SIR MICHELANGELO REFALO SIXTH FORM Half-Yearly Exam 2015 Subject: ACCOUNTING ADV 1 st Time: 3 hrs Section A Answer all the questions in this section 1. Some clubs operate life membership schemes. (a) How are these treated in the books of the club? (b) What accounting concept is being applied? ( 2 marks) ( 1mark) 2. (a) Differentiate between Capital Expenditure and Revenue Expenditure.( 1 mark) (b) Give two examples of each (1mark) (c) If incorrectly treated, such expenditure will affect the figure of Net Profit. Explain. (2 marks) 3. Briefly explain the accruals concept and the going concern concept that are the underlying assumptions of financial reporting. (3 marks) 4. (a) What is a trial balance? (1 mark) (b) What is the purpose of extracting a trial balance. (1 mark) (c) Explain the difference between Error of Original Entry and Transposition Error. ( 2 marks) 5. Books of Original Entry are known either as Journals or Day Books. (a) Name the six different books of Prime Entry. (1 mark) (b) The journal which is one of the books of Prime Entry is used for specific purposes. List two of these. (1 mark) (c) What is the difference between Sales Ledger and Purchases Ledger? (2 marks) 6. Usually firms create an Allowance for Doubtful Debts. (a) Which concept does it follow? (1 mark) (b) What is the purpose of creating an allowance for doubtful debts? (1 mark) (c) Explain the difference between Allowance for Doubtful Debts and Bad Debts and how they are treated in the accounts. (2 marks) Page 1 of 8
Section B: (Compulsory Question) Question 7 Mandy Azzoppardi is the proprietor of AutoStop, a business which supplies car parts to garages to use in servicing repair work. At the end of the financial year, on 30 th April 2014, the balances were extracted from the general ledger and have been entered onto a trial balance, as shown below: Books of AutoStop Trial Balance as at 30th April 2014 Debit Credit Capital 135,000 Drawings 42,150 Rent 17,300 Purchases 606,200 Sales 856,200 Sales returns 2,400 Purchases returns 1,260 Salaries and wages 136,970 Motor Vehicles (M.V.) at cost 60,800 Provision for deprecieation (M.V.) 16,740 Fixtures and fittings (F&F) at cost 40,380 Provision for deprecieation (F&F) 21,600 Bank 3,170 Cash 2,100 Lighting & Heating 4,700 VAT 9,200 Inventory at 1st May 2013 116,100 Bad Debts 1,410 Allowance for doubtful debts 1,050 Sales control account 56,850 Purchases control account 50,550 Sundry expenses 6,810 Insurance 1,300 Discounts Received 1,100 Carriage Inwards 400 1,095,870 1,095,870 Page 2 of 8
The following adjustments need to be taken into account as at 30 th April 2014: a. Rent payable by the business is as follows: For the period to 31 st July 2013-1,500 per month From 1 st August 2013 onwards - 1,600 per month b. The insurance balance includes 100 paid for the period 1 st May 2014 to 31 st May 2014. c. Depreciation is to be calculated as follows: Motor vehicles - 20% per annum straight line method Fixtures and fittings - 10% per annum diminishing balance method d. The allowance for doubtful debts is to be adjusted to a figure representing 2% of accounts receivable. e. Inventory on 30 th April 2014 has been valued at 117,760. Included in the above figure is a badly damaged car door which was to have been sold for 80 but will now have to be scrapped. The cost price of the door was 60. f. A credit note received from a supplier on 5 April 2014 for goods returned was filed away with no entries having been made. The credit note has been discovered and is for 200 net plus 35 VAT. You are required to take the above adjustments into account and prepare a full set of financial statements (i.e. Income Statement and a Statement of Financial Position) for the business of Mandy Azzopardi for the year ended 31 st July 2014. Show all your workings. (26marks) Page 3 of 8
Section C: (Answer ONLY two questions from this section) Question 8 The bookkeeping system of Alfredo is not computerized, and at 30 September 2014 the bookkeeper was unable to balance the accounts. The trial balance totals were: Debit 1,796,100 Credit 1,852,817 Nevertheless, he proceeded to prepare draft financial statements, inserting the difference as a balancing figure in the balance sheet. The draft Income Statement showed a reported profit of 141,280 for the year ended 30 September 2014. He then opened a suspense account for the difference and began to check through the accounting records to find the difference. He found the following errors and omissions: 1. 8,980 - the total of the sales returns book for September 2014, had been credited to the purchases returns account. 2. 49,600 paid for an item of plant purchased on 1 April 2014 had been debited to plant repairs account. The company depreciates its plant at 20% per annum on a straight line basis, with proportional depreciation in the year of purchase. 3. The cash discount totals for the month of September 2014 had not been posted to the general ledger accounts. The figures were: Discount allowed 836 Discount received 919 4. 580 insurance prepaid at 30 September 2013 had not been brought down as an opening balance 5. The balance of 38,260 on the telephone expense account had been omitted from the trial balance 6. A car held as a non-current asset had been sold during the year for 4,800. The proceeds of sale were entered in the cash book but had been credited to the sales account in the general ledger. The original cost of the car 12,000, and the accumulated provision for depreciation to date 8,000, were included in the motor vehicles account and the accumulated provision for depreciation account. The company depreciates motor vehicles at 25% per annum on a straight line basis with proportionate depreciation in the year of purchase but none in the year of disposal. i. Open a suspense account for the difference between the trial balance totals. ii. iii. iv. Prepare the journal entries necessary to correct the errors and eliminate the balance on the suspense account. Narratives are not required. Draw up a statement showing the revised profit after correcting the above errors. Explain what is a Suspense Account. Page 4 of 8
(26marks) Question 9 Bugeja plc keeps control accounts for its sales and purchases ledgers which it balances at the end of every month. The balances on these accounts as at 31 st December 2014 were: Debit Credit Purchases Ledger 872 72,898 Sales ledger 96,527 631 The following transactions and adjustments took place during January 2015: Purchases on credit 612,951 Sales on credit 760,838 Cash Sales 120,636 Cash Purchases 82,777 Sales Returns from Credit Customers 3,955 Purchases Returns from Credit Suppliers 2,909 Cash Received from Credit Customers 713,599 Cash paid to Credit Suppliers 610,261 Discounts Received 5,877 Discounts Allowed 23,666 Customers Dishonoured Cheques 1,305 Set-offs between the Sales & Purchases Ledgers 1,885 At 31 st January 2015, there were credit balances on the Sales Ledger totalling 263 and debit balances on the purchases ledger totalling 293. Stock at 1 st January was valued at 15,600 and on 31 st January it was valued 15,900. a. Prepare the Sales Ledger Control Account and the Purchases Ledger Control Account of Bugeja plc for the month of January 2015, carrying down the balances as at 31 st January 2015. b. Prepare a Trading Account for the month of January 2015. c. Explain the difference between a Sales Ledger and a Sales Ledger Control Account. (26marks) Page 5 of 8
Question 10 Alex Borg set up in business as a haulage contractor on 1 October 2004. He depreciates his vehicles by 25% per annum using the reducing balance method. Depreciation is calculated on assets in existence at the end of each year, a full year s depreciation being charged in the year of purchase and none in the year of disposal. 1 st October 2004 Bought Lorry costing Euro 36,000 from Euro Motors Plc. on credit to be paid by means of four annual equal instalments starting on this date. 6 th November 2005 Bought another lorry costing Euro 40,000 paying by cheque. 1 st January 2006 The lorry purchased on 1 st October 2004 was totally written off in an accident; the insurance company paid Euros 27,700 in full settlement of the claim. Part of this money was used to pay the remaining instalments payable to Euromotors Plc. 9 th March 2007 A new Lorry costing Euros 45,000 was bought on credit from Supermotors Plc. In part exchange, Borg gave them the lorry bought on 6 th November 2005 which was valued Euros 25,000. The balance is to be paid in one year s time. 1 st November 2008 Bought a new Lorry for Euros 35,000 on credit from Motors Ltd. 1 st December 2008 The Lorry bought in November 2008 was involved in an accident and was scrapped for Euros 9000. i) Prepare the Vehicles Account and Allowance for depreciation Account for the years ended 30 th September 2005, 2006, 2007 and 2008, and show how the vehicles would have been shown in the Statement of Financial Position. (22 marks) ii) Define depreciation and list and explain the main factors which cause non-current assets to depreciate. (4 marks) Page 6 of 8
Question 11 Mr Mark Sant is in his third year of operations and till now his records were not kept in good accounting principles and practices. He has kept records, but these were not organised in a proper way. You accept this assignment and Mr Sant hands you all the records and the information he has at his disposal for the financial year ended 31 st March 2005. 1. The summary of his bank account: Bank Account Balance b/d 18,450 Dishonoured cheques 1,200 Receipts from debtors 485,800 Premises 20,000 Payment to creditors 415,000 Administration expenses 16,460 Selling and Distribution 36,240 Balance c/d 15,350 504,250 504,250 2. Sant informs you that all his sales were made at a profit margin of 20% on selling price. 3. All cheques received were banked but cash receipts were used for drawings and to pay for some expenses as given below: Drawings 1000 euros per month Wages to assistant 100 euros per week Selling and Distribution 360 euros Administration 540 euros Cash Purchases 800 euros The amount of money in the cash till was 350 euros on 31 st March 2005 and Sant tells you that this stood at 150 euros at the beginning of his accounting year. 4. From invoices, receipts and other documents you deduce that returns In totalled 7,600 euros while returns Out were 8600 euros. Discounts received amounted to 10,400 euros, but Sant had no idea of the amount of discounts allowed and he leaves this up to you to determine. He was however sure that a debtor owing him 2,800 euros had defaulted and that a cheque of 1,200 euros had been dishonoured. You manage to persuade Sant to write this off as a bad debt. Page 7 of 8
5. The Non- Current assets on 1 st April 2004 were as follows: Cost in Euros Acc. Depreciation In Euros Depreciation Method Property 100,000 2,000 2% straight line Equipment 50,000 20,000 40% reducing balance Motor Vehicles 30,000 6,000 20% straight line A full year s depreciation is provided in the year of purchase irrespective of the date the asset is acquired. 6. Other opening and closing balances were: 1 April 2004 31 March 2005 Euros Euros Inventory 16,400 19,600 Accounts Receivable 56,000 79,800 Accounts Payable 36,200 45,200 Selling and Distribution accrued 4,300 7,200 Administration Exp accrued 2,500 Nil Administration Exp prepaid Nil 4,500 7. You find out that 300 euros included in Selling and Distribution expenses were for the Haulage of Sant s private pleasure boat at the end of summer. a) Prepare the Accounts Receivable Control account and the Accounts Payable Control account. (6 marks) b) Prepare the Income Statement for the year ended 31 st March 2005 and a Statement of Financial Position as at that date. (16 marks) c) Mention and explain three concepts in the preparation of the accounts for these to comply with accepted principles and practices. (4 marks) Page 8 of 8