Chapter 5 1 Accounting for Depreciation

IG II ACCOUNTING TOPICALS

P2

Hassaan Nabeel

ACCA UK
Bsc Hons UK
Chapter 5 2 Accounting for Depreciation
 Chapter 5 3 Accounting for Depreciation

ACCOUNTING FOR DEPRECIATION

QUESTION 1 NOVEMBER 2009 P2 Q2 (a to e)
Universal Industries provided the following information:
1 Purchased a machine for $8 000 on 1 October 2007.
2 Sold the machine for cash, $7 000, on 31 March 2009.
3 The policy of Universal Industries is to charge depreciation at the rate of 10% per annum on cost
using the straight line method. Depreciation on machinery is charged from the date of purchase
and up to the date of sale.
4 All sales of non-current assets are recorded in a disposal account.
5 Universal Industries prepares financial statements on 31 March each year.
REQUIRED
(a) Explain the term depreciation. [2]
(b) State two reasons why non-current assets depreciate. [2]
(c) Prepare the journal entries to record the sale of the machine. Show the transfer of any profit or
loss on the sale to the financial statements on 31 March 2009. Narratives are not required. [8]
(d) Explain why depreciation is an application of the accruals concept. [2]
(e) Complete the table below for items (i) to (iii). State in each case the most appropriate method of depreciation and give
one reason for your answer.

Asset
(i) Buildings Method of depreciation
Reason
(ii) Computers Method of depreciation
Reason
(iii) Loose tools Method of depreciation
Reason [6]

QUESTION 2 MAY 2010 P21 Q2 (a to e)

Sparky Ltd set up business on 1 May 2008 with the following assets:
$
Property (Land and buildings) 150 000
Computer equipment 40 000
Inventory (stock in trade) 70 000
Sparky Ltd decided on the following policy for depreciation:
1 Land costing $80 000 was not to be depreciated.
2 Buildings are to be depreciated at 2% per annum on cost using the straight line method.
3 Computer equipment is to be depreciated at 25% per annum using the diminishing (reducing)
balance method.
REQUIRED
(a) State two causes of depreciation. [2]
(b) Explain why Sparky Ltd does not depreciate each of the following:
Land
Inventory [4]
Chapter 5 4 Accounting for Depreciation

(c) Explain why depreciation is an application of the matching/accruals principle. [2]

(d) Calculate the depreciation on property (land and buildings) for the year ended 30 April 2009. [1]
On 30 April 2010 Sparky Ltd sold some of the computer equipment for $7 000. The computer equipment
had cost $12 000 on 1 May 2008. Sparky Ltd charges a full year’s depreciation in the year of disposal.

REQUIRED
(e) Prepare disposal account on 30 April 2010 recording the disposal of the computer equipment. [5]

QUESTION 3 MAY 2011 P22 Q2 (a to e)

Amayi owns a manufacturing business. Her financial year ends on 30 April. She has the following
depreciation policy:
Machinery is depreciated at the rate of 25% per annum using the diminishing (reducing) balance
method.
Office furniture is depreciated at the rate of 10% per annum using the straight-line method.
Loose tools are depreciated using the revaluation method.
A full year’s depreciation is charged on assets in the year of purchase but no depreciation is charged in the
year of sale.
REQUIRED
(a) Give two reasons why depreciation should be charged. [4]
(b) Suggest one reason why the diminishing (reducing) balance method might be the most
appropriate method for Amayi to depreciate her machinery. [2]

The following information is available for the year ended 30 April 2011.
1 Balances 1 May 2010
Non-current assets at cost $
Machinery 80 000
Office furniture 15 000
Provisions for depreciation
Machinery 60 000
Office furniture 5 000
2 On 31 July 2010, additional machinery, $18 000, was purchased.
3 On 20 February 2011, office furniture, which had cost $1 000 on 1 May 2008, was sold for $550
cash.
4 On 1 May 2010, loose tools, cost price $1600, were valued at $1050. Additional loose tools were
purchased during the year for $630.
On 30 April 2011 loose tools were valued at $1400.
REQUIRED
(c) Calculate the depreciation to be charged on each of the following for the year ended 30 April
2011.
(i) Machinery
(ii) Office furniture
(iii) Loose tools [6]
(d) Calculate the profit or loss on the office furniture sold on 20 February 2011. [3]
(e) Calculate the net book value on 30 April 2011 of
(i) Machinery
(ii) Office furniture [2]
Chapter 5 5 Accounting for Depreciation

QUESTION 4 NOVEMBER 2012 P21 Q2

On 31 August 2011 the following extract was taken from the balance sheet of Stavros

Non-current assets Cost Accumulated NBV

depreciation
$ $ $
Equipment 60 000 24 000 36 000
Office Computers 8 000 5 600 2 400
68 000 29 600 38 400

The following transactions took place during the year ended 31 August 2012:
1 On 31 January 2012, equipment purchased on 1 April 2009, at a cost of $28 000, was sold for $10
000. Payment was received by cheque.
2 On 1 February 2012, new equipment was purchased at a cost of $35 000.
3 On 20 March 2012, office computers were purchased for $600.

Stavros has the following depreciation policy:

Equipment is depreciated at the rate of 20% per annum using the straight-line method. Office computers
are depreciated at the rate of 25% per annum using the diminishing (reducing) balance method.
A full year’s depreciation is charged on equipment and office computers in the year of purchase.
No depreciation is charged on equipment in the year of sale.

REQUIRED
(a) (i) Explain the term depreciation. [2]
(ii) State two causes of depreciation. [2]
(b) State one advantage of using the straight-line method of depreciation [2]
(c) Prepare the following ledger accounts for the year ended 31 August 2012:
(i) Provision for depreciation of equipment account
(ii) Equipment disposal account [8]
(d) Complete the following balance sheet (extract) for the non-current assets on 31 August 2012.
Accumulated
Non-current assets Cost NBV
depreciation
$ $ $
Equipment
Office Computers
[6]
QUESTION 5 MAY 2013 P21 Q4
On 1 April 2011 Lynne purchased two motor vehicles for business use on credit from Villa Motors Limited.
The vehicles cost $12 000 each.
Depreciation is charged on the motor vehicles at 20% per annum by the diminishing (reducing) balance
method. A full year’s depreciation is charged in the year of purchase but no depreciation is charged in the
year of sale.
On 23 January 2013 one of the motor vehicles was sold for $6 500.
Chapter 5 6 Accounting for Depreciation

REQUIRED
(a) Show the journal entry to record the purchase of the motor vehicles on 1 April 2011.
Dates and narratives are not required. [2]
(b) Prepare the provision for depreciation account for the years ended on 31 March 2012 & 2013. [5]
(c) Prepare the disposal account. [5]
(d) State two other methods of depreciation. [2]

QUESTION 6 NOVEMBER 2013 P22 Q1 (c & d)

(c) Give two other uses of the general journal. [2]
(d) Kulbir operates on a mark-up of 25%. The table below contains transactions carried out by Kulbir
in her first week of trading. Complete the table for each transaction. The first transaction has
been completed as an example.
Source Book of prime Effect on
2013 Transaction
document entry Profit
Goods sold, cost price $400, on credit
Jan 4 Invoice Sales journal Increase $100
to Keen
Jan 5 Keen returned goods, selling price $80
Payment made to J Singh, $323 in cash,
Jan 6
after deducting $17 cash discount
Kulbir withdrew $200 from the bank for
Jan 7
personal use
[9]
QUESTION 7 NOVEMBER 2014 P21 Q2 (a to e)
The following information relates to the delivery vehicles of Swift Limited.
1 July 2012 Purchased delivery vehicle 1 for $15 000.
1 July 2013 Purchased delivery vehicle 2 for $20 000.
30 June 2014 Disposed of delivery vehicle 1 and received a cheque for $8 000.
Depreciation is charged at the rate of 20% using the diminishing (reducing) balance method.
REQUIRED
(a) State two causes of depreciation of a delivery vehicle. [2]
(b) Complete the following table to show the depreciation charged for the years ended 30 June 2013
and 30 June 2014.
Year ended Delivery vehicle 1 Delivery vehicle 2 Total for year
$ $ $
30 June 2013
30 June 2014
Total
[3]
(c) Prepare the provision for depreciation of delivery vehicles account for the year ended 30 June
2014. Balance the account and bring down the balance. [4]
(d) Prepare the journal entries to record the disposal of delivery vehicle 1. Narratives are not
required. [6]
(e) Prepare an extract from the statement of financial position at 30 June 2014, showing the delivery
vehicles. [2]
Chapter 5 7 Accounting for Depreciation

QUESTION 8 NOVEMBER 2014 P22 Q2 (a to d)

Ajib commenced business on 1 October 2014 delivering parcels to customers’ homes. He purchased a
motor van on that date, the details are as follows.
Purchase price $9 600
Life of motor van 3 years
Residual value $1 200
Ajib is undecided whether to use the straight-line method or diminishing (reducing) balance method to
depreciate the motor van.
If Ajib uses the diminishing (reducing) balance method the annual rate of depreciation charged would be
50%.
REQUIRED
(a) Explain the term depreciation. [2]
(b) Complete the following table to show the depreciation to be charged for the years ended 30
September 2015, 2016 and 2017 using the straight-line method and the diminishing (reducing)
balance method. [6]
(c) State one advantage of Ajib using the straight-line method when depreciating the motor van. [1]
(d) State one advantage of Ajib using the diminishing (reducing) balance method when depreciating
the motor van. [1]

QUESTION 9 MAY 2015 P22 Q2

Atto Electrical had the following non-current assets on 31 March 2013.
Net book value ($)
Premises (cost $50 000) 48 000
Motor vehicles (cost $16 000) 12 000
Computers 6 000
Atto Electrical has the following depreciation policy.
Premises are depreciated at the rate of 2% per annum by straight-line method.
Motor vehicles are depreciated at the rate of 25% per annum by diminishing (reducing) balance
method.
Computers are depreciated by revaluation method.
A full year’s depreciation is charged on all non-current assets owned at the end of the financial year.
Additional information
1 There were no purchases or sales of non-current assets during the year ended 31 March 2014.
2 The following purchases of non-current assets were made during the year ended 31 March 2015.
Payments were made by cheque.
$
Premises 30 000
Motor vehicles 9 000
Computers 3 200
3 Computers were valued as follows:
$
31 March 2014 4 200
31 March 2015 6 000
Chapter 5 8 Accounting for Depreciation

REQUIRED
(a) Explain the term depreciation. [2]
(b) State one cause of depreciation of a computer. [1]
(c) Complete the table to show the depreciation to be charged to the income statement for each of
the years ended 31 March 2014 and 31 March 2015.
Year ended 31 March 2014 ($) Year ended 31 March 2015 ($)
Premises
Motor vehicles
Computers
[6]
(d) Prepare the following ledger accounts for each of the years ended 31 March 2014 and 31 March
2015. Balance the accounts and bring down the balances on 1 April.
Motor vehicles account [4]
Motor vehicles provision for depreciation account [5]
(e) Identify which two of the following accounting principles/concepts support the charging of
depreciation in an accounting year.
Accruals/Matching
Dual aspect
Going concern
Materiality
Money measurement [2]
QUESTION 10 MAY 2016 P21 & 22 Q2 (a to d)
The following balances were recorded in the books of Sofea on 1 March 2015.
$
Motor vehicles account (at cost) 50 000
Motor vehicles - Provision for depreciation account 18 400

1 On 31 May 2015 a motor vehicle costing $16 000 and with an accumulated depreciation of $7000
was sold for $8 400.
2 On 30 June 2015 a motor vehicle costing $20 000 was purchased on credit.
3 The depreciation policy of Sofea is as follows:
Motor vehicles are depreciated at the rate of 25% per annum using the diminishing (reducing)
balance method.
A full year’s depreciation is charged in the year of purchase.
No depreciation is charged in the year of sale.
REQUIRED
(a) State the meaning of the accounting term depreciation. [2]
(b) Identify by ticking the appropriate box (✓) whether each statement about depreciation is true or
false. The first one has been completed as an example.
Statement Statement False
There is only one method of charging depreciation. ✓
Depreciation is the cash set aside for non-current asset replacement.
Depreciation is an application of the going concern concept.
[2]
Chapter 5 9 Accounting for Depreciation

(c) Calculate the:

(i) profit or loss on the sale of the motor vehicle on 31 May 2015. [1]
(ii) motor vehicles depreciation charge for the year ended 29 February 2016. [2]
(d) Prepare the motor vehicles provision for depreciation account for the year ended 29 February
2016. Balance the account and bring down the balance on 1 March 2016. [5]
Chapter 5 10 Accounting for Depreciation

SOLUTIONS
QUESTION 1 NOVEMBER 2009 P2 Q2 (a to e)
(a) Depreciation is the reduction in the value and useful life of a non-current asset.
Depreciation is charged to allocate the cost of a non-current asset over its useful life.
(b) Physical deterioration, wear and tear, Obsolescence, time factor, depletion, inadequacy etc.

(c) Journal
2009 Dr ($) Cr ($)
Mar 31 Machine disposal account 8 000
Machinery account 8 000
Mar 31 Provision for depreciation account ($8 000 × 10% × 11/2) 1 200
Machine disposal account 1 200
0Mar 31 Bank account 7 000
Machine disposal account 7 000
Mar 31 Machine disposal account 200
Income statement (profit) 200
(d) As Matching and accrual concepts emphasise that all the expenses related to generation of
current year revenue should be off set against the revenue so that true profitability of the
business may be determined.
As non-current assets benefit the business for a period more than one year so their costs should
be charged to income statement over their useful lives against the income earned in a given
financial year
(e) Non-current asset Method and reason
(i) Buildings Straight line or original cost
Asset benefits the business evenly over its life
(ii) Computers Reducing balance or written down value
Large reduction in value of asset in early
years
(iii) Loose tools Rapid technical improvements make computers quickly out of date
Revaluation
Small items have low per unit value which varies each year and is
difficult to measure individually.

QUESTION 2 MAY 2010 P21 Q2 (a to e)

(a) Physical deterioration, obsolescence; time factor; depletion etc.
(b) (i) Land does not wear out and has an infinite life so there is no need to depreciate it in
value. Moreover its value may go up in value.
(ii) Inventory in trade is a current asset. It is expected to be sold (or used) within a year so
there is no asset to depreciate over several years.
(c) Matching concept asserts that the cost of a non-current asset should be charged to the income
statement over its estimated useful life earned in a given financial year.
(d) Depreciation on Property (land and buildings) = ($150 000 − $80 000) × 2%
= $1 400
Chapter 5 11 Accounting for Depreciation

(e) Disposal Account

$ $
Computer equipment 12 000 Prov. for depn(12000×25%)+(9000×25%) 5 250
Income Statement (profit) 250 Cash/Trade receivables 7 000
12 250 12 250

QUESTION 3 MAY 2011 P22 Q2 (a to e)

(a)  to spread the cost of a non-current asset over its useful economic life
 to include a charge a for use of non-current asset to the income statement
 to reduce the book value of non-current assets in the balance sheet

(b) Reducing Balance Method is the most appropriate method for calculating depreciation on
machines, which operate faster, produce more and perform more accurately when they are new.
(c) Calculation of depreciation
Machinery ($) Furniture ($) Loose tools ($)
Cost (value) at 1 May 2010 80 000 15 000 1 050
Add Purchase of new assets 18 000 - 630
Less Disposals of assets - (1 000) -
98 000 14 000 1 680
Less Provision for depn [$5 000− ($1 00020%)] (60 000) (4 800) -
Value at year end before current year depreciation 38 000 9 200 1 680
Depreciation (3800025%);[1400010%)];(1680−1400) (9 500) (1 400) (280)
$
(d) Calculation of profit or loss on furniture sold
Cost of furniture sold 1 000
Depreciation ($1 000  20%) (200)
Book value on sale of furniture 800
Sale price of furniture sold (550)
Loss on sale of furniture 250

(e)
Machinery ($) Furniture ($) Loose tools ($)
Value at year end before current year depreciation (“c”) 38 000 9 200 1 680
Depreciation (3800025%);[1400010%)];(1680−1400) (9 500) (1 400) (280)
Net book value on 30 April 2011 28 500 7 800 1 400

QUESTION 4 NOVEMBER 2012 P21 Q2

(a) (i) Depreciation is the continuing diminution in the value or estimated useful life of a non-
current asset
(ii) Physical deterioration, obsolescence, inadequacy, time factor etc

(b) It is easy to calculate and understand as apportions an equal amount of depreciation to each
year of ownership
More appropriate to non-current assets which show consistent performance in each year of their
useful lives.
Chapter 5 12 Accounting for Depreciation

(c) (i) Equipment provision for depreciation account

2012 $ 2012 $
Jan 31 Disposal ($28 000 × 20% × 3) 16 800 Sep 01 Balance b/f 24 000
Aug 31 Balance c/d 20 600 Aug 31 Income statement (W 1) 13 400
37 400 37 400
Sept 1 Balance b/d 20 600

(ii) Equipment disposal account

2012 $ 2012 $
Jan 31 Equipment 28 000 Jan 31 Provision for depreciation 16 800
Jan 31 Bank 10 000
_ Aug 31 Income statement (bal. Figure) 1 200
28 000 28 000

(d) Balance sheet (extract) at 31 August 2012

Accumulated
Non-current assets Cost NBV
depreciation
$ $ $
Equipment ($60 000 + $35 000  $28 000) 67 000 20 600 46 400
Office computer ($8 000 + $600); [5 600 + 750(W 2)] 8 600 6 350 2 250
75 600 26 950 48 650

WORKINGS
(W 1) Current year depreciation (equipment) = ($60 000 + $35 000  $28 000) × 20% = $13 400
(W 2) Current year depreciation (computers) = [($8 000 + $600)  $5 600] × 25% = $750

QUESTION 5 MAY 2013 P21 Q4

(a) Journal
Dr ($) Cr ($)
Motor vehicles 24 000
Villa Motors Limited 24 000
(b) Provision for Depreciation account
2013 $ 2012 $
Mar 31 Balance c/d 4 800 Mar 31 Income statement($24 000×20%) 4 800
Jan 23 Disposal a/c ($12 000 × 20%) 2 400 Apr 01 Balance b/d 4 800
2013 2013
Mar 31 Balance c/d 4 320 Mar 31 Income statement ($9 600×20%) 1 920
6 720 6 720

(c) Disposal account

2013 $ 2013 $
Jan 23 Motor vehicle 12 000 Jan 23 Bank 6 500
Jan 23 Provision for Depreciation 2 400
_ Mar 31 Income statement (bal. Figure) 3 100
12 000 12 000
(d) Straight-line method, Revaluation method
 Chapter 5 13 Accounting for Depreciation

QUESTION 6 NOVEMBER 2013 P22 Q1 (c & d)

(c) General journal is used to record items which cannot be recorded in other journals. Examples
include purchase or sale of non-current assets on credit, entries to close incomes and expenses
to Income Statement, entries to correct the mistakes, adjusting entries etc
(d) Source Book of prime Effect on
2013 Transaction
document entry profit
Goods sold, cost price $400, Increase
Jan 4 Invoice Sales journal
on credit to Keen $100
Keen returned goods, list Credit note Sale returns Decrease $16
Jan 5 ($80 × 25/ 125)
price $80 journal
Payment made to J Singh,
Increase
Jan 6 $323, in cash, after Receipt Cash book
$17
deducting $17 cash discount
Kulbir withdrew $200 from Bank Statement/
Jan 7 Cash book No effect
the bank for personal use Cheque counterfoil

QUESTION 7 NOVEMBER 2014 P21 Q2 (a to e)

(a) Physical deterioration/Wear and tear
Economic factors
Obsolescence
Passage of time (time factor)
(b)
Year ended Delivery vehicle 1 Delivery vehicle 2 Total for year
$ $ $
30 June 2013 3 000 ($15 000 × 20%) - 3 000
30 June 2014 2 400 [($15 000  $3 000) × 20%] 4 000 ($20 000 × 20%) 6 400
Total 5 400 4 000

(c) Provision for depreciation of delivery vehicles account

2014 $ 2013 $
Jun 30 Vehicle Disposal(‘b’ part) 5 400 1 July Balance b/f 3 000
Jun 30 Balance c/d 4 000 2014
Jun30 Income Statement (‘b’ part) 6 400
9 400 9 400

(d) Journal
Dr ($) Cr ($)
Vehicle Disposal 15 000
Delivery vehicle 15 000
Provision for depreciation 5 400
Vehicle Disposal 5 400
Bank 8 000
Vehicle Disposal 8 000
Income statement (loss) 1 600
Vehicle Disposal 1 600
Chapter 5 14 Accounting for Depreciation

(e) Statement of Financial Position at 30 June 2014

Non-current assets Cost Aggregate Net book
depreciation value
$ $ $

QUESTION 8 NOVEMBER 2014 P22 Q2 (a to d)

(a) Depreciation represents the continuing loss in the value of a non-current asset over its
estimated working life
(b) Calculation of Depreciation
For the year ended Straight line method Reducing balance method

$9 600−$1 200
$ $

2 800 ( )
3 years 200
30 September 2015 4 800 ($9 600 × 50%)
$9 600−$1
2 800 ( )
3 years 200
30 September 2016 2 400 [($9 600  $4 800) × 50%]
$9 600−$1
2 800 ( )
3 years
30 September 2017 1 200 [($9 600  $7 200) × 50%]

(c) Depreciation charged under straight line method is easy to calculate and equal charge for
depreciation in each year represents equal benefit received from use of asset.

(d) Under reducing balance method more depreciation is charged in earlier part of vehicle’s life so is
more realistic in relation to motor vehicles.

QUESTION 9 MAY 2015 P22 Q2

(a) Depreciation is the estimated reduction in the value of a non-current asset over its expected
useful life.
Charging of depreciation is a process to allocate cost of a non-current asset over its useful life.
(b) Physical deterioration, obsolescence, inadequacy etc.
(c) Year ended Year ended
31 March 2014 31 March 2015
$ $
Premises ($50 000 × 2%) ; [($50 000 + $30 000) × 2%] 1 000 1 600
Motor vehicles[($16 000  $4 000) × 25%] ;[($25 000  $7 000) × 25%] 3 000 4 500
Computers ($6 000  $4 200) ; [($4 200 + $3 200)  $6 000] 1 800 1 400
[6]
(d) Motor vehicles account
2013 $ 2014 $
Apr 1 Balance b/f 16 000 Mar 31 Balance c/d 16 000
2014 2015
Apr 1 Balance b/d 16 000 Mar 31 Balance c/d 25 000
Bank 9 000
25 000 25 000
2015
Apr 1 Balance b/d 25 000
 Chapter 5 15 Accounting for Depreciation

Motor vehicle provision for depreciation account

2014 2013 $
Mar 31 Balance c/d 7 000 Apr 01 Balance b/f ($16 000  $12 000) 4 000
2014
Mar 31 Income Statement (‘c’ part) 3 000
7 000 7 000
2015 Apr 01 Balance b/d 7 000
Mar 31 Balance c/d 11 500 2015
_ Mar 31 Income Statement (‘c’ part) 4 500
11 500 11 500
(e) Matching (Accruals) and Going concern

QUESTION 10 MAY 2016 P21 & 22 Q2 (a to d)

(a) Depreciation is the estimated reduction in the value of a non-current asset over its expected
useful life.
(b)
Statement True False
There is only one method of charging depreciation. T
Depreciation is the putting by of cash for asset replacement. √
Depreciation is an application of the going concern concept. √

(c) (i) Sale value of vehicle  Book value of vehicle sold = Profit (loss) on disposal
$8 400  ($16 000  $7 000) = $600 loss

(ii) Depreciation ($) = Book value of vehicle at year end × Depreciation (%)
= [(50 000  16 000 + 20 000)(18 400  7 000)] × 25%
= $10 650

(d) Motor vehicles – Provision for depreciation account

2015 $ 2015 $
May 31 Disposal 7 000 Mar 01 Balance b/f 18 400
2016 2016
Feb 29 Balance c/d 22 050 Feb 29 Income statement [c (ii)] 10 650
29 050 29 050
Mar 01 Balance b/d 22 050
Chapter 7 16 Financial Statements of Sole Traders

FINANCIAL STATEMENTS OF SOLE TRADERS

QUESTION 1 MAY 2009 P2 Q5
Sue Searle is in the import business. The following balances were extracted from her books on 31 March
2009.
$
Sales 95 800
Purchases 48 340
Returns outwards 960
Inventory at 1 April 2008 10 780
Wages of motor vehicle driver 11 500
Motor vehicle running expenses 6 500
Motor vehicles at cost 20 000
Provision for depreciation of motor vehicle at 1 April 2008 15 000
Premises 60 000
Provision for depreciation of premises at 1 April 2008 12 000
Rent and insurance 7 700
Light and heat 4 950
General and marketing expenses 6 200
Discount received 5 300
Provision for doubtful debts 560
8 % Bank loan repayable 30 June 2011 30 000
Cash 270
Bank overdraft 1 680
Trade receivables 18 500
Trade payables 9 750
Drawings 11 310
Capital at 1 April 2008 35 000
Additional information
1 Inventory at 31 March 2009 was valued at $12 600.
2 The motor vehicle is used to bring purchases to the business premises of Sue Searle and to
deliver goods to customers. The motor vehicle is used 20% of the time to collect purchases and
80 % to deliver goods to customers.
3 Depreciation is to be charged on the premises at the rate of 2 % per annum on cost using the
straight line method and on the motor vehicle at 20 % per annum using the diminishing
(reducing) balance method.
4 The loan interest is outstanding at 31 March 2009.
5 Insurance, $450, was prepaid at 31 March 2009.
6 Electricity for lighting, $130, was due at 31 March 2009.
7 The provision for doubtful debts is to be maintained at 2 % of trade receivables.
REQUIRED
(a) Prepare the income statement for Sue Searle for the year ended 31 March 2009. [18]
(b) Prepare the balance sheet of Sue Searle at 31 March 2009. [14]

QUESTION 2 NOVEMBER 2010 P22 Q5

The following balances were extracted from the books of Doji, a trader, on 30 September 2010:
Chapter 7 17 Financial Statements of Sole Traders

$
Ordinary goods purchased (purchases) 70 000
Carriage inwards 3 000
Revenue (sales) 155 000
Sales returns 9 500
Motor vehicles 42 000
Office equipment 26 000
Provisions for depreciation on motor vehicles 8 000
Provisions for depreciation on office equipment 4 000
Provision for doubtful debts 1 000
Salaries 23 750
Rent and rates 6 800
Discount received 5 600
Sundry expenses 14 150
Advertising 6 200
Trade payables 18 300
Trade receivables 23 000
Inventory at 1 October 2009 11 500
Bank overdraft 16 000
Capital 40 000
Drawings 12 000

Additional information at 30 September 2010

1 Inventory was valued at $14 600.
2 During the year Doji took goods costing $1 250 for his own use. No entries have been made in
the books.
3 Advertising, $300, was prepaid. Salaries, $2600, were accrued.
4 Depreciation is to be charged as follows:
office equipment at the rate of 10% per annum using the straight line method.
motor vehicles at the rate of 25% per annum using the diminishing (reducing)balance
method;

5 Trade receivables (debtors) include a debt of $4250 which is considered irrecoverable and is to
be written off. The provision for doubtful debts is to be maintained at 4% of all remaining debts.
6 On 1 April 2010 Doji made a short-term loan, $10 000, to the business. This was included in error
in the capital account. Interest payable at 5% per annum has not been entered in the books.
REQUIRED
(a) Prepare the income statement of Doji for the year ended 30 September 2010. [22]
(b) Prepare the balance sheet of Doji at 30 September 2010. [18]

QUESTION 3 NOVEMBER 2011 P21 Q1 (c to e)

The balances on Christos’ books at 31 July 2011 were as follows:
$
Capital ?
Drawings 8 000
Office furniture 5 000
Chapter 7 18 Financial Statements of Sole Traders

Provision for depreciation on office furniture 3 200

Inventory 4 150
Bank overdraft 250
Trade payables 2 950
Sundry expenses 10 600
Purchases 32 400
Provision for doubtful debts 350
Revenue (sales) 53 750
Trade receivables 6 250

REQUIRED
(c) Prepare the trial balance for Christos at 31 July 2011, including the capital account balance. [6]
(d) State the item in the trial balance which would include the balance on Michelle’s account. [1]
(e) State two differences between a trial balance and a balance sheet. [4]

QUESTION 4 NOVEMBER 2011 P22 Q5)

Jasmine is a retailer of fashion goods. The following balances were extracted from her books on 30
September 2011.
$
Revenue (sales) 210 000
Purchases 113 500
Goods returned by customers 8 120
Goods returned to suppliers 3 400
Inventory at 1 October 2010 9 430
Carriage 1 700
Insurance 5 600
Light and heat 6 300
Staff wages 27 000
Advertising 10 600
General expenses 15 850
Discount received 1 750
Building costs 20 100
Land and buildings at cost 100 000
Fixtures and fittings at cost 18 000
Computer equipment at cost 12 000
Provisions for depreciation on fixtures and fittings 7 200
Provisions for depreciation on computer equipment 3 600
Disposal account 200 Cr
7% Bank loan repayable 30 March 2014 20 000
Bank overdraft 18 500
Trade receivables 8 200
Trade payables 26 750
Provision for doubtful debts 500
Drawings 15 500
Capital at 1 October 2010 80 000
Additional information:
Chapter 7 19 Financial Statements of Sole Traders

1 Inventory at 30 September 2011 was valued at $11 780.

2 The cost of carriage from suppliers was $500, the remainder of the cost related to the delivery
of goods to customers.
3 At 30 September 2011 heating expenses, $375, were accrued and insurance, $1 120, is prepaid.
4 7% bank loan was received on 1 April 2011. Interest is payable on each anniversary of the loan.
5 Buildings costs consists of $16 000 to build an extension to the building and $4 100 to repair
the heating system.
6 Depreciation is charged on Computer equipment at the rate of 30% per annum using the
diminishing (reducing) balance method and on fixtures and fittings at the rate of 20% per
annum on cost using the straight line method.
7 A provision for doubtful debts is to be maintained at 5% of trade receivables.
REQUIRED
(a) Prepare the income statement for Jasmine for the year ended 30 September 2011. [24]
(b) Prepare the balance sheet of Jasmine at 30 September 2011. [16]

QUESTION 5 MAY 2012 P21 Q1 (d)

Yang is a supplier of goods to Win. Yang extracted a trial balance on 31 March 2012.
(i) State one purpose in preparing a trial balance. [2]
(ii) State whether the following accounts would be listed as a debit or a credit in the trial balance.
The first account has been completed as an example. [4]
Account Debit or Credit
Capital Credit
Provision for depreciation
Inventory
Bank (overdraft)
Wages

QUESTION 6 MAY 2012 P21 Q5

Thien has a retail business. The following balances were extracted from his books at the end of his
financial year on 31 March 2012.
$
Leasehold property − 25 years (cost) 50 000
Equipment (cost) 54 000
Provisions for depreciation: Leasehold property 10 000
Equipment 17 000
6% Bank loan repayable 31 December 2015 25 000
Bank 5 150
Trade receivables 6 750
Trade payables 4 010
Provision for doubtful debts 700
Revenue 78 580
Purchases 18 240
Purchase returns 1 600
Inventory at 1 April 2011 4 690
Chapter 7 20 Financial Statements of Sole Traders

Equipment repairs 850

Equipment running expenses 2 650
General expenses 8 400
Wages 15 300
Insurance 3 640
Power and water 2 300
Advertising 5 100
Discount allowed 1 650
Discount received 330
Capital at 1 April 2011 50 000
Drawings 8 500
Additional information at 31 March 2012
1 Inventory was valued at $3 870.
2 Thien took stock valued at $450 for his own use.
3 Equipment running expenses, $750, were accrued and insurance, $1 350, was prepaid.
4 The 6% bank loan was received on 1 December 2011.
5 An appropriate amount is to be written off the lease.
6 The purchase of additional equipment, $10 000, had been omitted from the
books. Payment was $5 000 by cheque with the remainder on credit.
7 Equipment is to be depreciated at the rate of 20% per annum using the diminishing (reducing)
balance method.
8 Provision for doubtful debts is to be maintained at 8% of trade receivables.
REQUIRED
(a) Prepare the income statement for the year ended 31 March 2012. [20]
(b) Prepare the balance sheet at 31 March 2012. [20]

QUESTION 7 MAY 2012 P22 Q1 (a & d)

Giorgos commenced business on 1 May 2012 with the following assets and liabilities.
$
Bank loan 6 000
Bank 1 000 Dr
Cash 600
Premises 15 000
Inventory 1 800
Trade payable − Early Ltd 1 200
REQUIRED
(a) Complete the opening trial balance showing clearly the value of the capital.

(d) On 31 May 2012 Giorgos prepared another trial balance.

State one use of a trial balance. [2]

QUESTION 8 NOVEMBER 2012 P21 Q4

Maria is in business as a retailer. The following balances were extracted from her books on
30 September 2012.
Chapter 7 21 Financial Statements of Sole Traders

$
Capital at 1 October 2011 180 000
Drawings 21 000
Land and buildings at cost 150 000
Fixtures and fittings at cost 28 000
Computer equipment at cost 40 000
Provisions for depreciation:
Land and buildings 10 000
Fixtures and fittings 19 000
Computer equipment 12 000
8% Bank loan repayable 31 December 2020 50 000
Loan interest paid 2 000
Bank 14 070
Dr
Trade receivables 60 000
Trade payables 31 000
Provision for doubtful debts 6 400
Revenue 365 000
Purchases 135 000
Goods returned by customers 8 900
Purchase returns 4 250
Inventory at 1 October 2011 33 500
Delivery expenses 18 630
Computer repairs expenses 19 150
General running expenses 31 600
Salaries and wages 86 700
Marketing costs 14 000
Discount allowed 22 400
Discount received 7 300

Additional information
1 Inventory at 30 September 2012 was valued at $36 450.
2 An invoice for a credit purchase of goods, $7 500, had been misplaced in December and no
entries had been recorded in the books.
3 The purchase of fixtures and fittings, $4 000, had been included in the general running expenses.
4 At 30 September 2012 computer repair expenses, $1 700, were accrued and salaries and wages
were prepaid, $5200.
5 The 8% bank loan was received on 1 January 2012.
6 Depreciation is to be charged on all non-current assets owned at the end of the year, as follows:
(i) Buildings at the rate of 2% per annum using the straight-line method.
No depreciation is charged on land. The land was valued at cost, $50 000.
(ii) Fixtures and fittings at the rate of 15% per annum using the straight-line method.
(iii) Computer equipment at the rate of 25% per annum using the diminishing (reducing)
balance method.
7 A provision for doubtful debts is to be maintained on trade receivables. Debts up to 3 months old
at the rate of 4% and debts over 3 months old at the rate of 8%. One-quarter of the trade
receivables are over 3 months old.
Chapter 7 22 Financial Statements of Sole Traders

REQUIRED
(a) Prepare the income statement for the year ended 30 September 2012. [22]
(b) Prepare the balance sheet at 30 September 2012. [18]

QUESTION 9 MAY 2013 P22 Q5

The following balances were extracted from the books of Patricia Chin on 31 March 2013.
$
Premises 67 000
Fixtures and fittings (cost) 20 000
Motor vehicle (cost) 18 000
Provisions for depreciation: Premises 2 680
Fixtures and fittings 9 600
Motor vehicle 11 520
Revenue 119 140
Purchases 60 200
Purchases returns 2 900
Inventory at 1 April 2012 5 430
Wages 20 960
General expenses 9 100
Insurance 12 600
Motor vehicle expenses 5 670
Discount allowed 1 428
Discount received 884
Trade receivables 7 546
Trade payables 4 920
Provision for doubtful debts 800
Bank overdraft 2 330
7% Bank loan (repayable 30 June 2018) 30 000
Capital 56 000
Drawings 12 840
Additional information
1 Inventory at 31 March 2013 was valued at $4 200.
2 Insurance relates to a period of fourteen months to 31 May 2013.
3 A motor vehicle repair bill $225 was owing at 31 March 2013.
4 Bad debts of $246 are to be written off.
5 During the year Patricia took $800 from the bank for personal
use. No record of this was made in the books.
6 A purchase of fixtures and fittings during the year, $2 000, had been recorded in the general
expenses account.
7 Premises are depreciated at 2% per annum on cost.
Fixtures and fittings are depreciated at 8% per annum on cost.
Motor vehicles are depreciated at 20% per annum using the reducing balance method.
8 The provision for doubtful debts is to be maintained at 6% of trade receivables.
REQUIRED
(a) Prepare the income statement for the year ended 31 March 2013. [20]
(b) Prepare the balance sheet (statement of financial position) at 31 March 2013. [20]
 Chapter 7 23 Financial Statements of Sole Traders

QUESTION 10 MAY 2014 P22 5

Franco is in business as a sole trader. The following balances were extracted from his books on 31 January
2014.
$
Land and buildings (cost) 150 000
Fixtures and fittings (cost) 30 000
Computer equipment (cost) 70 000
Provisions for depreciation:
Land and buildings 20 000
Fixtures and fittings 13 500
Computer equipment 34 000
Disposal account 500 Cr
8% Bank loan (repayable 30 April 2020) 100 000
Bank 17 430
Dr
Trade receivables 45 000
Trade payables 37 650
Provision for doubtful debts 1 400
Revenue 362 500
Purchases 172 400
Returns inwards 7 200
Returns outwards 8 800
Inventory at 1 February 2013 17 970
Distribution expenses 16 300
Insurance 5 900
Light and heat 7 850
Wages and salaries 69 500
Marketing expenses 31 000
General expenses 9 200
Commission received 11 400
Drawings 20 000
Capital 80 000

Additional information at 31 January 2014

1 Inventory was valued at $15 600.
2 Wages and salaries includes $15 000 drawings by Franco.
3 Marketing expenses, $6 750, were prepaid.
4 No interest had been paid on the bank loan.
5 Computer equipment costing $8 000 was purchased by cheque on 25 January 2014.
No entries had been made in the books.
6 Depreciation policy is as follows:
(i) The buildings are depreciated at the rate of 2% per annum using the straight line
method. Land and buildings consists of land, cost $50 000, and buildings, cost $100 000.
No depreciation is charged on the land.
(ii) Fixtures and fittings at the rate of 15% per annum using the straight line method.
(iii) Computer equipment at the rate of 25% per annum using the diminishing (reducing)
balance method.
Chapter 7 24 Financial Statements of Sole Traders

7 Trade receivables, $3 000, were considered irrecoverable. A provision for doubtful debts of 5% is
to be maintained.
REQUIRED
(a) Prepare the income statement for the year ended 31 January 2014. [24]
(b) Prepare the statement of financial position at 31 January 2014. [16]

QUESTION 11 NOVEMBER 2015 P21 Q5

Cheng is a sole trader. The following balances were extracted from his books on 30 September 2015.
$
Revenue 315 000
Purchases 165 000
Returns outwards 2 600
Wages and salaries 34 800
Motor vehicle expenses 17 200
Commission receivable 12 500
Rent 15 000
Provision for doubtful debts 1 000
6% Bank loan (repayable 30 June 2019) 30 000
Bank interest paid 1 200
Inventory at 1 October 2014 36 800
Heat and light 6 500
Other operating expenses 7 100
Cash and bank 19 500 debit
Trade payables 25 000
Trade receivables 34 000
Capital 15 000
Drawings 18 000
Motor vehicles (cost) 50 000
Fixtures and fittings (cost) 24 000
Provision for depreciation:
Motor vehicles 10 000
Fixtures and fittings 18 000
Additional information at 30 September 2015
1 On 26 September 2015 goods had been purchased for $3 000 cash. The transaction had not been
recorded in the books.
2 Inventory was valued at $29 980.
3 The rent included a payment of $6 000 for the six months ending 31 December 2015.
4 Other operating expenses accrued $1 100.
5 Commission receivable of $2 500 was outstanding.
6 Depreciation is to be charged on all non-current assets owned at the end of the year as follows:
(i) Motor vehicles at the rate of 20% per annum using the diminishing (reducing) balance
method
(ii) Fixtures and fittings at the rate of 15% per annum, using the straight-line method.
7 Trade receivables of $2 000 are irrecoverable. The provision for doubtful debts is to be
maintained at 5% on the remaining trade receivables.
Chapter 7 25 Financial Statements of Sole Traders

REQUIRED
(a) Prepare the income statement for the year ended 30 September 2015. [22]
(b) Prepare the statement of financial position at 30 September 2015. [18]

QUESTION 12 NOVEMBER 2015 P22 Q5

Ning is a sole trader. The following balances were extracted from his books on 30 September 2015.
$
Revenue 248 200
Purchases 104 750
Returns inwards 7 850
Carriage inwards 3 400
Advertising expenses 10 800
Distribution expenses 17 200
Electricity 4 230
Discount received 8 250
Wages and salaries 35 000
Insurance 5 000
Commission received 5 900
Loss on disposal 2 270
Leasehold premises (cost) 80 000
Computer equipment (at cost) 75 000
Fixtures and fittings (cost) 30 000
Provisions for depreciation:
Leasehold premises 20 000
Computer equipment 23 000
Fixtures and fittings 17 500
Bank 5 300 credit
8% Bank loan 50 000
Bank loan interest paid 3 000
Trade receivables 44 400
Trade payables 38 700
Provision for doubtful debts 1 500
Inventory at 1 October 2014 20 450
Capital at 1 October 2014 50 000
Drawings 25 000

Additional information at 30 September 2015

1 Inventory was valued at $17 300.
2 Distribution expenses accrued were $2 600.
3 Advertising expenses includes an advertising campaign costing $1 500 which runs from 1 August
to 31 December 2015.
4 The 8% Bank loan is repayable in 5 equal payments on 1 October each year.
5 The depreciation policy is as follows.
(i) The lease on the premises is for 20 years. An appropriate amount should be charged
each year.
 Chapter 7 26 Financial Statements of Sole Traders

(ii) Computer equipment at the rate of 25% per annum using the diminishing (reducing)
balance method.
(iii) Fixtures and fittings at the rate of 10% per annum using the straight-line method.
No depreciation is charged in the year of disposal.
6 Trade receivables, $6 400, are irrecoverable. A provision for doubtful debts of 5% is to be
maintained.

REQUIRED
(a) Prepare the income statement for the year ended 30 September 2015. [23]
(b) Prepare the statement of financial position at 30 September 2015. [17]

QUESTION 13 MAY 2016 P21 & 22 Q5

Suria is in business as a sole trader. The following balances were extracted from her books on 31 March
2016.

$
Revenue 287 000
Purchases 143 800
Returns inwards 3 150
Inventory at 1 April 2015 15 340
Capital 70 000
Drawings 28 000
Leasehold premises at cost (25 year lease) 100 000
Computers at cost 44 000
Office furniture at cost 15 500
Provisions for depreciation:
Leasehold premises 7 000
Computers 16 600
Office furniture 12 000
Wages and salaries 26 500
Computer maintenance 12 200
Commission receivable 4 900
Rent and rates 10 000
Provision for doubtful debts 910
6% Bank loan (repayable 30 June 2016) 40 000
Bank interest paid 1 500
Heat and light 7 300
Advertising 12 600
General expenses 8 700
Cash and bank 520
Trade payables 18 600 Debit
Trade receivables 27 900

Additional information at 31 March 2016

1 Inventory was valued at $17 990.
2 Commission receivable of $1 400 was outstanding.
Chapter 7 27 Financial Statements of Sole Traders

3 Advertising included a payment of $5 700 for a series of advertisements being published in the
six months ending 31 July 2016.
4 General expenses accrued were $2 400.
5 A computer costing $8 000 had been recorded in the computer maintenance account.
6 Depreciation is to be charged on all non-current assets owned at the end of the year as follows:
(i) an appropriate amount on the leasehold premises.
(ii) computers at the rate of 25% per annum using the diminishing (reducing) balance
method
(iii) office furniture at the rate of 10% per annum using the straight-line method.
7 Trade receivables of $1 900 are irrecoverable. The provision for doubtful debts is to be
maintained at 4%.

REQUIRED
(a) Prepare the income statement of Suria for the year ended 31 March 2016. [24]
(b) Prepare the statement of financial position at 31 March 2016. [16]
Chapter 7 28 Financial Statements of Sole Traders
Chapter 7 29 Financial Statements of Sole Traders

SOLUTIONS
QUESTION 1 MAY 2009 P2 Q5
(a) Sue Searle
Income statement for the year ended 31 March 2009
f$ $ $
Sales 95 800
Cost of sales
Inventory at 1 April 2008 10 780
Purchases 48 340
Carriage[{(20 00015 000)20%}+(11 500+6 500)]20% 3 800
Returns outwards (960) 51 180
61 960
Inventory at 31 March 2009 12 600 49 360
Gross profit 46 440
Expenses
Wages of motor vehicle driver ($11 500  80%) 9 200
Motor vehicle running expenses ($6 500  80%) 5 200
Depreciation: Vehicle[($20 00015 000)20%80%] 800
Premises ($60 000  2%) 1 200
Rent and insurance ($7 700 − $450) 7 250
Light and heat ($4 950 + $130) 5 080
General and marketing expenses 6 200
Loan interest ($30 000  8%) 2 400 (37 330)
9 110
Other Incomes Discount received 5 300
Decrease in prov. for doubtful debts [(18 5002%)100] 190 5 490
Profit for the year 14 600

(b) Sue Searle

Balance Sheet
As at 31 March 2009
Non-current assets $ $ $
Premises 60 000
Provision for depreciation($12 000 + $1 200) (13 200) 46 800
Motor van 20 000
Provision for depreciation ($15 000 + $1 000) (16 000) 4 000
50 800
Current Assets
Inventory at 31 March 2009 12 600
Trade receivables 18 500
Less Provision for doubtful debts ($18 500  2%) (370) 18 130
Cash 270
Prepaid insurance 450
31 450
 Chapter 7 30 Financial Statements of Sole Traders

Current Liabilities $ $ $
Trade payables 9 750
Bank Overdraft 1 680
Accrued interest 2 400
Lighting due 130 (13 960)
Net Current Assets 17 490
68 290
Non-current liabilities
8 % Bank loan repayable 30 June 2011 (30 000)
38 290
Financed by
Capital at 1 April 2008 35 000
Profit for the year 14 600
49 600
Drawings (11 310) 38 290

QUESTION 2 NOVEMBER 2010 P22 Q5

(a) Income Statement
For the year ended 30 September 2010
$ $ $
Revenue (sales) 155 000
Less Sales returns (9 500) 145 500
Cost of Sales
Opening Inventory 11 500
Add Ordinary goods purchased (purchases) ($70 000 – $1 250) 68 750
Carriage inwards 3 000 71 750
83 250
Less Closing inventory (14 600) (68 650)
Gross profit 76 850
Expenses
Salaries($23 750 + $2 600) 26 350
Rent and rates 6 800
Sundry expenses 14 150
Advertising ($6 200 − $300) 5 900
Depreciation on motor vehicles [($42 000 − $8 000) ) × 25%] 8 500
Depreciation on office equipment ($26 000 × 10%) 2 600
Bad debts 4 250
Loan interest ($10 000 × 5% × 6/12) 250 (68 800)
8 050
Other Incomes
Discount received 5 600
Decrease in Prov for doubtful debts [1 000−{(23 000−4 250)×4%] 250 5 850
Profit for the year 13 900

(b) Balance Sheet

As at 30 September 2010
 Chapter 7 31 Financial Statements of Sole Traders

Depn. to Book
NON-CURRENT ASSETS Cost ($)
date ($) value ($)
Motor vehicles ($8 000 + $8 500) 42 000 16 500 25 500
Office equipment ($4 000 + $1 600) 26 000 6 600 19 400
68 000 23 100 44 900
CURRENT ASSETS $ $ $
Closing inventory 14 600
Trade receivables ($23 000 − $4 250) 18 750
Provision for doubtful debts [($23 000 − $4 250) × 4%] (750) 18 000
Other receivables (prepaid advertising) 300
32 900
CURRENT LIABILITIES
Trade payables 18 300
Accrued salaries 2 600
Accrued interest on loan 250
Short term loan 10 000
Bank overdraft 16 000 (47 150) (14 250)
30 650
Equity
Capital at start ($40 000 − $10 000) 30 000
Add Profit for the year 13 900
Less Drawings ($12 000 + $1 250) (13 250) 30 650

QUESTION 3 NOVEMBER 2011 P21 Q1 (c to e)

(c) Trial Balance at 31 July 2011
$ $
Capital (balancing figure) 5 900
Drawings 8 000
Office furniture 5 000
Provision for depreciation on office furniture 3 200
Inventory 4 150
Bank overdraft 250
Trade payables 2 950
Sundry expenses 10 600
Purchases 32 400
Provision for doubtful debts 350
Revenue (sales) 53 750
Trade receivables 6 250
66 400 66 400
(d) Trade receivables
(e) Trial balance Balance sheet
verifies arithmetic accuracy of ledger account
Shows financial position of the business
balances
Includes only items of capital nature (assets and
Includes all ledger account balances
liabilities)
No specific layout Prepared in specific classified order
Chapter 7 32 Financial Statements of Sole Traders

QUESTION 4 NOVEMBER 2011 P22 Q5)

(a) Jasmine
Income Statement for the year ended 30 September 2011
$ $ $
Revenue (sales) 210 000
Less Sales returns (goods returned by customers) (8 120) 201 880
Cost of Sales
Opening Inventory 9 430
Add Purchases 113 500
Carriage inwards 500
Return outwards (goods returned to suppliers) (3 400) 110 600
120 030
Less Closing inventory (11 780) (108 250)
Gross profit 93 630
Expenses
Carriage outwards ($1 700  $500) 1 200
Insurance ($5 600  $1 120) 4 580
Light and heat ($6 300 + $375) 6 675
Staff wages 27 000
Advertising 10 600
General expenses 15 850
Building repairs 4 100
Depreciation on fixtures ($18 000 × 20%) 3 600
Depreciation on computer [($12 000 − $3 600) ) × 30%] 2 520
Loan interest ($20 000 × 7% × 6/12) 700 (76 825)
16 805
Other Incomes
Discount received 1 750
Profit on disposal of non-current asset 200
Decrease in Provision for doubtful debts [$500 − ($8 200 × 5%)] 90 2 040
Profit for the year 18 845

(b) Balance Sheet

As at 30 September 2011
NON-CURRENT ASSETS $ $ $
Land and buildings at cost ($100 000 + $16 000) 116 000
Fixtures and fittings at cost 18 000
Provisions for depreciation ($7 200 + $3 600) (10 800) 7 200
Computer equipment at cost 12 000
Provisions for depreciation($3 600 + $2 520) (6 120) 5 880
129 080
CURRENT ASSETS
Closing inventory 11 780
Trade receivables 8 200
Provision for doubtful debts ($8 200 × 5%) (410) 7 790
Other receivables (prepaid insurance) 1 120
20 690
 Chapter 7 33 Financial Statements of Sole Traders

CURRENT LIABILITIES $ $ $
Trade payables 26 750
Bank overdraft 18 500
Accrued heating 375
Accrued interest on loan 700 (46 325) (25 735)
103 345
Non-Current Liabilities
7% Bank loan repayable 30 March 2014 (20 000)
83 345
Equity
Capital at year start 80 000
Add Profit for the year 18 845
Less Drawings (15 500) 83 345
QUESTION 5 MAY 2012 P21 Q1 (d)
(i)  A check on the arithmetical accuracy of double entry records
 Acts as a basis on which financial statements are prepared
 It is ‘prima facie’ evidence of the balancing of the accounts.
(ii) Account Debit/Credit
Provision for depreciation Credit
Inventory Debit
Bank (overdraft) Credit
Wages Debit
QUESTION 6 MAY 2012 P21 Q5
(a) Income Statement for the year ended 31 March 2012
$ $ $
Revenue 78 580
Cost of sales
Opening inventory 4 690
Purchases ($18 240 − $450)) 17 790
Less Purchase returns (1 600) 16 190
Closing inventory (3 870) (17 010)
Gross profit 61 570
EXPENSES
Equipment repairs 850
Equipment running expenses ($2 650 + $750) 3 400
General running expenses 8 400
Wages 15 300
Insurance ($3 640 − $1 350) 2 290
Power and water 2 300
Advertising costs 5 100
Discount allowed 1 650
Loan interest ($25 000 × 6% × 4/12) 500
Depreciation: Lease ($50 000 ÷ 25 years) 2 000
Equipment [($54 000 + $10 000) − $17 000] × 20% 9 400 (51 190)
10 380
Chapter 7 34 Financial Statements of Sole Traders

Other Incomes $ $ $
Discount received 330
Decrease in Provision for doubtful debts [$700 − ($6 750 × 8%)] 160 490
Profit for the year 10 870

(b) Balance sheet as at 31 March 2012

Cost Accumulated NBV
depreciation
Non-current Assets $ $ $
Leasehold ($10 000 + $2 000) 50 000 12 000 38 000
Equipment ($54000 + $10000); ($17000 + $9400) 64 000 26 400 37 600
114 000 46 000 75 600
Current Assets
Inventory 3 870
Trade receivables 6 750
Provision for doubtful debts ($6 750 × 8%) (540) 6 210
Other receivables (prepaid insurance) 1 350
Bank ($5 150 − $5 000) 150
11 580
Current liabilities $ $ $
Trade payables 4 010
Payable for equipment 5 000
Other payables ($750 + $500) 1 250 10 260 1 320
76 920
Non-current liabilities
6% Bank loan (25 000)
51 920
EQUITY
Capital at 1 April 2011 50 000
Profit for the year 10 870
60 870
Drawings ($8 500 + $450) (8 950) 51 920

QUESTION 7 MAY 2012 P22 Q1 (a & d)

(a) Giorgios
Trial Balance at 1 May 2012
Debit Credit
$ $
Bank loan 6000
Bank 1 000
Cash 600
Premises 15 000
Inventory 1 800
Trade payable − Early Ltd 1 200
Capital _ 11 200
18 400 18 400
 Chapter 7 35 Financial Statements of Sole Traders

(d) A check on the arithmetical accuracy of double entry records Acts as a basis on
which financial statements are prepared
It is ‘prima facie’ evidence of the balancing of the accounts.
QUESTION 8 NOVEMBER 2012 P21 Q4
(a) Maria’s Income Statement for the year ended 30 September 2012
$ $ $
Revenue 365 000
Return inwards (8 900) 356 100
Cost of Sales
Opening inventory 33 500
Purchases ($135 000 + $7 500) 142 500
Less Purchase returns (4 250) 138 250
Closing inventory (36 450) (135 300)
Cost of sales 220 800
Gross profit
EXPENSES
Loan interest [($50 000 × 8% × 9/12) 3 000
Delivery expenses 18 630
Computer repairs ($19 150 + $1 700) 20 850
General running expenses ($31 600 − $4 000) 27 600
Salaries and wages ($86 700 − $5 200) 81 500
Marketing costs 14 000
Discount allowed 22 400
Depreciation: Buildings [($150 000 − $50 000) × 2%] 2 000
Fixtures [($28 000 + $4 000) × 15%] 4 800
Computers [($40 000−$12 000) × 25%] 7 000 (201 780)
19 020
OTHER INCOMES
Discount received 7 300
Decrease in Provision for doubtful debts
[{($60 000×1/ 4)×8%}+{($60000×3/ 4)×4%}]$6 400 3 400 10 700
Profit for the year 29 720

(b) Balance sheet at 30 September 2012

NON CURRENT ASSETS Cost ($) Depn ($) NBV ($)
Land & buildings ($10 000 + $2 000) 150 000 12 000 138 000
Fixtures and fittings ($28 000 + $4 000) ; ($19 000+$4 800) 32 000 23 800 8 200
Computer equipment ($12 000 + $7 000) 40 000 19 000 21 000
222 000 54 800 167 200
CURRENT ASSETS
Inventory 36 450
Trade receivables 60 000
Less Provision for doubtful debts 3 000 57 000
Other receivables (prepaid salaries & wages) 5 200
Bank 14 070
112 720
Chapter 7 36 Financial Statements of Sole Traders

CURRENT LIABILITIES $ $ $
Trade payables ($31 000 + $7 500) 38 500
Other payables: Interest due($3 000  $2 000) 1 000
Repairs owing 1 700 (41 200) 71 520
238 720
NON CURRENT LIABILITIES
8% Bank loan (50 000)
188 720
EQUITY
Capital at 1 October 2011 180 000
Profit for the year 29 720
Drawings (21 000) 188 720

QUESTION 9 MAY 2013 P22 Q5

(a) Patricia Chin
Income Statement for the year ended 31 March 2013
$ $ $
Revenue 119 140
Cost of Sales
Inventory 1 April 2012 5 430
Purchases 60 200
Purchases returns (2 900) 57 300
Inventory 31 March 2013 (4 200) (58 530)
Gross profit 60 610
Other Incomes
Discount received 884
Decrease in prov. for doubtful debts [$800($7300×6%)] 362 1 146
61 856
EXPENSES
Wages 20 960
General expenses ($9 100  $2 000) 7 100
Insurance [$12 600  ($12 600 × 2/ 14)] 10 800
Motor expenses ($5 670 + $225) 5 895
Discount allowed 1 428
Loan interest ($30 000 × 7%) 2 100
Bad debts 246
Depreciation:
Premises ($67 000 x 2%) 1 340
Fixtures and fittings ($20 000 + $2000 x 8%) 1 760
Motor vehicle ($18000 - $11520 x 20%) 1 296 (52 925)
Profit for year 8 931
(b) Balance Sheet (Statement of Financial Position) as at 31 March 2013
Non-current assets Cost ($) Depn ($) NBV ($)
Premises ($2 680 + $1 340) 67 000 4 020 62 980
Fixtures and fittings ($20 000 + $2 000); ($9 600 + $1 760) 22 000 11 360 10 640
Motor vehicle($11 520 + $1 296) 18 000 12 816 5 184
107 000 28 196 78 804
Chapter 7 37 Financial Statements of Sole Traders

Current assets $ $ $
Inventory 4 200
Trade receivables ($7 546  $246) 7 300
Provision for doubtful debts ($7 300 × 6%) (438) 6 862
Other receivables (Prepaid insurance) ($12 600 × 2/ ) 1 800

14
Current liabilities
12 862
Trade payables 4 920
Other payables ($225 + $2 100) 2 325
Bank overdraft ($2 330 + $800) 3 130 (10 375) 2 487
81 291
Non-current liabilities 7% bank loan (30 000)
51 291
Equity
Capital 56 000
Profit for the year 8 931
Drawings ($12 840 + $800) (13 640) 51 291
QUESTION 10 MAY 2014 P22 5
(a) Franco’s Income Statement for the year ended 31 January 2014
$ $ $
Revenue 362 500
Return inwards (7 200) 355 300
Cost of Sales
Inventory 1 February 2013 17 970
Purchases 172 400
Return outwards (8 800) 463600
Closing inventory (15 600) (165 970)
Gross profit 189 330
OTHER INCOMES
Commission received 11 400
Profit on disposal of assets 500 11 900
201 230
EXPENSES
Distribution expenses 16 300
Insurance 5 900
Light and heat 7 850
Wages and salaries ($69 500 − $15 000) 54 500
Marketing expenses ($31 000 − $6 750) 24 250
General expenses 9 200
Depreciation: Buildings ($100 000 × 2%) 2 000
Fixtures ($30 000 × 15%) 4 500
Computer($70 000 + $8 000 − $4 000) × 25% 11 000
Loan interest ($100 000 × 8%) 8 000
Bad debts 3 000
Increase in provision for doubtful debts [45000−3000]×5%]− $1400] 700 (147 200)
Profit of the year 54 030
Chapter 7 38 Financial Statements of Sole Traders

Statement of Financial Position at 31 January 2014

Accumulated
Cost ($) NBV($)
NON-CURRENT ASSETS Depreciation($)
Land and buildings ($20 000 + $2 000) 150 000 22 000 128 000
Fixtures and fittings ($13 500 + $4 500) 30 000 18 000 12 000
Computer equipment (70000+8 000); (34 000+11 000) 78 000 45 000 33 000
258 000 85 000 173 000
CURRENT ASSETS
Inventory 15 600
Trade receivables ($45 000 − $3 000) 42 000
Less Provision for doubtful debt ($42 000 × 5%) (2 100) 39 900
Other receivables (prepaid marketing expenses) 6 750
Bank ($17 430 − $8 000) 9 430
71 680
CURRENT LIABILITIES
Trade payables 37 650
Other payables − accrued interest ($100 000 × 8%) 8 000 45 650 26 030
199 030
NON–CURRENT LIABILITIES
8% Bank loan (100 000)
99 030
EQUITY
Capital 80 000
Add Profit for the year 54 030
Less Drawings ($20 000 + $15 000) (35 000) 99 030

QUESTION 11 NOVEMBER 2015 P21 Q5

(a) Cheng
Income Statement for the year ended 30 September 2015
$ $
Revenue 315 000
Cost of Sales
Inventory 1 October 2014 36 800
Purchases ($165 000 + $3 000) 168 000
Returns outwards (2 600)
202 200
Closing inventory 30 September 2015 (29 980)
Cost of sales (172 220)
Gross profit 142 780
Other Incomes
Commission receivable ($12 500 + $2 500) 15 000
157 780
Expenses
Wages and salaries 34 800
Motor vehicle expenses 17 200
Rent [$15 000 − ($6 000 × 1/ 2)] 12 000
Chapter 7 39 Financial Statements of Sole Traders

Bank loan interest ($30 000 × 6%) 1 800

Heat and light 6 500
Operating expenses ($7 100 + $1 100) 8 200
Depreciation: Motor vehicles [($50 000  $10 000) × 20%] 8 000
Fixtures and fittings ($24 000 × 15%) 3 600
Bad debts 2 000
Increase in Provision for doubtful debts [($32 000 × 5%)  $1 000] 600 (94 700)
Profit for the year 63 080

(b) Cheng
Statement of Financial Position as at 30 September 2015
Accumulated
Non-Current Assets Cost Book
depreciation Value
$ $ $
Motor vehicles ($10 000 + $8 000) 50 000 18 000 32 000
Fixtures and fittings 24 000 21 600 2 400
74 000 39 600 34 400
Current Assets
Closing inventory 29 980
Trade receivables ($34 000  $2 000) 32 000
Less Provision for doubtful debts ($32 000 × 5%) (1 600) 30 400
Other receivables [($6 000 × 1/ 2) + $2 500] 5 500
Cash and bank ($19 500 − $3 000) 16 500 82 380
Total Assets 116 780
Capital and Liabilities
Capital 15 000
Profit for the year 63 080
78 080
Less Drawings (18 000) 60 080
Non-Current Liabilities
6% Bank loan 30 000
Current Liabilities
Trade payables 25 000
Other payables [{($30 000 × 6%)  $1 200} + $1 100] 1 700 26 700
116 780
QUESTION 12 NOVEMBER 2015 P22 Q5
(a) Income Statement for the year ended 30 September 2015
$ $
Revenue 248 200
Returns inwards (7 850) 240 350
Cost of Sales
Inventory 1 October 2014 20 450
Purchases 104 750
Carriage inwards 3 400
Closing inventory - 30 September 2015 (17 300) (111 300)
Gross profit 129 050
Chapter 7 40 Financial Statements of Sole Traders

Other Incomes $ $
Discount received 8 250
Commission received 5 900 14 150
143 200
Expenses:
Advertising [$10 800 − ($1 500 × 3/ 5)] 9 900
Distribution expenses ($17 200 + $2 600) 19 800
Electricity 4 230
Wages and salaries 35 000
Insurance 5 000
Loss on disposal 2 270
Depreciation − Leasehold premises ($80 000 ÷ 20 years) 4 000
Computer equipment [($75 000  $23 000) × 25%] 13 000
Fixtures and fittings ($30 000 × 10%) 3 000
Bank loan interest ($50 000 × 8%) 4 000
Bad debts 6 400
Increase in Provision for doubtful debts [($38 000 × 5%)  $1 500] 400 (107 000)
Profit for the year 36 200

(b) Ning
Statement of Financial Position
As at 30 September 2015
Non-Current Assets Cost Depn. NBV
$ $ $
Leasehold premises ($20 000 + $4 000) 80 000 24 000 56 000
Computer equipment ($23 000 + $13 000) 75 000 36 000 39 000
Fixtures and fittings ($17 500 + $3 000) 30 000 20 500 9 500
185 000 80 500 104 500
Current Assets
Inventory 17 300
Trade receivables ($44 400  $6 400) 38 000
Less Provision for doubtful debts ($38 000 × 5%) (1 900) 36 100
Other receivables − prepayments ($1 500 × 3/ 5) 900 54 300
Total Assets 158 800
Capital and Liabilities
Capital 50 000
Add Profit for the year 36 200
Less Drawings (25 000) 61 200
Non-Current Liabilities
8% Bank loan ($50 000  $10 000) 40 000
Current Liabilities
Trade payables 38 700
Other payables − accruals [$2 600 + {($50 000 × 8%) $3 000}] 3 600
8% Bank loan payable in following year 10 000
Bank 5 300 57 600
158 800
Chapter 7 41 Financial Statements of Sole Traders

QUESTION 13 MAY 2016 P21 & 22 Q5

(a) Suria
Income statement for the year ended 31 March 2016
$ $
Revenue 287 000
Less Return inwards (3 150) 283 850
Cost of Sales
Opening Inventory 15 340
Purchases 143 800
Closing Inventory (17 990) ( 141 150)
Gross profit 142 700
Other Incomes Commission receivable ($4 900 + $1 400) 6 300
149 000
Expenses:
Wages and salaries 26 500
Computer maintenance expenses ($12 200  $8 000) 4 200
Rent and rates 10 000
Bank loan interest ($40 000 × 6%) 2 400
Heat and light 7 300
Advertising [$12 600 − ($5 700 × 4/ 6)] 8 800
General expenses ($8 700 + $2 400) 11 100
Depreciation: Leasehold premises ($100 000 ÷ 25 years) 4 000
Computers [{($44 000+ $8 000) $16 600)} × 25%] 8 850
Office furniture ($15 500 × 10%) 1 550
Bad debts 1 900
Increase in Provision for doubtful debts[{(279001900)×4%}  $910] 130 (86 730)
Profit for the year 62 270

(b) Suria
Statement of financial position at 31 March 2016
Assets Cost Aggregate book
depn value
Non-Current Assets $ $ $
Leasehold premises ($7 000 + $4 000) 100 000 11 000 89 000
Computers ($44 000+ $8 000) ; ($16 600 + $8 850) 52 000 25 450 26 550
Office furniture ($12 000 + $1 550) 15 500 13 550 1 950
167 500 50 000 117 500
Current Assets
Inventory 17 990
Trade receivables ($27 900 − $1 900) 26 000
Provision for doubtful debts [($27 900  $1 900) × 4%] (1 040) 24 960
Other receivables: Commission receivable 1 400
Prepaid advertising ($5 700 × 4/ 6)] 3 800
Cash and cash equivalents 520 48 670
166 170
Chapter 7 42 Financial Statements of Sole Traders

Equity $ $
Capital 70 000
Profit for the year 62 270
132 270
Less Drawings (28 000) 104 270
Current liabilities
Trade payables 18 600
6% Bank loan 40 000
Other payables : Accrued general expenses 2 400
Accrued interest {($40 000 × 6%)$1 500}] 900 61 900
166 170
Chapter 11 43 Correction of Errors

CORRECTION OF ERRORS
QUESTION 1 MAY 2009 P2 Q2
Miranda prepared her draft financial statements for the year ended 30 April 2009 and calculated a net
profit for the year of $14 670. After the preparation of the draft financial statements the following errors
were discovered, which had not been revealed by the trial balance.
(i) Goods, $2 000, purchased on credit from A Morston had not been entered in the
accounting records.
(ii) Goods, $650, sold on credit to T Cley had been correctly entered in the sales account but had
been entered into the account of C Tilley.
(iii) A motor vehicle expense, $500, for the year had been posted to the motor vehicles account.
(iv) A discount received from L Staithe of $190 had been entered in the discount allowed column in
the cash book and credited to the account of L Staithe.
REQUIRED
(a) Name the type of error in (i) to (iv) above. [4]
(b) Prepare the journal entries required to correct each of the errors (i) to (iv). Narratives are not
required. [9]
(c) Calculate the revised net profit for the year ended 30 April 2009. [5]

QUESTION 2 NOVEMBER 2010 P22 Q2 (a to c)

Jayani prepared a trial balance at 30 September 2010, which balanced.A draft income statement was then
prepared and a gross profit of $60 000 and a profit for the year of $15 000 was calculated.
Jayani then discovered the following errors:
1 A sale of office equipment at net book vaule, $3 000, had been recorded in the sales account.
2 Purchases of goods, $650, on credit from Alana had been credited to the purchases account and
debited to Alana’s account.
3 An invoice from JGL Insurance, $425, for buildings insurance, had not been recorded in the books.
REQUIRED
(a) Prepare journal entries to correct the errors in 1 to 3 above. Narratives are not required. [6]
(b) Name the type of error made in 1 to 3 above. [3]
(c) Calculate the revised gross profit and profit for the year for Jayani, following the correction of the
errors 1 to 3 above.
Where the error would have no effect on the gross profit or profit for the year , state ‘no effect’.
Gross profit ($) Net Profit for the year ($)
Draft profit 60 000 15 000
Error 1
Error 2
Error 3
Revised profit
[8]

QUESTION 3 MAY 2011 P21 Q2 (c)

Kya is a wholesaler. She prepares control accounts at the end of each month. Later when preparing the
trial balance, Kya discovered the following errors:
Chapter 11 44 Correction of Errors

1 A receipt of $485 from a customer, D. Hulme, had been correctly entered in the cash book but
had been credited to the account of D. Holme.
2 A purchase of office equipment, $550, had been correctly entered in the cash book, but had been
entered in error into the purchases account.

REQUIRED
(i) Prepare the journal entries to correct the errors in 1 and 2 above.
Narratives are not required. [4]
(ii) State the name of the accounting concepts (principles) which have not been followed in 1 and 2
above. [2]

QUESTION 4 NOVEMBER 2011 P21 Q2 (a to e)

Majda prepared a trial balance on 31 August 2011. The trial balance failed to agree and a suspense
account was opened.
It was discovered that all of the errors had been made in one of the trade receivable accounts, M.H.
Supplies Ltd.
Details of the account for August 2011 were as follows:
M.H. Supplies Ltd account
Date Description Dr Cr Balance
2011 $ $ $
01 August Balance 1 650 Dr
10 August Sales 460 2 110 Dr
13 August Sales returns 60 2 050 Dr
23 August Bank 1 617 433 Dr
23 August Discount 33 466 Dr

The following errors were found:

1 On 10 August goods, list price $800, less 20% trade discount, were sold to M.H. Supplies Ltd. The
transaction was correctly recorded in the sales journal.
2 On 20 August a credit sale of goods, $1 200, to M.H. Supplies Ltd, was correctly entered in the
sales journal, but was posted to the account of M. Hardware Ltd.
3 On 23 August M.H. Supplies Ltd paid the balance on 1 August, less 2% cash discount. The
transaction was correctly recorded in the cash book.
REQUIRED
(a) Name the document sent to M.H. Supplies Ltd to record the transaction of 13 August 2011. [1]
(b) Name the type of error made on 20 August 2011. [1]
(c) Prepare the journal entries to correct the errors 1 to 3 above. Narratives are not required. [6]
(d) Prepare the suspense account, clearly showing the original difference on the trial balance. [4]
(e) Calculate the correct balance owed by M.H. Supplies Ltd to Majda on 31 August. [4]

QUESTION 5 MAY 2012 P21 Q1 (e & f)

(e) State three types of errors not revealed by the trial balance. [3]
After Yang prepared the trial balance he discovered the following error:
March 5 A sale of goods to Wilbur, $6 000, was debited to sales and credited to Wilbur.
(f) Prepare the journal entry to correct the error. A narrative is not required. [2]
Chapter 11 45 Correction of Errors

QUESTION 6 MAY 2012 P22 Q2

Haung’s income statement showed a draft profit for the year of $15 500. After completion of the income
statement the following errors were discovered:
1 Purchases of goods on credit from Takka, $4 000, had been omitted from the books.
2 Goods sold on credit to Nolan, $380, had been posted to the account of North.
3 Discount received, $3 050, had been debited to the discount received account.
4 A debt of $375, owing by Long, was considered irrecoverable. No entries had been made in the
books.

REQUIRED
(a) Prepare the journal entries to correct the errors 1 − 4 above. Narratives are not required. [3]

(b) Prepare a statement showing the corrected profit for the year.
Statement of revised profit.
$ $ $ $
Draft profit for year 15 500
Increase Decrease No effect
1
2
3
4
Revised profit for year
[4]
Haung is considering a number of possible actions when preparing his future income statements.
(i) Charging the income statement with the total cost of non-current assets purchased in the
year.
(ii) Recording the value of the increased skill of the workforce as an income for the year.
(iii) Changing the method of depreciation to be used for each non-current asset to reflect current
market values.

REQUIRED
(c) State, in each of (i) to (iii) above, which accounting concept would be broken if Haung
implemented his proposals. In each case, give a reason for your answer. [9]

QUESTION 7 NOVEMBER 2012 P22) Q2

The following trial balance was extracted from the books of Peng on 31 August 2012. It was prepared by
an inexperienced bookkeeper and failed to balance.
Trial Balance at 31 August 2012
Dr ($) Cr ($)
Capital 18 240
Bank overdraft 3 000
Fixtures and fittings 14 100
Provision for depreciation − fixtures and fittings 8 800
Inventory 14 200
Trade receivables 12 300
Trade payables 9 900
Chapter 11 46 Correction of Errors

Revenue 110 000

Purchases 51 000
Discount received 1 800
Wages and salaries 26 000
Sundry expenses 34 000
Discount allowed 620
217 540 86 420
(a) Prepare the corrected trial balance at 31 August 2012. Show any difference you find as a balance
on an appropriate account. [9]
Additional information:
The following errors were later discovered:
1 A sale of goods, $200, to A. Winscom had been posted to the account of W. Wilson.
2 A purchase of fixtures, $900, had been posted to the purchases account.
3 Wages, $1 500, had been debited to the bank and credited to the wages account.
4 Discount received, $240, had been correctly entered in the cash book and had been debited to
the discount received account.
REQUIRED
(b) Name the type of errors in 1 to 3 above. [3]
(c) Prepare journal entries to correct the errors in 1 to 4 above. Narratives are not required. [8]

QUESTION 8 MAY 2013 P22 Q2

John Given’s trial balance at 31 May 2013 failed to agree and a suspense account for the difference, $926
debit, was opened.

The following errors were discovered:

1 Commission received, $120, had been recorded in the account twice.
2 Total trade receivables were understated by $824.
3 A payment for insurance, $650, had been correctly entered in the cash book, but recorded in the
insurance account as $560.
4 The total of the sales returns journal had been overcast by $108.
REQUIRED
(a) Show the entries in the general journal to correct items 1 to 4 above. Narratives are not required.[8]
(b) Prepare the suspense account at 31 May 2013. [4]
(c) Explain three types of errors not shown by a trial balance. [6]

QUESTION 9 NOVEMBER 2013 P21) Q3

Rod’s trial balance at 30 September 2013 failed to agree.
(a) Name two types of errors not shown by a trial balance. [2]
Rod later discovered the following errors:
1 the sales journal had been over added by $279;
2 the total of the discount allowed column in the cash book, $123, had been credited to
the discount received account;
3 a payment to B Kaur, $105, had been correctly entered in the bank account but posted
to the creditor’s account as $150.
Chapter 11 47 Correction of Errors

(b) Complete the following table showing the effect and amount each of the above errors would
have on B Kaur’s profit for the year if left uncorrected. The first item has been completed as an
example. [4]

(c) Write up the journal entries to correct these errors. Narratives are not required. [7]

QUESTION 10 MAY 2014 P21 Q2 (b & c) )

Ghani is preparing his financial statements. On reviewing his purchases account, Ghani found the
following errors.
1. Goods purchased for cash, $450, had not been recorded in the books.
2. Goods purchased on credit from C Maxley, $950, had been recorded in the books as
$590.
3. A purchase of a motor vehicle, $6 000, had been recorded in the purchases account.
4. Goods purchased from Y Li, $820, had been credited to the purchases account and
debited to Y Li’s account.
REQUIRED
(b) Prepare journal entries to correct the errors in 1 to 4 above. Narratives are not required. [6]

(c) Complete the table below naming the type of error and the effect on the gross profit of
correcting the error. The first item has been completed as an example.

Type of Effect on gross

error Profit
Goods purchased for cash, $450, had not been
1 Omission Decrease $450
recorded in the books.
Goods purchased on credit from C Maxley, $950, had
2
been recorded in the books as $590.
A purchase of a motor vehicle, $6 000, had been
3
recorded in the purchases account.
Goods purchased from Y Li, $820, had been credited to
4
the purchases account and debited to Y Li’s account.
[6]

QUESTION 11 MAY 2014 P22 Q2 (b to d) )

On 1 April 2014, Yee discovered the following errors:
1 A cheque received from D Moy, $450, had been posted to the account of D Kay.
2 An invoice for goods received from G Fallen, costing $790, had been recorded in the
purchases journal as $970.
3 Discount received, $45, had been debited to the discount received account and credited to F
Tay.
4 Repairs to fixtures and fittings, $800, had been recorded in the fixtures and fittings account.
REQUIRED
(b) Prepare the journal entries to correct the errors in 1 to 4 above. Narratives are not required. [8]
(c) Complete the following table to name the type of error in 1 to 4 given above. The first item has
been completed as an example.
Chapter 11 48 Correction of Errors

Type of error
1 A cheque received from D Moy, $450, had been posted to the account
Commission
of D Kay.
2 An invoice for goods received, costing $790, had been recorded in the
purchases journal as $970.
3 Discount received, $45, had been debited to the discount received
account and credited to F Tay.
4 Repairs to fixtures and fittings, $800, had been recorded in the fixtures
and fittings account.
[3]

(d) State two reasons why a suspense account would be used. [2]

QUESTION 12 NOVEMBER 2014 P21 Q1 (c) )

On 31 August 2014 Adil had the following balances in his books. He was aware that there were some
book-keeping errors and that the trial balance would not balance.

$
Non-current assets 9 500
Trade payables 8 500
Trade receivables 7 250
Inventory 3 850
Bank overdraft 1 600
Purchases 14 400
Revenue 22 000
Bank loan 2 000
Capital 3 000
REQUIRED
Complete the trial balance at 31 August 2014, balancing the trial balance by the use of an appropriate
account. [5]

QUESTION 13 MAY 2015 P21 Q1 (a & b)

Mira prepared a trial balance using the following information on 31 March 2015. The trial balance failed
to balance.

$
Office fixtures (at cost) 18 000
Office fixtures provision for depreciation 7 200
Trade payables 5 400
General expenses (prepaid) 1 520
Trade receivables 3 700
Inventory 7 800
Bank overdraft 2 600
Capital 16 000
REQUIRED
(a) Prepare the trial balance at 31 March 2015, including an appropriate balancing entry. [4]
Chapter 11 49 Correction of Errors

On inspecting the books, Mira found the following errors:

1 A payment for general expenses, $750, had been correctly entered in the bank account, but had
been recorded in the general expenses account as $570.
2 General expenses, $1 000, had been recorded in the office fixtures account.

REQUIRED
(b) Prepare the entries in the general journal to correct items 1 & 2. Narratives are not required. [4]

QUESTION 14 NOVEMBER 2015 P21 Q2

Martino’s trial balance at 30 September 2015 did not agree and a suspense account was opened.
The following errors were discovered.
1 The total of the purchases journal had been undercast by $950.
2 Discount received, $85, had been debited to the discount received account.
3 A payment of rent, $750, had been correctly entered in the cash book, but recorded in the rent
account as $570.
4 A purchase of office fixtures, $2 300, had been recorded in the general expenses account.

REQUIRED
(a) Show the entries in the general journal to correct items 1 to 4. Narratives are not required. [8]
(b) Prepare the suspense account at 30 September 2015 showing the original difference on the trial
balance. [4]
(c) Complete the following table to show the effect on the profit for the year of correcting each
error.
The first item has been completed as an example.

Increase/Decrease/ Amount
Error
No effect $
1 The total of the purchases journal had been undercast
Decrease 950
by $950.
2 Discount received, $85, had been debited to the
discount received account.
3 A payment of rent, $750, had been correctly entered in
the cash book, but recorded in the rent account as
$570.
4 A purchase of office fixtures, $2 300, had been
recorded in the general expenses account.
[6]
(d) Explain why an error of commission would not be revealed by the trial balance. [2]

QUESTION 15 NOVEMBER 2015 P22 Q2 (b to d)

After preparing the sales ledger control account, Yana discovered the following errors.
1 Goods sold on credit to Tong, $560, had not been recorded in the books.
2 Proceeds of sale of fixtures and fittings, $800, had been recorded as cash sales.
3 Discount allowed to R Biggs, $56, had been debited to his account and credited to the
discount allowed account.
4 A sale of goods to Mia, $75, had been recorded in the account of Mason.
Chapter 11 50 Correction of Errors

REQUIRED
(b) Name the type of error in each of 1−4. Error 1 has been completed as an example. [3]
(c) Prepare the general journal entries to correct the errors in 1−4. Narratives are not required. [8]
(d) State one reason why a trader may use a suspense account. [1]

QUESTION 16 NOVEMBER 2016 P21 Q2 (c & d)

Valda found the following errors in her books.
1 A cheque received from Fatin, $930, had been correctly entered in the cash book but had been
credited to the account of Martin.
2 The total of the discount allowed column in the cash book, $970, had been credited to the
discount received account.
3 Returns inwards of $390 had been correctly recorded in Ann’s account, but had been recorded as
$930 in the returns inwards account.

REQUIRED
(c) Name the type of error that Valda made by crediting Martin’s account. [1]
(d) Prepare the general journal entries to correct errors 1, 2 and 3. Narratives are not required. [7]

QUESTION 17 NOVEMBER 2016 P22 Q1 (a & b)

The following balances remained in the books of Fabio at 30 June 2016. He was aware that there were
some book-keeping errors and that the trial balance would not balance.

$
Motor vehicle 9 500
Trade payables 8 500
Inventory 4 850
Revenue (Sales) 22 000
Purchases 14 400
Bank loan 2 000
Bank overdraft 1 630
Trade receivables 7 250
Capital 3 000

REQUIRED
(a) Complete the trial balance at 30 June 2016, balancing the trial balance by the use of an
appropriate account. [4]

On inspection of his books, Fabio located the following errors.

1 A sale of goods, $850, had been correctly recorded in the account of a credit customer, but had
been recorded in the revenue (sales) account as $580.
2 A purchase of goods, $700, had been correctly entered in the account of a credit supplier, but
had been credited to the purchases account.

REQUIRED
(b) Prepare the general journal entries to correct errors 1 and 2. Narratives are not required. [4]
Chapter 11 51 Correction of Errors

QUESTION 18 NOVEMBER 2016 P22 Q2 (b)

After preparing the draft income statement, which showed a profit for the year of $24 000, Lyana
discovered some errors.

REQUIRED
Complete the following table showing the effect on the profit for the year of correcting each error.
Calculate the revised profit for the year.

Increase Decrease Net

$ $ $
Profit for the year 24 000
Purchases of $500 had not been recorded in the books.
Goods, $800, had been counted twice in the closing inventory.
No adjustment had been made for prepaid insurance $950.
Discount allowed, $1600, had been added to gross profit.
Equipment costing $15 000 (accumulated depreciation $6600) had been
depreciated by 20% on cost. The reducing (diminishing) balance method
should have been used at a rate of 20%.
Commission receivable, $400, had been omitted from the draft income
statement.

Revised profit for the year

[8]
Chapter 11 52 Correction of Errors

SOLUTIONS
QUESTION 1 MAY 2009 P2 Q2
(a) (i) Error of omission
(ii) Error of commission
(iii) Error of principle
(iv) Error of reversal
(b) Dr ($) Cr ($)
(i) Purchases 2 000
A Morston 2 000
(ii) T Cley 650
C Tilley 650
(iii) Motor vehicle expenses 500
Motor vehicle 500
(iv) L Staithe 380
Discount allowed 190
Discount received 190

(c) Statement to calculate the revised profit for the year

$ $
Original profit for the year 14 670
Add Discount received recorded as discount allowed now corrected 380
15 050
Less Purchases from A Morston not recorded in the books now accounted for 2 000
Motor expenses posted to motor vehicle account now corrected 500 (2 500)
Revised profit for the year 12 550

QUESTION 2 NOVEMBER 2010 P22 Q2 (a to c)

(a) Journal
Dr ($) CR ($)
1 Sales 3 000
Equipment Disposal 3 000
2 Purchases 1 300
Alana 1 300
3 Buildings insurance 425
JGL Insurance 425

WORKING
Actual Entry Wrong Entry Rectifying Entry
Dr. $ Cr.$ Dr. $ Cr.$ Dr. $ Cr.$
1. Bank 3 000 Bank 3 000 Sales 3 000
Equip disposal 3 000 Sales 3 000 Equip disposal 3 000
2. Purchases 650 Alana 650 Purchases 1 300
Alana 650 Purchases 650 Alana 1 300
3. Insurance 425 Insurance 425
No entry
JGL Insurance 425 JGL Insurance 425
 Chapter 11 53 Correction of Errors

(b) (i) Error of Principle

(ii) Complete reversal of entries
(iii) Error of Omission

(c) Gross profit Profit for the year

$ $
Draft profit 60 000 15 000
Error 1 (3 000) (3 000)
Error 2 (1 300) (1 300)
Error 3 - (425)
Revised profit 55 700 10 275

QUESTION 3 MAY 2011 P21 Q2 (c)

(i) Journal
Dr ($) Cr ($)
1. D. Holme 485
D. Hume 485
2. Office equipment 550
Purchases 550
(ii) Matching concept

QUESTION 4 NOVEMBER 2011 P21 Q2 (a to e)

(a) Credit note
(b) Error of commission
(c) JOURNAL
Dr ($) Cr ($)
(i) Apr10 M.H Supplies Ltd [($800 × 80%) − $460] 180
Suspense 180
(ii) Apr 20 M.H Supplies 1 200
M. Hardware Ltd 1 200
(iii) Apr 23 Suspense 66
M. H Supplies Ltd 66

(d) Suspense Account

$ $
Balance/difference 114 M.H Supplies Ltd 180
M.H Supplies 66 _
180 180

(e) M.H Supplies Ltd adjusted balance at 31 August 2011

$ $
Original balance at 30 April 466
Add Sale of $640 posted as $460 now corrected 180
Credit sales wrongly posted to M. Hardware Ltd now corrected 1 200 1 380
Less Cash discount allowed wrongly posted on credit side now corrected (66)
Corrected balance in M. H Supplies Ltd account 1 780
Chapter 11 54 Correction of Errors

QUESTION 5 MAY 2012 P21 Q1 (e & f)

(e) Error of Principle, Error of Commission, Error of Omission, Complete reversal of entries, Error of
Original entry and Compensating error
(f) Journal
Date Dr ($) Cr ($)
Wilbur ($6 000 + $6 000) 12 000
Sales 12 000

QUESTION 6 MAY 2012 P22 Q2

(a) Journal
DR ($) CR ($)
1. Purchases 4 000
Takka 4 000
2. Nolan 380
North 380
3. Suspense 6 100
Discount received 6 100
4. Bad debts 375
Long 375

(b) Statement of revised profit

For the year ended 30 April 2012
$ $ $ $
Draft profit for year 15 500
Increase Decrease No effect
1 Purchases 4 000
2 Sales No effect
3 Discount 6 100
4 Bad debt _ 375
Totals 6 100 4 375 1 725
Revised profit for the year 17 225
(c) (i) As non-current assets are used by the business for a period more than one year so their
consumed cost should be charged as expense in the income statement over their lives
under ‘Matching’ concept.
(ii) ‘Money measurement’ concept states that only those items are recorded in the
financial statements which can be quantified in monetary terms. As the skill of the
workforce cannot be measured in monetary terms so cannot be recorded as an income.
(iii) ‘Consistency’ concept dictates that the same depreciation method should be used from
one year to the next.

QUESTION 7 NOVEMBER 2012 P22) Q2

Peng
Trial Balance at 31 August 2012
Debit ($) Credit ($)
Capital 18 240
Bank overdraft 3 000
Chapter 11 55 Correction of Errors

Fixtures and fittings 14 100

Provision for depreciation − Fixtures and fittings 8 800
Inventory 14 200
Trade receivables 12 300
Trade payables 9 900
Revenue 110 000
Purchases 51 000
Discount received 1 800
Wages and salaries 26 000
Sundry expenses 34 000
Discount allowed 620
Suspense 480
152 220 152 220
(b) 1. Error of Commission
2. Error of Principle
3. Complete Reversal of Entries
(c) Journal
Debit ($) Credit ($)
A. Winscom 200
W. Wilson 200
Fixtures 900
Purchases 900
Wages 3 000
Bank 3 000
Suspense 480
Discount received 480

QUESTION 8 MAY 2013 P22 Q2

(a) General Journal
Dr ($) Cr ($)
1 Commission received 120
Suspense 120
2 - -
Suspense 824
3 Insurance ($650  $560) 90
Suspense 90
4 Suspense 108
Sales returns 108

(b) Suspense account

2013 $ 2013 $
May 31 Difference in trial balance 926 May 31 Commission received 120
Sales returns 108 Trial balance error (receivables) 824
Insurance 90
1 034 1 034
 Chapter 11 56 Correction of Errors

(c) Omission: No debit and credit entered in the accounts. Transaction omitted completely from
books
Commission: Correct amount posted to the wrong account but of the same nature e.g. rent
expense recorded in wages expense account.
Principle: An entry made in the wrong class of account. For example, an expense treated as an
asset or vice versa
Complete reversal: In this case the debit account is credited and the credit account is debited
with correct amount.
Original entry: Original figure entered incorrectly, although the correct double entry principle has
been observed using this figure
Compensating: Errors on one side of the ledger are compensated by errors of the same amount
on the other side

QUESTION 9 NOVEMBER 2013 P21) Q3

(a) Error of commission, omission, principle, compensating, original entry and complete reversal

(b) Overstated Understated No effect Amount

$
1 🗸 279
2 🗸 246 ($123 + $123)
3 🗸 No effect

(c) General Journal

Dr Cr
$ $
1 Sales 279
Suspense 279
2 Discount received 123
Discount allowed 123
Suspense ($123 + $123) 246
3 Suspense ($150  $105) 45
B Kaur 45

QUESTION 10 MAY 2014 P21 Q2 (b & c) )

(b) Journal
Dr ($) Cr ($)
1 Purchases 450
Cash 450
2 Purchases ($950  $590) 360
C Maxley 360
3 Motor vehicle 6 000
Purchases 6 000
4 Purchases ($820 + $820) 1 640
Y Li 1 640
Chapter 11 57 Correction of Errors

(c)
Type of error Effect on gross profit
Goods purchased for cash, $450, had not been recorded in
1 Omission Decrease $450
the books.
Goods purchased on credit from C Maxley, $950, had been
2 Original entry Decrease $360
recorded in the books as $590.
A purchase of a motor vehicle, $6000, had been recorded in
3 Principle Increase $6 000
the purchases account.
Goods purchased on credit from Y Li, $820, had been
4 Reversal Decrease $1 640
credited to the purchases account and debited to Y Li.

QUESTION 11 MAY 2014 P22 Q2 (b to d) )

(b) Journal
Details Dr Cr
$ $
1 D Kay 450
D Moy 450
2 G Fallen ($970  $790) 180
Purchases 180
3 F Tay 90
Discount received 90
4 Fixture repairs 800
Fixtures and fittings 800

(c)
Type of error
1 A cheque received from D Moy, $450, had been posted to the account of
Commission
D Kay.
2 An invoice for goods received from G Fallen, costing $790, had been recorded
Original entry
in the purchases journal as $970.
3 Discount received, $45, had been debited to the discount received account and
Complete Reversal
credited to F Tay.
4 Repairs to fixtures and fittings, $800, had been recorded in the fixtures and
Principle
fittings account.
(d) When the trial balance fails to agree then the difference is entered as suspense. This suspense
account balance not only assists in the detection and correction of errors but also enables to
prepare draft financial statements.

QUESTION 12 NOVEMBER 2014 P21 Q1 (c) )

Adil
Trial Balance at 31 August 2014
Debit ($) Credit ($)
Non-current assets 9 500
Trade payables 8 500
Trade receivables 7 250
Chapter 11 58 Correction of Errors

Inventory 3 850
Bank overdraft 1 600
Purchases 14 400
Revenue 22 000
Bank loan 2 000
Capital 3 000
Suspense account 2 100
37 100 37 100

QUESTION 13 MAY 2015 P21 Q1 (a & b)

(a) Mira
Trial Balance at 31 March 2015
Dr Cr
$ $
Office fixtures (at cost) 18 000
Office fixtures provision for depreciation 7 200
Trade payables 5 400
General expenses 1 520
Trade receivables 3 700
Inventory 7 800
Bank overdraft 2 600
Capital 16 000
Suspense 180
31 200 31 200

(b) General Journal

Debit Credit
$ $
General expenses 180
Suspense 180
General expenses 1 000
Office fixtures 1 000

QUESTION 14 NOVEMBER 2015 P21 Q2

(a) General Journal
Debit Credit
$ $
1 Purchases 950
Suspense 950
2 Suspense 170
Discount received ($85 + $85) 170
3 Rent ($750  $570) 180
Suspense 180
4 Office fixtures 2 300
General expenses 2 300
Chapter 11 59 Correction of Errors

(b) Suspense Account

2015 $ 2015 $
Sept 30 Difference in trial balance (*) 960 Sept 30 Purchases 950
Sept 30 Discount received 170 Sept 30 Rent 180
1 130 1 130
(c) Statement to show effects of correcting entries on profit for the year
Error Increase/Decrease/ No effect Amount ($)
The total of the purchases journal had been under
1 Decrease 950
cast by $950.
Discount received, $85, had been debited to the
2 Increase 170
discount received account.
A payment of rent, $750, had been correctly entered
3 in the cash book, but recorded in the rent account as Decrease 180
$570.
The purchases of office fixtures, $2 300, had been
4 Increase 2 300
recorded in the general expenses account.

(d) This error occurs when a transaction is entered in the wrong account of the same class however
the correct amounts are entered on the correct sides. This therefore, results in the same equal
amounts on the both sides of the trial balance.

QUESTION 15 NOVEMBER 2015 P22 Q2 (b to d)

(b) Error Type of error
1 Omission
2 Principle
3 Reversal
4 Commission

(c) General journal

Details Dr ($) Cr ($)
1 Tong 560
Sales 560
2 Sales 800
Fixtures disposal 800
3 Discount allowed ($56 + $56) 112
R Biggs 112
4 Mia 75
Mason 75

(d) When a trial balance fails to balance then suspense account helps to identify the difference
between the totals of two sides.
It helps in correction of errors

QUESTION 16 NOVEMBER 2016 P21 Q2 (c & d)

(c) Error of commission
Chapter 11 60 Correction of Errors

(d) General journal

Debit ($) Credit ($)
1 Martin 930
Fatin 930
2 Discount allowed 970
Discount received 970
Suspense ($970 + $970) 1 940
3 Suspense 540
Returns inwards ($930  $390) 540

QUESTION 17 NOVEMBER 2016 P22 Q1 (a & b)

(a) Trial Balance at 30 June 2016
Debit ($) Credit ($)
Motor vehicle 9 500
Trade payables 8 500
Inventory 4 850
Revenue (Sales) 22 000
Purchases 14 400
Bank loan 2 000
Bank overdraft 1 630
Trade receivables 7 250
Capital 3 000
Suspense (balancing figure) 1 130 _
37 130 37 130

(b) General journal

Debit ($) Credit ($)
1 Suspense 270
Revenue - Sales - ($850  $580) 270
2 Purchases ($700 + $700) 1 400
Suspense 1 400
QUESTION 18 NOVEMBER 2016 P22 Q2 (b)
Increase Decrease Net
Profit for the year 24 000
Purchases of $500 had not been recorded in the books. 500
Goods, $800, had been counted twice in the closing inventory. 800
No adjustment had been made for prepaid insurance $950. 950
Discount allowed, $1 600, had been added to gross profit. ($1600+$1600) 3 200
Equipment costing $15 000 (accumulated depreciation $6 600) had been
depreciated by 20% on cost. The reducing balance method should have 1 320
been used @ 20%. [(15 000 × 20%)  {(15 000  $6 600) × 20%]
Commission receivable, $400, had been omitted from the draft income
statement. 400
Total 2 670 4 500 (1 830)
Revised profit for the year 22 170
 Chapter 11 61 Correction of Errors
Accrual and Prepayments
Chapter 11 62 Correction of Errors
Chapter 11 63 Correction of Errors
Chapter 11 64 Correction of Errors
Chapter 11 65 Correction of Errors
Chapter 11 66 Correction of Errors
Chapter 11 67 Correction of Errors
 Chapter 11 68 Correction of Errors

Accrual and Prepayments MS

3(c) Logan 6
Rent payable account
Date Details $ Date Details
2022 2023
Oct 1 Balance b/d (1) 820 Sep Income
$
Dec 1 Bank (1) 2 460 30 statement
2023 (1)
4 940
Jun 1 Bank (1) 2 490 Balance c/d
830
5 770
Oct 1 Balance b/d (1)O 830
____
F
5 770

+(1) Dates
Chapter 11 69 Correction of Errors
 4(a) Karishma 10

Chapter 11 Insurance 70 Correction of Errors

account

Details Details
Date $ $
2020 Balance Date Bank
Oct b/d 2021 (1)
1 (1) 1700 Feb Income 300
2021 28 statement
Feb Bank Sep
7 } 3400 30 (1)OF 6200
Aug Bank Balance
13 }(1) 3500 c/d 2100

2021 8600 8600

Oct Balance
1 b/d
(1) 2100

Electricity account

Date Details Details

2020 $
Date
Oct Bank Balance
2020 $
14 } b/d
Oct (1)
2021 1800
1
Jan } 1800
2021
24 Bank Income
Sep
May }(1) 1800 30
26 Bank statement 5600
Sep } 1800 (1)OF ____
30 Balance 7400
c/d 2000
2021
Oct 2000
7400 Balance
1
b/d
(1)

Dates (1)
Question Answer Marks
4(c) Karishma 4
Rent receivable account

Date Details Details

2021 Date $
Sep Income $ 2020 Bank
30 Oct }
statement 1 800
(1)OF 1 2021 }
Balance 965 Mar Bank
c/d 510 2 }(1) 825
____ Aug Bank
Chapter 11 71 Correction of Errors
Chapter 11 72 Correction of Errors
Chapter 11 73 Correction of Errors
Chapter 11 74 Correction of Errors
Chapter 11 75 Correction of Errors
Chapter 11 76 Correction of Errors
Chapter 11 77 Correction of Errors