What will be the effect of this adjustment on the financial statements?

Transcription

1 CIS FIACIAL ACCOUTIG 2.1 COTACT UMBER COTACT HOURS TUESDAYS AD FRIDAY 6PM 7PM. QUESTIO WEEK 3- Bad debts &Provision for doubtful debt VIDEO LECTURE CHAPTER: 5 MULTIPLE CHOICE QUESTIOS 1 A business increases its provision for doubtful debts by What will be the effect of this adjustment on the financial statements? profit for the year A decrease by 1600 B decrease by 1600 C increase by 1600 D increase by 1600 trade receivables (net) decrease by 1600 increase by 1600 decrease by 1600 increase by The purchases ledger control account has a closing balance of Discounts received of 600 have been entered on the wrong side of the control account. What is the corrected balance? A B C D A business sells a non-current asset for cash. The disposal account includes entries for the cost of the asset and the sales proceeds. Which books of prime entry are used? Cost A cash book B cash book C general journal D purchases journal sales proceeds general journal sales journal cash book cash book 4 A business buys a vehicle for on 1 January Year 1 and sells it for 6500 on 1 January Page 1

2 Year 3, having depreciated it at 10 % a year using the straight line method. The company provides a full year s depreciation in the year of purchase and none in the year of disposal. Which amount for profit or loss will appear in the disposal account and on what side of the disposal account will it be shown? A 1500 on the credit side B 1500 on the debit side C 2500 on the credit side D 2500 on the debit side Page 2

3 5 Which item should be treated as capital expenditure? A cost of carriage on the purchase of a fixed asset B cost of replacement of part of a fixed asset C depreciation of a fixed asset D repairs to a fixed asset 6 A loan due for repayment in 20 months time has been included as a current liability. What will be the effect when this is corrected? A increase net assets B increase net current assets C no effect on net current assets D reduce net current assets 7 An item of machinery cost The machinery was later sold for 8000 and the loss on disposal was What was the accumulated depreciation on the machinery on disposal? A B C D Why do businesses charge depreciation on their fixed assets? A to ensure that sufficient cash is available to replace the assets B to show the realizable value of the assets in the balance sheet C to show when the assets must be replaced D to spread the cost of the assets over their estimated useful lives 9 A creditor for 720 transferred from the purchases ledger has been entered on the wrong side of the sales ledger control account. The sales ledger control account has a closing balance of , before correcting the transfer. A provision for doubtful debts of 1000 is to be made. What is the correct balance on the sales ledger control account? A B C D Page 3

4 10 A company s capital expenditure of has been debited in error to the purchases account. Depreciation is provided at the rate of 15 % per annum on the cost of all fixed assets held at each year end. How will this affect the net profit? A understated B overstated C understated D overstated Page 4

5 11 The following data is available at the end of a financial year. Opening stock Purchases Closing stock Gross profit margin 50 % Debtors collection period 60 days Sales are all on credit and accrue evenly over a 360-day accounting period. What is the value of debtors at the year-end? A B C D A business purchases a vehicle for The business depreciates its non current (fixed) assets at 20 % using the diminishing value method. What is the depreciation charge for year 2? A 1600 B 2000 C 6400 D The total of the list of individual balances in the purchase ledger does not agree with the balance on the purchase ledger control account. When listing the individual suppliers accounts a credit balance had been shown as a debit balance. What is needed to correct the mistake on the total of the purchase ledger balances? A decrease by the amount of the credit balance B decrease by twice the amount of the credit balance C increase by the amount of the credit balance D increase by twice the amount of the credit balance 14 A company s sales during a 365 day year are shown in the table. Cash sales Credit sales Total sales The trade receivables (debtors) turnover ratio at the year end is 42 days. What is the end-of-year trade receivables (debtors) balance? A B C D Page 5

6 QUESTIO 1 The following information was extracted from the accounting records of D. Dill for the year ended 31 December 2010: Balances as at 1 January 2010: Debit Credit Receivables balances 142,760 11,200 Payables balances 4, ,450 During 2010 the following transactions took place: Credit sales 1,150,000 Cash sales 11,000 Sales returns (all on credit) 74,000 Credit purchases 942,070 Purchases return (50% credit, 50% cash) 80,600 Cash received from receivables 985,200 Cash paid to payables 888,410 Discounts received 23,600 Discounts allowed 19,700 Interest charged by payables for overdue accounts 5,470 Dishonoured cheque (included in cash receipts above) 2,170 Irrecoverable debts 24,860 Irrecoverable debts recovered (original write off included in irrecoverable debts above) 3,420 Contra entry between receivables and payables 9,750 Refunds from payables 2,190 Refunds to receivables 3,330 The following additional information as at 31 December 2010 is available: Page 6

7 The total credit balance in the receivables ledger is 9,100. The total debit balance in the payables ledger is 3,320 You are required to: a) Prepare the payables and receivables control accounts for D. Dill, for the year ended 31 December Marks b) Explain, in report format, two reasons why control accounts should be prepared on a regular basis. 4 Marks Presentation and format. 2 Marks Page 7

8 QUESTIO 2 (Compulsory) Part A The following information is available for sole trader B. Blake for the year ended 31 December 2011: Opening receivables debit balances 211,250 Opening receivables credit balances 1,750 Sales (90% credit, 10% cash) 1,110,500 Credit sales returns 17,130 Cash received from customers (95% from credit customers) 895,400 Irrecoverable debts 17,700 Irrecoverable debts previously written off recovered (these funds have been included in cash receipts above) 2,310 Opening allowance for receivables 13,320 Contra entry with balances on payables ledger 5,970 Closing receivables credit balances 980 With the aid of a receivables control account, calculate the closing receivables figure for B. Blake as at 31 December Marks Part B The following information is available for sole trader C. Chung for the year ended 31 December 2011: Draft receivables debit balances as at 31 December ,680 Draft irrecoverable debts written off during the year 21,090 Irrecoverable debts previously written off recovered during the year 1,110 Allowances for receivables as at 1 January ,234 As at 31 December 2011 C. Chung reviewed his receivables listing and decided the following (none of these adjustments have been reflected in the draft figures above): An additional3,120 of debts should be written off as irrecoverable; C. Chung considers the2,160 of debts should be made the subject of a specific allowance; The general allowance for receivables should be set at 4% of the remaining receivable balances. Page 8 /

9 You are required to: i. Prepare the following T accounts for C. Chung for the year ended 31 December 2011: a. The allowance for receivables T account; 5 Marks b. Irrecoverable debts expense T account; 2 Marks c. Irrecoverable debts recovered T account. 1 Mark ii. Prepare appropriate Income Statement and Statement of Financial Position extracts to illustrate how the information above would be presented in the financial statements of C. Chung for the year ended 31 December Marks Total 20 Marks Page 9