Bank interest 8 2,670

Required:

a) Starting with the cash book balance of £ 2,716 on 31 August year 5, bring the cash

book up to date by entering the appropriate items at the end of August and bring

down the revised balance at 1 September year 5.

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b) Prepare the bank reconciliation statement for N Swann at 31 August Year 5,

starting with the bank statement balance.

6 Capital and revenue expenditure Exercise 1 State whether each of the following is capital expenditure or revenue expenditure.You only have to write one word, either ‘capital’ or ‘revenue’ in each case. (1) Purchase of a motor van for use within the business. (2) Purchase of goods intended for resale in the normal course of business. (3) Purchase of petrol for the motor van. (4) Purchase of materials to be used in building an extension to the firm’s business premises. (5) Payment of insurance on the business premises.

Exercise 2 Matthew Dawalla owns a restaurant and the following were some of his transactions during the year ended 31 October Year 7: (1) Purchase of flour for immediate use in the kitchen. (2) Purchase, in September Year 7, of a motor van for delivery of prepared foods to customers. (3) Payment for advertising. (4) Payment for carriage inwards in respect of foodstuffs for the kitchen. (5) Payment of £6,400 for work done on the restaurant premises. £5,100 was for an extension to the restaurant seating area, while the remainder was for painting and decorating the restaurant. (6) Payment for heating and lighting. (7) Purchase, in July Year 7, of new ovens for the kitchen. (8) Payment for expenses of running the motor van. Required State whether each of the 8 transactions is revenue expenditure, capital expenditure, or both. If an item is both capital and revenue expenditure, you should state the respective amounts.

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Exercise 3 JK Distributors Ltd purchases motor vehicles from manufacturers and sells them to other companies and to the general public. Jameson Partners is a firm of accountants. Required Classify the following transactions into either capital expenditure or revenue expenditure. Transactions by JK Distributors Ltd: (1) Purchase of motor vehicles for resale. (2) Purchase of a transporter lorry for moving vehicles. (3) Payments for the building of a showroom extension. (4) Salaries and commission paid to showroom sales staff. (5) Purchase of a computer for stock control purposes. Transactions by Jameson Partners: (1) Purchase of motor vehicles for use in the business. (2) Purchase of an office safe. (3) Rent paid for use of office premises. (4) Payment of course fees for staff training. (5) Payment of staff salaries and travelling expenses.

Exercise 4 P Arkan is a builder. He designs and builds superior houses to meet individual customer specification. The following invoices were received from suppliers in October Year 4:

£ Invoice 1 From Mellow Brick Company:

40,000 high quality bricks 24,800 Delivery charge 375

25,175 Invoice 2 From Premier Equipment Company:

One earth moving machine 42,700 4 replacement tyres for existing machine 890

43,590 Invoice 3 From Excel Office Supplies:

One photocopier for use within the firm 1,460 10 reams of copier paper 62

1,522

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Invoice 4 From Arbor Construction Company: Building an extension to the cement storage area 12,400 Repairs to fencing as instructed: Fencing panels and other materials 1,475 Labour charges 1,060

14,935 Required Analyse the amount of each invoice and apportion it to capital expenditure and revenue expenditure. Present your answer in a table as follows:

Capital Revenue Total expenditure expenditure expenditure £ £ £

Invoice 1 Invoice 2 Invoice 3 Invoice 4

Exercise 5 Show the effect of the way each of the following transactions was recorded in the accounts of a retailer of electrical equipment. If there was no effect, state ‘no effect’.

Effect on Gross Net Balance

Transaction profit profit sheet (1) Purchase of motor vehicle for deliveries to customers – entered in Purchases Account (2) Invoice for electricity wrongly entered in Water Supply Account (3) Payment for repairs to premises entered in Premises Account (4) Bill for petrol for delivery vehicle entered in Motor Vehicle Account (5) Invoice for legal services in respect of the purchase of premises entered in Office Expenses Account (6) The cost of installing new shop fittings was charged to Wages Account

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Exercise 6 This question has reference to the information given in exercise 2 (Matthew Dawalla). Matthew Dawalla makes no provision for depreciation in respect of fixed assets purchased in the last 6 months of any financial year. Using the format shown below, indicate by means of a tick which of the Trading Account, Profit & Loss Account, or balance sheet prepared at 31 October Year 7 would be affected by each of the transactions. In the case of item (5), also state the amount.

Trading Profit & Loss Items Account Account Balance sheet (1) (2) (3) (4) (5) (6) (7) (8)

Exercise 7 Andrew Smithers has recently prepared the following Trading and Profit & Loss Account:

Andrew Smithers Trading and Profit & Loss Account

for the year ended 30 September Year 3 £ £

Sales 73,200 less Cost of goods sold:

Opening stock 3,860 Purchases 49,750

53,610 less Closing stock 4,200 49,410

Gross profit 23,790 less Expenses:

Rent 4,400 Wages 18,900 General expenses 860 24,160

Net loss (370) On reviewing his books of account you find that: (1) The item ‘Purchases’ includes:

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- a desktop computer bought for use in the office for £2,200; - a new delivery van bought for use in the business for £7,600; - the purchase of materials for extending the shop premises £2,350.

(2) The sales figure includes the sale of the old delivery van for £1,600. This figure had been shown in the books at £3,400. (3) The closing stock includes £300 of materials in hand for work on extending the shop premises. (4) Rent accrued £400. (5) The figure for wages includes £2,100 for building work on extending the shop premises. Andrew Smithers tells you that he wishes to allow £1,500 first-year depreciation on the new delivery van. Required Prepare a revised Trading and Profit & Loss Account for Andrew Smithers for the year ended 30 September Year 3.

Exercise 8 John Bradford ended his first year of trading on 31 DecemberYear 4. He has no knowledge of book-keeping and accounts but has prepared what he calls his profit statement for the year:

John Bradford Profit statement at 31 December Year 4

£ £ Cash takings from customers 22,664 Purchases Goods for resale 14,173 Motor vehicle, bought 1 Jan Yr 4 2,200

16,373 Advertising 838 Vehicle running costs 1,092 Wages paid 2,640 Insurances 310 Heat and light 429 Cash taken for own use 394 22,076 Profit 588 Other information at 31 December Year 4: (1) Customers invoiced for £1,082 had not yet paid their accounts. (2) Wages accrued due £286. (3) Purchases that had cost £1,730 were still unsold (stock). (4) John Bradford expects the motor vehicle to last 3 years and to have a trade-in value then of £700. Required (a) State what important distinction John Bradford has failed to make in his treatment of the motor-vehicle purchase.

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(b) Prepare a revised Trading and Profit & Loss Account for John Bradford for the year ended 31 December Year 4.

Question: 1 Compupro is a small computer and data processing bureau. In a certain trading period it enters into the following transactions:

(a) The purchases of supplies of computer print-out paper, all of which is expected to be used within the current trading period

(b) The renewal of insurance on the computer hardware

(c) Expenditure on increasing the security to the building in which the bureau’s facilities are situated

(d) The wages of the computer operators (e) The adding of extra storage capacity to

computer used within the bureau Required: State in respect of the above whether you would treat the item as capital expenditure or revenue expenditure, giving the reason for your choice. Set out your answer in two columns as follows:

(A)

(B)

(C)

(D)

Capital or

Revenue

Expenditure

Reason

Question: 2

(a) Required

Briefly explain (I) capital expenditure and (ii) revenue expenditure.

(b) During the year, the following transactions took place for a business which operates as a

general store:

(1) Purchase by cheque of a motor vehicle

costing £ 4,620, to be used to make deliveries to customers.

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(2) Payment by cheque of £ 3,550 for work

done on the shop premises owned by the firm. £ 2,800 was for an improvement

to the shop front, whilst £ 750 was for paining and decorating the inside of the

shop premises.

(3) Payment by cheque £ 160 for stationery.

(4) Expenses for three months for the motor

vehicle, paid by cheque £ 230

(5) Purchase of goods on credit at a cost of

£ 3,460. These goods were intended for resale in the normal course of business.

(6) Wages of £ 250 and materials costing £

240, used by the firm’s own employees, in building a store at the rear of the

business shop.

Required:

Indicate for each of the six transactions whether it is capital expenditure, revenue

expenditure or both, stating the mount.

7 Final accounts and adjustments further considered

Exercise 1 J Salmon, a sole trader, prepared the following trial balance from her books at 30 June Year 6:

Dr Cr £ £

Motor vehicles at cost 80,000 Fixtures and fittings at cost 82,000 Purchases and purchases returns 263,500 7,300 Sales and sales returns 3,400 370,000 Stock (1 Jul Yr 5) 15,700 Discounts 2,300 1,600 Provision for doubtful debts 600 Bad debts 650 Debtors and creditors 35,000 27,400 Capital 108,000 Drawings 28,200 Provision for depreciation:

Motor vehicles 23,000 Fixtures and fittings 19,000

Rent 12,000 Motor-vehicle running expenses 3,360 Rates and insurances 3,420 Salaries 12,300 Cash at bank 10,720 Cash in hand 420 Lighting and heating 3,930

556,900 556,900

At 30 June Year 6:

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(1) Depreciation is to be provided as follows:

Motor vehicles 25% on cost Fixtures and fittings 10% on cost

(2) Stock was valued at cost £17,400. (3) The provision for doubtful debts is to be set at 2% of the debtors. (4) Motor-vehicle running expenses at £510 and lighting and heating at £420 were accrued. (5) The rates and insurances were prepaid by £120. Required Prepare for J Salmon: (a) a Trading and Profit & Loss Account for the year ended 30 June Year 6 (b) a balance sheet at 30 June Year 6.

Exercise 2 Hilda Braquette prepared the following trial balance at 31 October Year 5:

Dr Cr £ £

Stock at 1 Nov Yr 4 6,820 Fixtures and fittings at cost 14,000 Provision for depreciation of fixtures and fittings at 1 Nov Yr 4 2,800 Bank 3,200 Cash in hand 148 Debtors and creditors 10,300 6,920 Motor vehicles at cost 24,000 Provision for depreciation of motor vehicles at 1 Nov Yr 4 7,200 Purchases and sales 75,820 161,360 Discounts allowed and received 2,140 1,580 Drawings 13,200 Motor-vehicle running expenses 5,860 Wages 43,972 Bad debts 390 Provision for doubtful debts 210 Returns inwards and outwards 1,180 850 Rent 10,400 Light and heat 650 Insurance 1,080 Office expenses 2,100 Capital 34,340

215,260 215,260

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Additional information at 31 October Year 5:

£ £ (1) Stock at cost 8,460 (2) Insurance prepaid 240 (3) Accrued due:

Light and heat 80 Office expenses 140 220

(4) Depreciation is provided as follows: Fixtures and fittings – 10% per annum on cost Motor vehicles – 20% per annum on cost

(5) Provision for doubtful debts is to be adjusted to 4% of debtors Required For Hilda Braquette, prepare: (a) the Trading and Profit & Loss Account for the year ended 31 October Year 5 (b) a balance sheet at 31 October Year 5.

Exercise 3 The following trial balance was extracted from the ledger of P Lippis, a sole trader, on 31 March Year 12:

Dr Cr £ £

Business premises at cost 85,000 Purchases and sales 39,800 64,650 Capital 93,420 Stock at 1 Apr Yr 11 8,310 Purchases returns 285 Fixtures and fittings at cost 12,700 Provision for depreciation of fixtures and fittings 2,540 Trade debtors:

R Prince 480 K Evitts 1,010 J Carr 180 Archway Supplies 370

Trade creditors: K Porter 2,210 Archway Supplies 4,096

Cash in hand 47 Cash at bank 1,093 Wages 8,942 Advertising 110 Heat and light 1,092 Insurances 368 Other expenses 459 Drawings 7,240

167,201 167,201

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The following additional information is to be taken into account: (1) Stock valued at cost on 31 March Year 12, £7,935. (2) Accruals at 31 March Year 12: wages £230; heat and light £98. (3) Prepayment at 31 March Year 12, Insurances £46. (4) Lippis received a bank statement, showing that there was a balance in his favour on 31 March Year 12, amounting to £1,140.A creditor had not yet presented a cheque drawn by Lippis for £79, and the bank applied bank charges amounting to £32. (5) Depreciation was to be provided on fixtures and fittings at 10% per annum on cost. (6) Archway Supplies was Lippis’ main supplier.Unusually,Archway purchased goods from Lippis, and it was agreed that the debtor balance should be a contra against the creditor balance. Required Prepare for P Lippis: (a) a Trading and Profit & Loss Account for the year ended 31 March Year 12 (b) a balance sheet at 31 March Year 12.

Exercise 4 At 31 December Year 3, the end of her first year of trading, Hilda Braquette produced the following list of stock items and asked for your help:

Original Selling Stock Item Quantity cost price Comments value

£ £ £ (i) 200 2.00 3.00 (ii) 500 5.00 7.50 20 broken – to be

thrown away (iii) 1,200 1.00 1.50 40 damaged – saleable

at half price (iv) 50 3.00 2.50 old stock (v) 75 4.00 6.00 (vi) 350 3.00 4.50 (vii) 450 2.00 3.00 20 damaged – saleable

at half price Required Calculate the stock valuation of each item and total to show the value of Hilda Braquette’s closing stock at 31 December Year 3.

Exercise 5 The following balances were included in the trial balance of James Hanson at 31 March Year 4:

Debit Credit £ £

Purchases and sales 18,620 29,410

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Returns 238 194 Stock at 1 Apr Yr 3 1,146 At 31 March Year 4, James Hanson counted and valued his stock in hand at cost, £1,382. This included the following 3 items of stock:

Net realizable Cost price value £ £

Item 1 120 140 Item 2 72 60 Item 3 80 45

Required (a) Prepare a statement, starting with the stock value of £1,382, showing any necessary adjustments in respect of the 3 items of stock above, to show a new stock valuation at 31 March Year 4. (b) Prepare a Trading Account for James Hanson for the year ended 31 March Year 4.

Exercise 6 The financial year of F Lang, a trader, ends on 31 March. F Lang sells goods at a mark-up of 331/3% on cost price. On 31 March Year 4, the value of his stock at cost was £12,360. On 17 March Year 5, he provisionally valued his stock at £14,220. Between 18 March Year 5 and the end of that financial year, the following took place: (1) Lang bought goods to a purchase invoice value of £740. (2) He returned goods to suppliers that had been invoiced to him at £273. (3) He sold goods to a selling value of £1,320. (4) Lang took goods that had cost £195 for his own private use. Required (a) Prepare a statement adjusting the value of stock at 31 March Year 5 for entry into the Stock Account at cost price. (b) Calculate the effect of the adjustment of the value of stock on the amount of the gross profit £94,800 for the year ended 31 March Year 5. (c) Prepare the Stock Account for the years ended 31 March Years 5 and 6 respectively, assuming that the value of stock at 31 March Year 6 was £15,300.

Question: 1

Moon, a sole trader, extracted the following trial balance from his books at the cost of

business on 31 May year 8.

Dr Cr

£ £

Balance at Bank 15,900

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Cash in hand 120

Stock 1 June year 7 3,850

Office furniture and equipment cost 8,000

Discounts allowed and received 620 380

Motor vehicle (cost) 7,500

Debtors and creditors 9,600 3,220

Drawings 6,000

Provision for Depreciation (at 1 June year 7)

Office furniture and equipment 2,400

Motor vehicle 3,000

Purchases and sales 124,760 165,970

Provision for doubtful debt 200

Wages and salaries 18,200

Rents 6,000

Rate and insurance 1200

Lighting and heating 580

Sales returns and purchases returns 210 90

Motor vehicle expenses 1,960

Postage and stationery 270

Sundry expenses 490

Capital at 1June year 7 30,000

205260 205260

In addition the following information should be taken into account.

(1) Closing stock at 31 may year 8 valued at £ 4,200.

(2) Accrued due but unpaid –wages and salaries £ 1,320.

(3) Rates and insurances – prepaid by £ 160.

(4) The depreciation provision for the fixed assets is to be increased as

followings:

Office furniture and equipment £ 800

Motor vehicle £ 1500

(5) Provision for doubtful debt is to be increased by £ 40.

Required:

Prepare, in respect of J Moon, the

(a) Trading and profit and loss accounts for the year ended 31 May year 8.

(b) Balance sheet at 31 May year 8.

Question: 2

John Cleaver has just completed his second year of trading. His trial balance,

extracted from ledger at 31 December year 2, is as follows:

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John Cleaver

Trial balance at 31 December year 2

Dr Cr

£ £

Capital 26,120

Loan from brother 8,000

Purchases and sales 49,370 82,578

Returns inwards and outwards 188 326

Stock 1 January year 2 3,930

Drawings 12,300

Debtors and creditors 22,100 9,380

Bank overdraft 1,196

Bank interest 245

Wages 5,593

Rent 1,860

Insurance 270

Heat and light 440

Advertising 265

Delivery costs 1,803

Bad debts 436

Fixed assets (at cost) 32000

Accumulated depreciation on fixed assets to

31 December year 1 3,200

130,800 13,800

The following adjustments are to be taken into account:

(1) Stock at 31 December year 2 £ 2,876.

(2) Cleaver borrowed the £ 8,000 from his brother on 1 January year 2. He has

agreed to pay 15% interest per annum but no payment has yet been made.

(3) Provide for annual depreciation of fixed assets at 10% on cost.

Required:

Prepare cleaver’s trading and profit and loss account for the year ended 31 December year

2 and a balance sheet at that date.

Question: 3

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:

M Tiong

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Trial Balance at 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

Stock 1 May year 4 2,970

Purchases and sales 13,890 35,030

Rent, rates and insurance 2,340

Delivery vehicle, at cost 7,400

Provision for depreciation on delivery vehicle 2,000

Debtors and creditors 8,400 3,650

Wages and salaries 9,350

Provision for doubtful debts 600

Capital 1 May year 4 20,000

Drawings 4,500

Vehicle running expenses 1,840

Sundry expenses 410

61,670 61,670

Addition, Tiong has noted the following points:

(1) Stock at 30 April year 5 has been valued at £ 3,160.

(2) Wages accrued amount to £ 280.

(3) The depreciation provision on the delivery vehicle is to be increased by £

1,200. A provision of £ 500 is to be created in respect of depreciation on office

furniture and equipment.

(4) The provision for doubtful debts is to be set at 5% of debtors.

(5) During the year, Tiong took goods, at a 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 trading and profit and loss account for the year ended 30 April year 5

(b) A balance sheet at 30 April year 5.