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Final AccountsPreparationPractice assessment 1

© Osborne Books Limited, 2016

Task 1This task is about reconstructing general ledger accounts.You are working on the accounting records of a business for the year ended 31 March 20-1. You have thefollowing information.

Note: all sales and purchases are on credit terms. There were no sales and purchases returns during theyear.

Notes: • administration expenses are not included in the purchases day book• all administration expenses have been paid from the bank during the year

Further information:

• Prompt payment discount is recorded in discounts allowed and discounts received day books.• Prompt payment discounts allowed during the year were £360 including VAT.• Prompt payment discounts received during the year were £270 including VAT.• Bank receipts from trade receivables during the year were £144,145.• Wages paid during the year were £24,760.• Drawings from the bank during the year were £12,200.• There were no other bank receipts or payments during the year.

Day book summaries Net VAT Total for the year £ £ £

Sales 122,000 24,400 146,400 Purchases 64,000 12,800 76,800

Balances as at: 31 March 20-0 31 March 20-1 £ £ Trade receivables 24,300 26,200 Trade payables 10,300 11,175 VAT (payable) 2,470 3,405

Further information Net VAT Total £ £ £

Administration expenses 17,800 3,560 21,360

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(a) Using the figures given on the previous page, prepare the purchases ledger control account for theyear ended 31 March 20-1. Show clearly bank payments to trade payables as the balancing figure.

Purchases ledger control account

(b) Using the figures given on the previous page, prepare the VAT control account for the year ended31 March 20-1. Show clearly bank payments to HM Revenue & Customs as the balancing figure.

VAT control account

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Balance b/d

(c) Find the closing balance for bank by preparing the bank summary for the year ended 31 March 20-1. Use the figures given on the previous page.

Bank summary

Balance b/d 1,790

Task 2This task is about incomplete records and applying ethical principles when preparing final accounts.

(a) In the preparation of financial statements from incomplete records, indicate whether the followingstatements are true or false by selecting the appropriate column.

True False

(a) Bank statements received from the bank can be used tocheck and update the business cash book

(b) A physical inventory count can be used to determine thevalue of closing inventory

(c) Sales for the year can be calculated as receipts for theyear plus trade receivables at the beginning of the yearless trade receivables at the end of the year

(d) Non-current assets held at the end of the year must bechecked against the non-current asset register and byphysical inspection

You are given the following information about a sole trader business for the year ended 31 March 20-1:• sales for the year are £350,000• the gross profit margin is 20%• inventory at 1 April 20-0 is £22,000• inventory at 31 March 20-1 is £26,000

(b) Calculate the purchases for the year ended 31 March 20-1.

£

You are now working on the accounts of a different business. The owner of the business is convinced that a quantity of inventory has been lost or stolen during the year.She asks you to calculate, from the accounting details, the value of inventory lost or stolen.

The following information is available:• sales for the year are £250,000• opening inventory for the year is £18,000• closing inventory for the year is £21,000

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(d) You are now working on the final accounts of new client. The work includes preparing a VAT return,something which you are not qualified to undertake although you know how to account for VAT.

What should you do? Choose one.

(a) Advise the client that you are not qualified to undertake the work

(b) Ask a colleague to give you a crash course in VAT returns

(c) Refer the task to a colleague who has the necessary expertise

(d) Undertake the work anyway

• purchases for the year are £180,000• the gross sales margin is 30%

(c) Calculate the value of inventory lost or stolen (if any) during the year.

£

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Task 3This task is about final accounts for sole traders.

You have the following information about a sole trader who started in business on 1 July 20-8.• The business was not registered for VAT• The sole trader transferred £10,000 of his own money to the business bank account• The sole trader introduced engineering equipment which he owned worth £1,500 into the business• £2,000 was paid from the business bank account for engineering equipment for use in the business• Engineering equipment was purchased on credit for £750

(a) (1) What is the balance of the Capital account after these transactions have taken place.Choose one.

(a) £10,000

(b) £11,500

(c) £13,500

(d) £14,250

(2) Is the balance in part (1) above a debit or credit balance?

You have the trial balance shown on the next page for a sole trader known as Quesne Trading. All thenecessary year end adjustments have been made.The following accounting policy is used by Quesne Trading:• Purchases should include purchases returns, if any.

(b) (1) Calculate the purchases figure to be included in the statement of profit or loss for QuesneTrading.

£

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(2) Prepare a statement of profit or loss (on the next page) for Quesne Trading for the yearended 31 March 20-1.

Do not use brackets, minus signs or dashes.

Quesne TradingTrial balance as at 31 March 20-1

Dr £ Cr £

Accruals 240 Bank 2,480 Capital 36,110 Closing inventory 15,030 15,030 Depreciation charges 4,150 Discounts allowed 230 Drawings 15,540 Office equipment at cost 18,500 Office equipment: accumulated depreciation 6,250 Opening inventory 16,210 Payroll expenses 38,470 Payroll liabilities 590 Prepayments 450 Purchases 140,730 Purchases ledger control 15,380 Purchases returns 410 Rent and rates 15,970 Sales revenue 233,810 Sales ledger control 33,640 Selling expenses 18,220 Value Added Tax 6,840

317,140 317,140

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Select your entries from the following list: Accruals, Bank, Capital, Closing inventory, Depreciation charges, Discounts allowed, Drawings,Office equipment at cost, Office equipment: accumulated depreciation, Opening inventory, Payrollexpenses, Payroll liabilities, Prepayments, Purchases, Purchases ledger control, Purchasesreturns, Rent and rates, Sales revenue, Sales ledger control, Selling expenses, Value Added Tax.

Quesne TradingStatement of profit or loss for the year ended 31 March 20-1

£ £

Sales revenue

Cost of sales

Gross profit

Less:

Total expenses

Profit/loss for the year

(c) Indicate where a bank overdraft should be shown in the statement of financial position. Select one from:

(a) As a non-current asset

(b) As a current asset

(c) As a current liability

(d) As a non-current liability

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Task 4This task is about the knowledge and understanding underpinning final accounts preparation.

(a) Complete the following: (1) Which one of the list below best describes how income tax liability is assessed for a sole

trader?

(a) A sole trader is taxed on the profits of the business

(b) A sole trader is taxed on drawings from the business

(c) A sole trader is taxed on wages paid by the business

(d) A sole trader is taxed on dividends taken on profits of the business

(2) A Limited Liability Partnership is owned by its directors / partners / shareholders / members .

(3) Which of the following organisations are required to submit their financial statements toCompanies House?

1 Jon Hall trading as Redshank Marine

2 Redshank and Hall LLP

3 Redshank and Hall Ltd

(a) 3 only

(b) 1 and 2

(c) 2 and 3

(d) All of them

(4) A charity is run by its directors / trustees / shareholders / executives for the benefit of

investors / the public / employees / founders in accordance with regulations set out by the

Charity Commission / Companies House / Charities House . (delete as appropriate.)

(b) Which of the following are examples of material misstatement? 1 Non-current assets are over-valued 2 Purchases are understated 3 Inventories are under-valued

(a) 1 and 2

(b) 1 and 3

(c) 2 and 3

(d) All of them

(c) Link the users of final accounts in the boxes with lines to match the most likely reason for theirinterest.

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To assess VAT liability

To assess profitability of a business

To assess whether the business isable to pay its employees

To assess the business’scontribution to the economy

Potentialinvestors

HM Revenue& Customs

User Reason

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Task 5This task is about accounting for partnerships.You have the following information:

• The financial year ends on 30 September 20-0.• The partners are Donna and Eric.• Profit share, effective until 30 September 20-0: – Donna 50% – Eric 50%• Profit share, effective from 1 October 20-0: – Donna 60% – Eric 40%• Goodwill was valued at £20,000 on 30 September 20-0.

• The partners agree that goodwill is to be introduced into their capital accounts on 30 September and then eliminated on 1 October.

(a) Prepare the partners’ capital accounts to record the change in profit share, showing clearly thebalance carried down.

Select your entries from the following list: Balance b/d, Balance c/d, Bank, Capital – Donna, Capital – Eric, Current – Donna, Current – Eric,

Drawings, Goodwill.

Partners' capital accounts Donna Eric Donna Eric £ £ £ £ Balance b/d 28,000 22,000

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(b) Identify how the following partnership transactions will be recorded in the accounts – whethercapital or current account, and whether debit or credit. Indicate your answer by selecting therelevant column of the table below.

Transaction Capital account Current account

Dr Cr Dr Cr

Capital introduced

Partner’s salary

Interest on drawings

Goodwill eliminated

Share of losses

Interest on capital

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You have the following information about another partnership business:

• The financial year ends on 31 March.• The partners are Rosy, Sam and Tina.• Profit for the year is £88,500 before appropriations.• Partners’ annual salaries: Rosy £15,350 Sam £24,750 Tina £12,450• Partners’ interest on capital: Rosy £1,200 Sam £1,700 Tina £800• The partners share the remaining profit as follows: Rosy 30% Sam 50% Tina 20%• Interest charged on partners’ drawings for the year: Rosy £550 Sam £850 Tina £350

(c) Prepare the appropriation account for the partnership for the year ended 31 March 20-1. You must enter zeros where appropriate. Use a minus sign for deductions or where there is a lossto be distributed.Select your entries from the following list: Drawings SalariesInterest on capitalShare of profit or lossInterest on drawings

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Partnership appropriation account for the year ended 31 March 20-1

Total Rosy Sam Tina £ £ £ £Profit for the year Profit available for distribution Share of residual profit or loss Rosy Sam Tina Total profit or loss distributed

Task 6This task is about final accounts for partnerships and an introduction to reporting regulations for a limitedcompany.You are preparing the statement of financial position for the Towan Partnership for the year ended31 March 20-1. The partners are Sara and Toni.All the necessary year-end adjustments have been made, except for the transfer of profit to the currentaccounts of the partners.Before sharing profits the balances of the partners’ current accounts are:• Sara £490 credit• Toni £210 debitEach partner is entitled to £3,750 profit share.

(a) Calculate the balance of each partner’s current account after sharing profits. Indicate whether thesebalances are DEBIT or CREDIT.

Current account: Sara £ DEBIT / CREDIT

Current account: Toni £ DEBIT / CREDIT

Note: these balances will need to be transferred into the statement of financial position of thepartnership which follows.

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You have the following trial balance. All the necessary year-end adjustments have been made.

(b) Prepare a statement of financial position for the partnership as at 31 March 20-1. You need to usethe partners’ current account balances that you have just calculated in (a). Do not use brackets,minus signs or dashes.

Towan Partnership Trial balance as at 31 March 20-1

Dr £ Cr £ Accruals 300 Administration expenses 14,380 Allowance for doubtful debts 890 Allowance for doubtful debts adjustment 130 Bank 6,530 Capital account – Sara 15,000 Capital account – Toni 18,000 Closing inventory 8,610 8,610 Current account – Sara 490 Current account – Toni 210 Depreciation charges 5,250 Disposal of non-current asset 750 Opening inventory 6,050 Prepayments 650 Purchases 55,830 Purchases ledger control 7,310 Sales revenue 99,450 Sales ledger control 15,270 Selling expenses 18,430 Value Added Tax 1,430 Vehicles at cost 35,400 Vehicles accumulated depreciation 15,750 Total 167,360 167,360

Select your entries from the following list: Accruals, Bank, Capital accounts, Current accounts, Expenses, Inventory, Prepayments,Purchases, Sales, Trade payables, Trade receivables, Value Added Tax, Vehicles.

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Towan Partnership Statement of financial position as at 31 March 20-1 £ £ £ Non-current assets Cost Accumulated Carrying amount depreciation

Current assets

8,610

6,530

Total current assets

Current liabilities

Total current liabilities

Net current assets

Net assets

Financed by: Sara Toni Total

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(c) Indicate whether the following statements about the preparation and presentation of limitedcompany financial statements are true or false

True False

(a) IAS 1 Presentation of Financial Statements lists itemswhich must appear on the face of the financial statements

(b) IAS 2 Inventories sets out acceptable methods for valuinginventories

(c) IAS 16 Property, plant and equipment states the minimumvalue of non-current assets

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