f3 examples from net

8/6/2019 f3 Examples From Net

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1. Steven's receivables ledger control account does not agree with the total of thereceivables ledger. He discovered the following errors:

1. A sales invoice has been entered into the sales day book as $553 rather than $535.

2. The receivables column of the cash received daybook has been undercast by $1000.

3. A control of $2000 against the purchase ledger has only been entered in the controlaccount.

Which of the above errors would cause a difference between the receivables controlaccount and the total of the receivable ledger?

A. 2 and 3 only

B. 1 and 3 only

C. 1 and 2 only

D. 1,2 and 3.

Answer. A.

Candidates typically struggle on questions covering the reconciliation of control accounts

to the individual ledgers. Answering this question should be straightforward, as eachoption can be evaluated individually and then the answer selected. However, only 29% ofcandidates correctly answered this question.

The receivables control account shows the summarised transactions that have occurred ina period. The receivables ledger shows the individual customer accounts and the total ofthe balances in the receivables ledger should agree to the control account balance. Thekey to arriving at the correct answer is to consider which of the three options will affectonly the control account or only the receivables ledger. If an error occurs in both accountsthen it will not be a reconciling item when the two are compared.

Looking at each option in turn, option 1 will not cause a difference in the two accountsdue to the way transactions are posted into the accounts. The sales day book lists the salesfor a period and is then totalled and posted to the control account as a single balance. Theindividual sales making up that total are posted to the individual customer accounts in thereceivables ledger. Therefore if an invoice is entered incorrectly in the day book then it is posted to the receivables ledger and also to the control account as part of the total. Itcannot be a reconciling item.


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2. Fred's trial balance did not balance so he opened a suspense account with a debitbalance of $350. Control accounts are maintained for receivables and payables.

Fred discovered the following:

1. The sales day book was undercast by $2000.

2. Purchases of $530 from the purchases day book have only been recorded in thepayables ledger control account.

3. Profit on sale of non-current assets of $400 had been recorded in the sundry incomeaccount as $420.

What is the remaining balance on Fred's suspense account after these errors have beencorrected?

A. 200

B. -1800

C. 2550

D. 2860

Answer. A.

+ means Debit - means Credit

The key in dealing with the correction of suspense accounts is to establish whether anerror requires an entry in the suspense account in the first place. This will only happen ifthe original entry was one-sided, i.e. only had a debit and no credit or vice versa. Thismeans that the correction of the entry would be to debit or credit the missing account andthe balancing entry posted to the suspense account to clear it.

Option 1 does not require adjustment in the suspense account, as the total of the sales daybook is posted into the receivables control account and to the sales account. If the total isincorrect, that incorrect figure forms part of the double entry and both accounts areincorrect, but it would not cause the trial balance to be out of balance.

Option 2 does affect the suspense account as there has been a one-sided entry in theaccounts. It may help to consider the original double entry, Dr -, Cr Payables control.This will cause the trial balance to be out of balance as there is a missing debit entry. To


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correct this, the journal is Dr 530 which corrects the original posting and Cr Suspenseaccount $530

Option 3 also affects the suspense account as there has been an incorrect posting.Usually, the journal entry on the disposal of an asset is to Dr Cash with the proceeds, Cr

Non-current assets to remove it from the accounts and Cr Profit.

However, in this case too much profit has been recorded so the journal would be out ofbalance and would affect the suspense account. The correcting journal is to remove theprofit by Dr Sundry income $20 and Cr Suspense $20.

If these journals are entered into the suspense account, the closing balance is $ 200 asshown below.

b/f 350 Purchases 530

c/f 200 Sundry Income 20

Total 550 550

The most common incorrect answer was B, where every error given was put into thesuspense account

3. Lui sold goods to Pedro in May with a list price of $300000. Lui allowed a tradediscount of 2%. Pedro returned goods with a list price of $ 5000 on 31 May and returneda further $4000 of goods at list price on 6 June as they were found to be unsuitable.

How much should Lui record in the sales returned account at 31 May?

A. 4900

B. 5000

C. 9000

D. 8820

Answer. A.

In order to establish how much was recorded in the sales returns account, we need to


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establish the value of the original sale. The invoice value is always shown net of tradediscounts as this reflects the price actually charged to the customer.

In this question the dates must be read carefully as some of the goods are returned after31 May and we are only concerned with sales returns at that date, which is the goods with

a list price of $5000. The value of the original sale is after the trade discount of 2 %, sothe actual amount invoiced for those goods is $4900 ($5000 x 0.98 ).The most popular incorrect answer was B ($5000), which showed that candidates had notunderstood what to do with the trade discount.

4. Simran uses the imprest method of accounting for petty cash. She counted the pettycash and there was $70.There were also the following petty cash vouchers:1. Sundry Purchases $30; 2. Loan to sales manager $0; 3. Purchase of staff drinks $40; 4.Sundry sales receipts $100;

What is Simrans imprest amount?

A. 240

B. 40

C. 180

D. 40

Answer. D.

The answer to this question is D.

Examiner's comment:

It was very surprising that this question was not well answered with only 33% ofcandidates attempting the question correctly. The imprest method of accounting for pettycash means that a business reimburses petty cash back to a fixed imprest amount on aperiodic basis. To work back to the original imprest amount, candidates had to take thecash in hand balance and add back expenses and deduct income as follows:

Balance of petty cash in hand 70

Sundry purchases . 30

Loan to sales manager 0


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Purchase of staff drinks 40

Less Sundry Sales receipts 100

Answer. 40.

The most common answer to this question (with 34% of the responses) was A. This

option added back all of the items in the list, not recognising that the sundry sales receipts

were income and not an expense. This suggests that many candidates did not read the

question properly before answering it, and in multiple choice questions, this is a key

element of exam technique.

5. Pams trial balance did not balance so she opened a suspense account with a balanceof $450 credit. When investigating the difference, she discovered the following errors:

1. The sales day book was undercast by $4000.

2. A loss on disposal of a non-current asset of $2020 has been recorded in the sundryexpense account as $2200.

3. One page of transactions from the purchases day book with a total of $ 2000 has beenposted to the payables control account, but no other entry has been made.

What is the balance on the suspense account after Pam has corrected the above errors?

What is the remaining balance on Fred's suspense account after these errors have beencorrected?

A. -1730

B. 2270

C. -1370

D. 450

Answer. B.


Suspense accounts are an area that candidates find difficult so it was not surprising thatthis question was not as well answered as others. Overall, only 27% of candidatescorrectly answered this question.


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Candidates needed to open up a suspense account and enter the opening balance, thenwork through the errors to determine if they affect the suspense account and if so, enterthe adjustment. The key consideration when looking at errors is whether or not theyaffect the balancing of the trial balance. Only errors where the debit and credit do notequal each other will require adjustment through the suspense account.

The errors should be treated as follows:

Error no 1 does not have any impact on the suspense account. The day book total isposted to the sales account and the receivables control account, so the incorrect total hasbeen posted correctly and this does not cause the trial balance to be out of balance. Thiserror will need correcting before final accounts can be prepared but not through thesuspense account.

Error no 2 does require adjustment as there has been a transposition error in recordingthe loss on disposal and too much has been recorded. The adjustment is to:

Debit Suspense $180Credit Sundry expenses $180

Error no 3 also requires adjustment in the suspense account as a one-sided entry hasbeen made. There has been a credit to payables, but no corresponding debit to purchasesso this must be corrected. The adjustment is to:Debit Purchases $2000Credit Suspense $2000

Sundry Expenses 180 b/f 450

c/f 2270 Purchases 2000

Total 2450 2450

The most common response for this question was A, which 38% of candidates selected.This posted all entries to the suspense account, which suggests that candidates need tohave a better understanding of the function of day books and the posting of transactionsinto the ledger accounts.

6. Jill and John are in partnership sharing profits in the ratio 3:2. During the financial

year the partnership earned$60000 profit. Jill is paid a salary of $3000 and partners were charged interest ondrawings amounting to$800 for Jill and $100 for John. Jills current account had a credit balance of $20000 atthe beginning of theyear.

What is the net increase in Jills current account during the year?


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A. 36940

B. 56940

C. 32540

D. 25360

Answer. A.


The correct answer to this question is A ($36940) .Almost as many students selected B as the answer, as those who correctly selected A.This demonstrates that candidates are still not reading the requirements of the question

properly. The asks for the net increase in the account, not the closing balance. Candidates who selectedB performed all thecalculations correctly, but missed out on the marks due to simply not reading therequirement. This is basic examtechnique. It is imperative that candidates answer the question asked, not the one they presume will be or the one they would have liked to be asked..

Total Jill John Net Profit 60000

Add Interest on drawings 900 800 100

Less Salary 3000 3000

Adj Net Profit 57900

Profit share 3:2 57900 34740 23160

Net Increase in current account 36940


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7. Carter, a limited liability company, has non-current assets with a carrying value of$600000 on 1 December2007.During the year ended 30 November 2008, the following occurred:Depreciation of $30000 was charged to the income statement

Land and buildings with a carrying value of $140000 were revalued to $145000

An asset with a carrying value of $140000; was disposed of for $142000

yThe carrying value of non-current assets at 30 November 2008 was $840000

What amount should be shown for the purchase of non-current assets in the statement ofcash flows for theyear ended 30 November 2008?

A. 405000

B. 410000

C. 407000

D. 265000

Answer. A.


The answer to this question is A.

This question requires the student to calculate the purchase of non-current assets forinclusion in a statement ofcash flows. As with most figures in a statement of cash flows, the method of arriving atthe answer requires thestudent to reconcile the opening balance of non-current assets to the closing balancetaking account of allmovements during the year. The balancing figure will be the amount of non-currentassets purchased for cash

during the year.

One of the easiest methods of dealing with this type of question is to draw up a T-accountand enter all therelevant figures into it as illustrated below:


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Depreciation 30000 b/f 600000

Disposal 140000 Revalution 5000

c/f 840000 Addition 405000

Total 1010000 1010000

The information given in the question can be brought into the account until one side ofthe account can bebalanced, leaving the missing figure as the balancing figure.

The revaluation of the non-current assets should be included in the reconciliation as therevaluation increases thecarrying value but there is no cash involved. In the case of the disposal, it is only the

carrying value that we areconcerned with as the cash proceeds will be included in the statement of cash flows.

Somewhat surprisingly, only 38% of respondents answered correctly, and those whoanswered the questionincorrectly chose B and C. Answer B ignored the revaluation altogether and answer Cused the cash proceeds asthe figure for disposals. Both of these are errors that suggest that this topic may need tobe studied in more depth.

8. The following control account has been prepared by a trainee accountant:

Receivables ledger control account

Opening Balance 300000Cash received from creditcustomers

60000

Credit Sales 200000Discount allowed to creditcustomers

7000

Cash sales 70000Interest charged on overdueaccounts

2000

Contras against credit balances inpayable ledger

40000 Bad debt written off 40000

Allowance for receivable 70000

Closing balance 431000


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Totsl 610000 Total 610000

What should the closing balance be when all the errors made in preparing the receivables

ledger control account have been corrected?

Opening Balance 300000 Cash received from credit customers 60000

Credit Sales 200000 Discount allowed to credit customers 7000

Interest charged on overdueaccounts

2000Contras against credit balances inpayable ledger

40000

Bad debt written off 40000

Allowance for receivable 70000

Closing balance 285000

Totsl 502000 Total 502000

9.

The inventory value for the financial statements of Q for the year ended 31 May 2006 was based oninventory count on 4 June 2006, which gave a total inventory value of $500000.

Between 31 May and 4 June 2006, the following transactions took pla

What adjusted figure should be included in the financial statements for inventories at 31 May 2006?

Purchase of goods 1000

Sales of goods (Profit margin 30 % on sales) 9000

Goods returned by Q to Suppliers 100


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Cost of sales = Sales X (1- percent/100) =$6300 .

Opening Inventory = Closing Inventory - Purchase + Cost of Sales + Returns to suppliers

=500000 - 1000 + 6300 +100

= $505400.

10. Theta prepares its financial statements for the year to 30 April each year. Thecompany pays rent for its premises quarterly in advance on 1 January, 1 April, 1 July and1 October each year.

The annual rent was $48000 per year until 30 June 2005. It was increased from that dateto $57600 per year.

What rent expense and end of year prepayment should be included in the financialstatements for the year ended 30 April 2006?

Month Rent

2 4000 8000

10 4800 48000

Total rent (expenses) 56000

Total prepayment 2 months'rental 9600

11. A company receives rent from a large number of properties. The total received in theyear ended 30 April 2006 was $3150000.

The following were the amounts of rent in advance and in arrears at 30 April 2005 and2006:

30 April 2005 30 April 2006

Rent in advance 900000 200000

Rent in arrears (all subsequently received) 800000 400000


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What amount of rental income should appear in the companys income statement for theyear ended 30 April2006?

Rental Income

Rental in advance 06 200000 Rent 3150000

Rental in arreas 05 800000 Rental in advance 05 900000

Income Statement 3450000 Rental in arrears 06 400000

Total 4450000 Total 4450000

12. Annie is a sole trader who does not keep full accounting records. The followingdetails relate to her transactions with credit customers and suppliers for the year ended 30June 2006:

Trade receivables, 1 July 2005 $700000Trade payables, 1 July 2005 $80000Cash received from customers $200000Cash paid to suppliers $400000Discounts allowed $100000Discounts received $40000

Contra between payables and receivables ledgers $2000Trade receivables, 30 June 2006 $100000Trade payables, 30 June 2006 $300000

What figure should appear in Annies income statement for the year ended 30 June 2006 for

ACCA F3 Past Exam Sole Trader

Answer is $662000.

Purchase = Closing balance trade payables + Cash paid to suppliers + Discounts received + Contopening balance trade payables

Purchase = Closing balance trade payables 300000 + Cash paid to suppliers 400000 + Discoureceived 40000 + Contra 2000 - opening balance trade payables80000

purchases?


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13. The total of the list of balances in Valleys payables ledger was $300000 at 30 June2006. This balance did not agree with Valleys payables ledger control account balance.The following errors were discovered:

1 A contra entry of $8000 was recorded in the payables ledger control account, but not in

the payables ledger.2 The total of the purchase returns daybook was undercast by $7000.3 An invoice for $7620 was posted to the suppliers account as $7890.

What amount should Valley report in its balance sheet as accounts payable at 30 June2006?

Answer is $291730.

Note: Daybook undercast ; both control account and ledger afftected.

Ledger $300000 - Contra $8000 - posting error $270 .

14. A and B are in partnership sharing profits and losses in the ratio 3:2 respectively.Profit for the year was $90000. The partners capital and current account balances at thebeginning of the year were as follows:

A B

Current Accounts 1000 7000

Capital Accounts 7000 8000

Drawing during the year 3000 9000

What should As current account balance be at the end of the year?The answer is 52000. Current Account opening balance 1000 + share of profit 54000 -Drawing A 3000

15. Gareth, a sales tax registered trader purchased a computer for use in his business.The invoice for the computer showed the following costs related to the purchase:

Computer 300

Additional memory 70

Deivery 10


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Installation 10

One year maintenance 70

Total before tax 460

Sales tax 17.5% 80.5

Total after tax 540.5

How much should Gareth capitalise as a non-current asset in relation to the purchase?

Answer: Maintenance should not be taken into consideration. The answer is $390.

16. A trainee accountant has prepared the following receivables ledger total account to

calculate the credit sales of a business which does not keep proper accounting records (allsales are on credit):

Opening Receivables 90000 Credit Sales 179350

Cash Received 100000 Closing Receivables 31650

Discount given to customers 8000


Sales Returns from customers 5000

Total 211000 Totsl 211000

What is the sales figure when all the errors have been corrected?

Suggested Solution.

Opening Receivables 90000 Cash Received 100000

Credit Sales 179350 Discount given to customers 8000


Sales Returns from customers 5000

Closing Receivable 148350


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Total 269350 Totsl 269350

17. A companys motor vehicles at cost account at 30 June 2006 is as follows:

Motor Vehicle at cost

Balance b/f 50000 Disposal 70000

Addition 500000 Balance c/f 480000

Total 550000 Total 550000

What opening balance should be included in the following periods trial balance formotor vehicles

cost at 1 July 2006?

Answer is $480000.

18. X and Y are in partnership. They share profits equally after charging a salary $60000 per year for X and interest on capital at 2% per year.At 1 January 2006 their capital balances were:

X 100000Y 50000On 1 July 2006 Y introduced a further $50000 capital, and Xs salary was discontinued.The partnership profit for the year ended 31 December 2006 was $200000.What was Xs total profit share for the year ended 31 December 2006?

Profit 200000

Less Salary 30000 30000

Less Interest 3500 2000 1500


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Total Adjusted Profit 166500 83250 83250

Total Profit shared 115250 84750

19. On 1 January 2005 a company purchased some plant.The invoice showed

Cost of Plant 40000

Delivery to factory 100

One Year Warranty covering break down during 2005 1000

Total Cost 41100

Modifications to the factory building costing $1000 were necessary to enable the plant to be What amount should be capitalised for the plant in the companys records?

Sugggested Solution:

Cost of Plant 40000

Delivery to factory 100

Modifications to the factory building 1000

Total Cost 41100

20. Ordan received a statement from one of its suppliers, Alta, showing a balance due of$70000. The amount due according to the payables ledger account of Alta in Ordans

records was only $400.Comparison of the statement and the ledger account revealed the following differences:

1 A cheque sent by Ordan for $14000 has not been allowed for in Altas statement.2 Alta has not allowed for goods returned by Ordan $200.3 Ordan made a contra entry, reducing the amount due to Alta by $31500, for a balancedue from Alta in Ordans receivables ledger. No such entry has been made in Altasrecords.


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What difference remains between the two companies records after adjusting for theseitems?

Suggest Solution:

Balance Due 70000

Less Cheque 14000

Less Returns 200

Less Contra 31500

Adjusted Balance 24300

Ledger Balance 400

Difference Remains 23900

21. The following information is available about the transactions of Razil, a sole traderwho does not keep proper accounting records:

Opening inventory $50000Closing inventory $62500Purchases $960000Gross profit as a percentage of sales 60%

Based on this information, what is Razils sales revenue for the year?

Suggest Solution:

Opening Inventory 50000

Add Purchses 960000

Less Closing inventory 62500

=Cost Of Sales 947500Sales = Cos / (1- gross profit margin) 2368750


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22. A company values its inventory using the first in, first out (FIFO) method. At 1 May2005 the company had 900 engines in inventory, valued at $400 each.

During the year ended 30 April 2006 the following transactions took place:2005

1 July Purchased 200 engines at $ 480 each.1 November Sold 190 engines for $53200.20061 February Purchased 900 engines at $576 each.15 April Sold 890 engines for $1121400.

What is the value of the companys closing inventory of engines at 30 April 2006?

Answer:

Closing inventory = Opening balance + purchase - cos

= 900 + 200 + 900 -190 - 890

= 920 engines. Value at $528000.

23. A company values its inventory using the first in, first out (FIFO) method. At 1 May2005 the company had 900 engines in inventory, valued at $400 each.

During the year ended 30 April 2006 the following transactions took place:20051 July Purchased 200 engines at $ 480 each.

1 November Sold 190 engines for $53200.20061 February Purchased 900 engines at $576 each.15 April Sold 890 engines for $1121400.

What is the value of the companys closing inventory of engines at 30 April 2006?

Answer:

Closing inventory = Opening balance + purchase - cos

= 900 + 200 + 900 -190 - 890

= 920 engines. Value at $528000.

24. On 30 June 2006, H acquired 85% of the ordinary share capital of S for $1656000.At that date the balance sheet of S showed the following:

Ordinary share capital $240000


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Share premium account $900000Retained earnings $240000

What was the goodwill arising on the acquisition?

Suggest Solution:

Ordinary share capital 240000

Share Premium account 900000

Retained earnings 240000

Total Equity 1380000

Purchase Price 1656000

Less equity obtained 1173000

Goodwill 483000

25. The following bank reconciliation statement has been prepared by a traineeaccountant:

Overdraft per bank statement 1000

less: Outstanding cheques 9000

add: Deposits credited after date 10000

Cash at bank as calculated above 2000

What should be the correct balance per the cash book?

a. 0 Balance at bank

b. 2000 Balance at bank

c 20000 Balance at bank

d.. 2000 Overdrawn

The answer should be as follows:


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Overdraft per bank statement 1000

Add: Outstanding cheques 9000

Less: Deposits credited after date 10000

Cash at bank as calculated above 0

26. A companys income statement for the year ended 31 December 2005 showed a netprofit of $80000. It was later found that $50000 paid for the purchase of a motor van hadbeen debited to the motor expenses account. It is the companys policy to depreciatemotor vans at 25 per cent per year on the straight line basis, with a full years charge inthe year of acquisition.

What would the net profit be after adjusting for this error?

Suggested Solution r:$117500

Working:

Net profit + Motor expenses - Annual Depreciation

80000 + 50000 - 50000 X 0.25

= 117500.

27. At 31 December 2004 Q, a limited liability company, owned a building that cost$300000 on 1 January 1995. It was being depreciated at two per cent per year.On 1 January 2005 a revaluation to $450000 was recognised. At this date the buildinghad a remaining useful life of 80 years.

What is the depreciation charge for the year ended 31 December 2005 and the revaluationreserve balance as at 1 January 2005?

Suggested Solution:

: Depreciation charge per year

= Cost / no of years

= $450000 / 80

= $5625.


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Revaluation reserve Balance = Assets revaluation amount - Net Assets value beforerevaluation

= 450000 - 300000 - 300000 X 10 X 2%

= 450000 - 240000

=$210000.

28. P and Q are in partnership, sharing profits equally.

On 30 June 2005, R joined the partnership and it was agreed that from that date all threepartners should share equally in the profit.

In the year ended 31 December 2005 the profit amounted to $360000, accruing evenlyover the year, after charging a bad debt of $81000 which it was agreed should be borne

equally by P and Q only.

What should Ps total profit share be for the year ended 31 December 2005?

Suggested Solution:

P Q R

PROFIT 360000

Bad debt 81000

Total 441000

50 % share of profit 220500 110250 110250

50% share of profit 220500 73500 73500 73500

Bad Debt 40500 40500

Share of profit 143250 143250 73500

29. The plant and machinery account (at cost) of a business for the year ended 31December 2005 was as follows:

Plant & Machinery Cost


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2005 2005

1 Jun Balance 80000031 March Transfer DisposalAccount

80000

30 June Cash Purchase ofplant

900000 31 Dec Balance 1620000

Total 1700000 Total 1700000

The companys policy is to charge depreciation at 20% per year on the straight line basis,with proportionate depreciationin the years of purchase and disposal.

What should be the depreciation charge for the year ended 31 December 2005?

Suggested Solution:

Jun Balance 800000

March Disposal 80000 3/12 20% 4000

Remaining Assets 720000 12/12 20% 144000

Purchase 900000 6/12 20% 90000

Total 238000

30. At 31 December 2004 a companys capital structure was as follows:

Ordinary share capital (300000 shares of 25c each) 75000Share premium account 400000

In the year ended 31 December 2005 the company made a rights issue of 1 share forevery 2 held at $1 per share and this was taken up in full. Later in the year the ompany

made a bonus issue of 1 share for every 5 held, using the share premium account for thepurpose.

What was the companys capital structure at 31 December 2005?(Ordinary share capital and Share premium account)


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Ordinary Share Capital 300000 0.25 75000

Share Premium Account 400000

Right Issue of 1 share for every 2 held 150000 0.25 37500

Right issue Premium 150000 0.75 112500

Bonus issue of 1 share for every 5 held 90000 0.25 22500

Premium used for Bonus issue of 1 share for every 5 held 22500

Suggested Solution::

New Ordinary Share Capital

= Ordinary Share Capital + Right Issue + Bonus Issue

=75000 + 37500 + 22500

=97500

New Share Premium Account

=Share Premium + Right Issue Premium - Bonus issue value

=400000 + 112500 - 22500

=490000

31. At 31 December 2005 the following require inclusion in a companys financialstatements:

(1) On 1 January 2005 the company made a loan of $70000 to an employee, repayable on1 January 2006, charging interest at 2 per cent per year. On the due date she repaid theloan and paid the whole of the interest due on the loan to that date.(2) The company has paid insurance $45000 in 2005, covering the year ending 31 August2006.(3) In January 2006 the company received rent from a tenant $6000 covering the sixmonths to 31 December 2005.

For these items, what total figures should be included in the companys balance sheet(Current Asset and Current Liability ) at 31 December 2005?


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ACCA F3 Mock Exam Financial

Statement

Suggested Solution.

Current Asset will be:

Loan + Accrued Interest + prepaid insurance

=70000 + 1400 + 30000

=$ 101400

32. Charles entered into the following transactions:1. He sold goods on credit to Cody with a list price of $50000. He allows a 10% tradediscount and a further 5% discount for payment within seven days. Cody paid within twodays.2. He made a credit sale to Mary allowing a 10% trade discount on the list price of $8000.3. He purchased goods for $1200 and paid $1180, receiving a discount for immediatecash payment.

How much discount should be recorded in the Discount Allowed account as a result ofthe above transactions?

List Price 50000Trade Discount 5000

Actual sales 45000

Early payment discount 2250

Discount Allowed 2250

33. The following extract is from the income statement of Gearing Co for the year ended30 April 2010:

Profit before tax $700000Tax $(280000)Profit for the year $420000


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In addition to the profit above:1 Gearing Co paid a dividend of $50000 during the year.2 A gain on revaluation of land resulted in a surplus of $30000 in the revaluation reserve.

What total amount will be added to retained earnings at the end of the financial year?

Suggested Solution.

Profit Before Tax 700000

Tax 280000

Profit After Tax 420000

Dividend Paid 50000

Retained Earnings 370000

34. The following extract is from the financial statements of Pompeii, a limited liabilitycompany at 31 October:

2010 2009

$'000 $'000

Equity and liabilities

Share capital 400000 360000

Share Premium 70000 56000

Retained Earnings 60000 45000

Bank Loan 80000 120000

What is the cash flow from financing activities to be disclosed in the statement of cashflows for the year ended 31 October 2010?

Suggested Solution.


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2010 2009 Cash Flow

$'000 $'000 $'000

Equity and liabilities

Share capital 400000 360000 40000

Share Premium 70000 56000 14000

Retained Earnings 60000 45000

Bank Loan 80000 120000 (40000)

Answer 14000

35. Amy and Andrew are in partnership sharing profits in the ratio 3:2. Their capitalaccount balances are $70000 and $40000 respectively.

On 1 January 2010, they changed the profit sharing ratio to share profits equally.

Goodwill in the partnership was agreed to be $70000. It is not the partnerships policy toretain goodwill in the financial statements.

What is the balance on Amys capital account after dealing with the goodwill arisingfrom the change in profit share?

Suggested Soilution

Amy Andrew

Capital Account Balances 70000 40000

Goodwill 42000 28000

Total 112000 68000

Goodwill written off 35000 35000

Closing Capital Account 77000 33000


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36. The statement of financial position of Cartwright, a limited liability company, showsclosing retained earnings of $2468000. The income statement showed profit of $73680.Cartwright paid last years final dividend of $14736 during the current year and proposeda dividend of $70000 at the year end. This had not been approved by the shareholders atthe end of the year.

What is the opening retained earnings balance?Suggest Solution:

Opening retained earnings + Profit - Dividend paid = Closing retained earnings.

Open retained earnings = Closing retained earnings - Profit + Dividend Paid.

Closing retained earnings 2468000

Less Profit 73680

Add Dividend Paid during the current year 14736

Opening retained earnings 2409056

f3 examples from net

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