Final Accounts Preparation

Osborne Books Tutor Zone Final Accounts Preparation Chapter activities Osborne Books Limited, 2016

2 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 1 Business organisations 1.1 Link the type of business in the box on the left with the box on the right that best describes it. Charity Limited liability partnership (LLP) Sole trader Partnership Limited company A group of individuals working together in business An incorporated business owned by shareholders An organisation run to fund charitable activities An incorporated form of partnership An individual trading in his name or a trading name 1.2 Complete the following table showing how each organisation distributes its profits. Choose from the following options: Drawings by owner / Drawings by members / Dividends to shareholders / Drawings by partners Profits distributed in the form of: Limited liability partnership (LLP) Sole trader Partnership Limited company

c h a p t e r a c t i v i t i e s 3 1.3 Show whether the followings statements are true or false: Statement True False (a) (c) (d) (e) Rules governing charities are set out in the Charities Act 2011 Terms of a partnership agreement can override those of The Partnership Act 1890 Directors of a limited company can opt for the financial statements of the business not to be made public A sole trader is taxed on the amount he takes out of the business In a Limited Liability Partnership, each member is liable for income tax on their share of the profits 1.4 In which two of the following organisations are the owners liable for the total debts of the business? (a) (c) (d) Samuel Corse Ltd Schofield and Partners (LLP) Liam Griffiths trading as Griffiths Decorating Services ABC partnership 1.5 Fill in the name of the official organisations described below. Choose from the following list: 1 Department of Work & Pensions 2 HM Revenue & Customs 3 Companies House 4 Financial Reporting Council 5 Fundraising Standards Board 6 Charity Commission (a) (c) (d) Responsible for the collection of business taxes in the UK The registrar of incorporated businesses Registers and regulates charities in England and Wales Sets standards for corporate reporting

4 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 2 Framework of accounting 2.1 For the following users of financial statements, identify how they might use the information contained in the statements. User Supplier Use of information Customer HM Revenue & Customs 2.2 Use a line to connect each of the principles, characteristics or features of accounting information on the left with the most appropriate description on the right. Material misstatement Materiality Relevance Understandability Information must be disclosed if it could influence decision-making Information is presented clearly and concisely Small expenses are grouped and shown collectively as sundry expenses Information is accidentally or intentionally untrue and could influence decision-making 2.3 Define the accounting principle of going concern and explain why it is relevant when preparing financial statements.

c h a p t e r a c t i v i t i e s 5 2.4 Identify the five ethical principles of accounting from the following list. (a) (c) (d) (e) (f) (g) (h) (i) (j) Security Professional competence and due care Faithful representation Objectivity Neutrality Honesty Integrity Professional behaviour Confidentiality Verifiability 2.5 Which supporting qualitative characteristic of accounting information is relevant in each of the following situations? Choose from: Understandability, Verifiability, Comparability, Timeliness. Supporting qualitative characteristic (a) (c) (d) Inventory valuation is accurate and based on IAS 2 Inventories Financial statements are ready for review and submission when required The layout and format of financial statements is similar to that used in previous periods and by other businesses Clarification is given in the form of supporting notes in the financial statements 2.6 One of the main accounting principles is that of accruals. Which of the following definitions best defines the accruals principle? (a) (c) (d) Accounting values are estimated to give a realistic profit figure Accounting transactions are recorded in the period in which they are incurred Accounting transactions are recorded in the period in which they are paid for Accounting transactions are recorded according to the type of business involved

6 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 3 Preparing financial statements Layouts for the statement of profit or loss and the statement of financial position are included in the Appendix of Final Accounts Preparation Tutorial, and are also available for download from www.osbornebooks.co.uk. 3.1 Profit for the year is calculated as: (a) Purchases expenses Gross profit expenses (c) Capital expenses (d) Gross profit + expenses 3.2 Which one of the following describes net assets? (a) Non-current assets + current liabilities current assets non-current liabilities Current assets current liabilities (c) Non-current assets non-current liabilities (d) Non-current assets + current assets current liabilities non-current liabilities

c h a p t e r a c t i v i t i e s 7 3.3 You are to fill in the missing figures for the following sole trader businesses: Sales Opening Purchases Closing Gross Expenses Profit/loss* inventory inventory profit for year Business A 75,000 7,000 50,000 8,000... 16,000... Business B... 10,000 65,000 8,000 22,000... 15,000 Business C 64,000 9,500 52,000... 13,500 15,500... Business D 44,350 6,250... 7,350 26,050... 13,600 Business E 49,750... 26,750 9,600 23,900 18,600... Business F 75,000 11,500 47,500... 26,500... 5,500 *Note: loss is indicated by a minus sign

8 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 3.4 This Activity is about calculating missing balances and the accounting equation. You are given the following information about a sole trader as at 1 April 20-7: The value of assets and liabilities were: Non-current assets at carrying amount 50,500 Inventory 9,450 Trade receivables 18,750 Cash at bank 2,140 Trade payables 11,380 There were no other assets or liabilities. (a) Calculate the capital account balance as at 1 April 20-7. On 30 April 20-7, new office equipment is purchased on credit for use in the business. Tick the boxes to show what effect this transaction will have on the balances. You must choose one answer for each line. Debit Credit No change Non-current assets Trade receivables Trade payables Bank Capital (c) Which of the following is a current asset? Select one answer. (a) (c) (d) Owner s capital A bank overdraft Trade payables Trade receivables

c h a p t e r a c t i v i t i e s 9 3.5 The following trial balance has been extracted by Sam Avalos at 31 March 20-8: Dr Cr Opening inventory 10,475 Purchases 83,691 Sales revenue 157,648 Rent and rates 10,083 Heating and lighting 3,624 Payroll expenses 35,822 Vehicle expenses 4,046 Advertising 3,984 Premises at cost 100,000 Office equipment at cost 22,000 Vehicles at cost 35,000 Sales ledger control 19,247 Bank 3,240 Cash 284 Capital 112,500 Drawings 18,913 Loan from bank 65,500 Purchases ledger control 12,286 Value Added Tax 2,475 Closing inventory statement of profit or loss 12,655 Closing inventory statement of financial position 12,655 363,064 363,064 You are to prepare the financial statements of Sam Avalos for the year ended 31 March 20-8.

1 0 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 3.6 The following trial balance has been extracted by Jenny Clark at 30 June 20-6: Dr Cr Capital 26,000 Sales revenue 94,333 Purchases 36,147 Opening inventory 8,175 Payroll expenses 25,148 Heating and lighting 3,071 Rent and rates 5,294 Vehicles at cost 17,390 Office equipment at cost 3,450 Sundry expenses 1,086 Vehicle expenses 3,417 Drawings 17,248 Sales ledger control 16,346 Purchases ledger control 9,273 Value Added Tax 1,212 Bank 5,954 Closing inventory statement of profit or loss 10,032 Closing inventory statement of financial position 10,032 146,804 146,804 You are to prepare the financial statements of Jenny Clark for the year ended 30 June 20-6.

c h a p t e r a c t i v i t i e s 1 1 3.7 An extract from the trial balance of Cheryl Croft is as follows: Trial balance (extract) as at 31 March 20-5 Dr Cr Opening inventory 11,090 Sales revenue 95,450 Purchases 60,320 Sales returns 1,840 Purchases returns 960 Carriage in 450 Carriage out 1,120 Discounts received 120 Discounts allowed 170 Other expenses 26,490 Closing inventory: statement of profit or loss 12,270 You are to prepare the statement of profit or loss of Cheryl Croft for the year ended 31 March 20-5, using the conventional format.

1 2 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 4 Incomplete records accounting Layouts for the statement of profit or loss and the statement of financial position are included in the Appendix of Final Accounts Preparation Tutorial, and are also available for download from www.osbornebooks.co.uk. 4.1 Cost of sales for the year is 240,000. Mark-up is 40%. What is sales revenue for the year? (a) 240,000 96,000 (c) 144,000 (d) 336,000 4.2 Sales for the year are 250,000. Margin is 50%. Opening inventory is 25,000; closing inventory is 30,000. What are purchases for the year? (a) 120,000 125,000 (c) 130,000 (d) 375,000

c h a p t e r a c t i v i t i e s 1 3 4.3 You are preparing accounts from incomplete records. Trade receivables at the start of the year were 20,400. During the year sales on credit total 90,300, bank receipts from trade receivables total 85,600, sales returns total 1,400, and discounts allowed total 700. What is the trade receivables figure at the end of the year? (a) 13,600 27,200 (c) 23,000 (d) 24,400 4.4 The following figures are extracted from the accounts of Wyvern Systems Limited for the year ended 30 June 20-8: sales for the year, 300,000 opening inventory, 20,000 closing inventory, 40,000 purchases for the year, 260,000 You are to calculate: (a) cost of sales for the year gross profit for the year (c) gross profit mark up % (d) gross sales margin %

1 4 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 4.5 James Hendry owns a business which sells office stationery. Most of his customers are firms in the area, to whom he sells on credit terms. Although he does not keep a full set of accounting records, the following information is available in respect of the year ended 31 December 20-5: Summary of assets and liabilities: 1 Jan 20-5 31 Dec 20-5 Carrying amount of shop fittings (cost 10,000) 8,000 7,000 Inventory 25,600 29,800 Bank balance 4,000 8,000 Cash 1,000 1,600 Trade receivables 29,200 20,400 Trade payables 20,800 16,000 Accrual: general expenses 500 Summary of the business bank account for the year ended 31 December 20-5: Receipts from customers 127,800 Payments to suppliers 82,600 Drawings 20,000 General expenses 20,600 Other information Shop fittings are being depreciated at 10% per year, using the straight-line method. You are to: (a) Calculate the amount of sales during the year. Calculate the amount of purchases during the year. (c) Calculate the figure for general expenses to be shown in the statement of profit or loss for the year ended 31 December 20-5. (d) Prepare James Hendry's statement of profit or loss for the year ended 31 December 20-5. (e) Prepare James Hendry's statement of financial position as at 31 December 20-5. Note: VAT is to be ignored on all transactions.

c h a p t e r a c t i v i t i e s 1 5 4.6 This Activity is about finding missing figures in ledger accounts where the records are incomplete. You are working on the financial statements of a business for the year ended 31 March 20-4. You have the following information. Day book summaries for the year Net VAT Total Sales 142,000 28,400 170,400 Purchases 88,000 17,600 105,600 Sales returns 1,200 240 1,440 Purchases returns 680 136 816 All sales and purchases are on credit terms. Balances as at: 31 March 20-3 31 March 20-4 Trade receivables 28,360 31,790 Trade payables 13,520 not known Further information: Net VAT Total Administration expenses 14,800 2,960 17,760 Administration expenses are not included in the purchases figure in purchases day book. Bank summary Dr Cr Balance b/d 6,430 Travel expenses 6,550 Sales ledger control 165,320 Administration expenses 17,760 Balance c/d 30,930 Purchases ledger control 103,410 HMRC for VAT 8,360 Drawings 20,100 Payroll expenses 46,500 202,680 202,680 There were no prompt payment discounts on payments made to trade payables.

1 6 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e (a) Using the figures given on the previous page, prepare the sales ledger control account for the year ended 31 March 20-4. Show discounts allowed as the balancing figure. Sales ledger control account Using the figures given on the previous page, prepare the purchases ledger control account for the year ended 31 March 20-4. Show clearly the trade payables figure at the end of the year as the balancing figure. Purchases ledger control account (c) Find the closing balance for VAT by preparing the VAT control account for the year ended 31 March 20-4. Use the figures given on the previous page, and in the answer to (a) above. Note: The business is not charged VAT on its travel expenses. VAT control account Balance b/d 3,460

c h a p t e r a c t i v i t i e s 1 7 5 Sole trader financial statements Layouts for the statement of profit or loss and the statement of financial position are included in the Appendix of Final Accounts Preparation Tutorial, and are also available for download from www.osbornebooks.co.uk. 5.1 A statement of profit or loss shows a loss for the year of 5,800. It is discovered that no allowance has been made for payroll expenses accrued of 550 and rent prepaid of 250 at the year end. What is the adjusted loss for the year? (a) 6,600 5,000 (c) 6,100 (d) 5,500 5.2 Identify whether the following items will be stated in the year end statement of profit or loss as income or expense by selecting the relevant column of the table below. Item Income Expense Loss on disposal of non-current asset Increase in allowance for doubtful debts Irrecoverable debts Discounts received Depreciation charges Carriage out

1 8 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 5.3 A statement of profit or loss shows a profit for the year of 15,240. The owner of the business wishes to decrease the allowance for doubtful debts by 600 and to write off irrecoverable debts of 200. What is the adjusted profit for the year? (a) 15,640 14,840 (c) 16,040 (d) 14,440

c h a p t e r a c t i v i t i e s 1 9 5.4 You have the following trial balance for a sole trader known as Computer Traders. All the necessary year-end adjustments have been made. (a) Prepare a statement of profit or loss (on the next page) for the business for the year ended 31 March 20-4. Computer Traders Trial balance as at 31 March 20-4 Dr Cr Accruals 550 Bank 3,290 Capital 60,000 Closing inventory 17,320 17,320 Depreciation charges 3,000 Discounts allowed 740 Drawings 25,450 General expenses 30,850 Office equipment at cost 35,600 Office equipment: accumulated depreciation 12,300 Opening inventory 15,680 Payroll expenses 45,960 Prepayments 1,040 Purchases 95,210 Purchases ledger control 17,360 Rent and rates 12,590 Sales revenue 214,830 Sales ledger control 41,470 Value Added Tax 5,840 328,200 328,200

2 0 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e Computer Traders Statement of profit or loss for the year ended 31 March 20-4 Sales revenue Cost of sales Gross profit Less expenses: Total expenses Profit for the year Indicate where prepayments of expenses should be shown in the statement of financial position. Select one from: (a) (c) (d) As a non-current asset As a current asset As a current liability As an addition to capital (c) State the meaning of a debit balance for disposal of a non-current asset in a trial balance. Select one from: (a) (c) (d) The business has made a gain on disposal The business has made a loss on disposal The asset has been over depreciated The asset has been part-exchanged on disposal

c h a p t e r a c t i v i t i e s 2 1 5.5 The following adjusted trial balance has been taken from the books of Julie McCabe, who sells shoes, as at 31 March 20-3: Dr Cr Allowance for doubtful debts 200 Allowance for doubtful debts: adjustment 75 Purchases ledger control 12,380 Sales ledger control 1,050 Value Added Tax 1,490 Bank 4,870 Capital 30,000 Sales revenue 164,275 Purchases 75,490 Opening inventory 22,650 Shop wages 43,120 Accrual of shop wages 420 Heat and light 3,420 Rent 12,680 Prepayment of rent 750 Shop fittings at cost 22,000 Shop fittings: depreciation charges 5,250 Shop fittings: accumulated depreciation 10,500 Disposal of non-current asset 200 Irrecoverable debts 120 Drawings 27,740 Closing inventory 25,980 25,980 245,320 245,320 You are to prepare the financial statements of Julie McCabe for the year ended 31 March 20-3, using the conventional format.

2 2 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 6 Partnership financial statements Layouts for the statement of profit or loss and the statement of financial position are included in the Appendix of Final Accounts Preparation Tutorial, and are also available for download from www.osbornebooks.co.uk. 6.1 Profits of a two-person partnership are 24,600 before the following are taken into account: interest on partners capital accounts, 2,200 salary of one partner, 12,500 interest on partners drawings 500 If the remaining profits are shared equally, how much will each partner receive? (a) 12,300 7,400 (c) 5,200 (d) 6,900

c h a p t e r a c t i v i t i e s 2 3 6.2 You have the following information about a partnership business: The financial year ends on 31 March The partners are Joe, Kit and Liz Partners annual salaries: Joe 12,600 Kit 20,900 Liz 5,350 Partners capital account balances as at 31 March 20-7: Joe 40,000 Kit 30,000 Liz 20,000 Interest on partners capital for the year: Joe 1,200 Kit 900 Liz 600 Interest charged on partners drawings: Joe 120 Kit 310 Liz 90 The partners share the remaining profit of 22,000 as follows: Joe 40% Kit 35% Liz 25% Partners drawings for the year: Joe 16,350 Kit 26,490 Liz 12,600 Prepare the current accounts for the partners for the year ended 31 March 20-7. Show clearly the balances carried down. You must enter zeros where appropriate. Do not use brackets, minus signs or dashes. Current accounts Joe Kit Liz Joe Kit Liz Balance b/d 200 0 0 Balance b/d 0 600 1,000

2 4 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 6.3 This Activity is about preparing a partnership statement of financial position. You are preparing the statement of financial position for the JK Partnership as at 31 March 20-5. The partners are Jon and Kim. All the necessary year-end adjustments have been made, except for the transfer of profit to the current accounts of the partners. Before sharing profits the balances of the partners current accounts are: Jon 750 debit Kim 400 credit Each partner is entitled to 6,500 profit share. (a) Calculate the balance of each partner s current account after sharing profits. Indicate whether these balances are DEBIT or CREDIT. Current account: Jon DEBIT / CREDIT Current account: Kim DEBIT / CREDIT Note: these balances will need to be transferred into the statement of financial position of the partnership which follows.

c h a p t e r a c t i v i t i e s 2 5 You have the following trial balance. All the necessary year end adjustments have been made. Prepare a statement of financial position for the partnership as at 31 March 20-5. You need to use the partners current account balances that you have just calculated. Do not use brackets, minus signs or dashes. JK Partnership Trial balance as at 31 March 20-5 Dr Cr Accruals 590 Administration expenses 23,850 Allowance for doubtful debts 760 Allowance for doubtful debts: adjustment 150 Bank 4,680 Capital account Jon 30,000 Capital account Kim 20,000 Cash 570 Closing inventory 12,630 12,630 Current account Jon 750 Current account Kim 400 Depreciation charges 3,000 Disposal of non-current asset 220 Machinery at cost 40,000 Machinery: accumulated depreciation 12,500 Opening inventory 11,220 Payroll expenses 43,260 Purchases 73,840 Purchases ledger control 14,750 Sales revenue 155,910 Sales ledger control 36,230 Value Added Tax 2,860 Total 250,400 250,400

2 6 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e JK Partnership Statement of financial position as at 31 March 20-5 Cost Accumulated Carrying amount depreciation Non-current assets Current assets Current liabilities Net current assets Net assets Financed by: Jon Kim Total

c h a p t e r a c t i v i t i e s 2 7 6.4 Clark and Pearce are in partnership selling business computer systems. The following trial balance has been taken from their accounts for the year ended 30 June 20-4: Dr Cr Sales revenue 225,000 Cost of sales 120,000 Payroll expenses 30,400 Electricity 2,420 Telephone 3,110 Rent and rates 10,000 Discounts allowed 140 Office expenses 10,610 *Closing inventory statement of financial position 41,570 Sales ledger control 20,000 Purchases ledger control 6,950 Value Added Tax 5,240 Irrecoverable debts 1,200 Allowance for doubtful debts 780 Office equipment at cost 52,000 Office equipment: accumulated depreciation 20,800 Clark: Capital account 60,000 Current account 430 Drawings 20,600 Pearce: Capital account 30,000 Current account 300 Drawings 15,700 Bank 21,750 349,500 349,500 *Only the closing inventory is included in the trial balance because cost of sales has been calculated already. Notes at 30 June 20-4: Depreciate the office equipment at 20 per cent, using the straight-line method. Pearce is to receive a partnership salary of 12,000. Allow 5% interest on partners capital accounts: Clark 3,000 and Pearce 1,500. Remaining profits and losses are shared as follows: Clark two-thirds, Pearce one-third. Task 1 Show the partners capital and current accounts for the year ended 30 June 20-4. (Note: in order to complete these you will need to calculate the profit share from the statement of profit or loss in Task 2.) Task 2 Prepare the partnership financial statements for the year ended 30 June 20-4 in the conventional format.

2 8 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 7 Changes in partnerships 7.1 Anne, Beth and Carol are in partnership sharing profits equally. Anne is to retire and it is agreed that goodwill is worth 24,000. After Anne s retirement, Beth and Carol will continue to run the partnership and will share profits equally. What will be the goodwill adjustments to Carol s capital account? (a) Debit 8,000; credit 12,000 Debit 12,000; credit 8,000 (c) Debit 8,000; credit 8,000 (d) Debit 12,000; credit 12,000 7.2 Rachel and Sonia are in partnership sharing profits equally. Each has a capital account with a balance of 40,000. Trish joins as a new partner. The profit share will be Rachel 60%, Sonia 30% and Trish 10%. An adjustment is made for goodwill on the admission of Trish to the value of 30,000, but no goodwill is to be left in the accounts. What will be the balance of Rachel s capital account after the creation and write off of goodwill? (a) 43,000 55,000 (c) 37,000 (d) 22,000

c h a p t e r a c t i v i t i e s 2 9 7.3 You have the following information about a partnership: The partners are Dan and Eve. Fay was admitted to the partnership on 1 April 20-5 when she paid 30,000 into the bank account as her capital. Profit share, effective until 31 March 20-5: Dan 40% Eve 60% Profit share, effective from 1 April 20-5: Dan 30% Eve 50% Fay 20% Goodwill was valued at 20,000 on 31 March 20-5. Goodwill is to be introduced into the partners capital accounts on 31 March and then eliminated on 1 April. (a) Prepare the goodwill account of the partnership, showing clearly the transactions on the admission of Fay, the new partner. Goodwill account Prepare the capital account for Fay, the new partner, showing clearly the balance carried down as at 1 April 20-5. Capital account Fay Balance b/d 0

3 0 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e (c) Identify whether the following statements about the partnership of Dan, Eve and Fay are true or false by putting a tick in the relevant column of the table below. Statement True False Fay has paid a premium to join the existing partnership of Dan and Eve The balances of Dan and Eve s capital accounts will increase because goodwill has been charged to Fay Dan and Eve have each paid money to Fay when she joined the partnership After the admission of Fay, the bank account of the partnership will have 30,000 extra minus the amount paid by Fay for goodwill

c h a p t e r a c t i v i t i e s 3 1 7.4 Henry, Ian and Jenny are in partnership sharing profits equally. Ian retired on 31 December 20-4. The statement of financial position drawn up immediately before Ian s retirement was as follows: Non-current assets 120,000 Current assets 55,000 Bank 15,000 190,000 Current liabilities 50,000 140,000 Capital accounts: Henry 42,000 Ian 43,000 Jenny 50,000 Current accounts: Henry 4,000 Ian (2,000) Jenny 3,000 135,000 5,000 140,000 Upon Ian s retirement from the partnership: goodwill was agreed to be worth 36,000 his current account balance was to be transferred to his capital account he was to be paid 10,000 of his capital and share of the goodwill from the bank, and the balance was to be left as a loan to the partnership Henry and Jenny were to continue in partnership sharing profits and losses equally No goodwill is to remain in the accounts Task 1 Prepare the partners capital accounts, showing the retirement of Ian. Task 2 Show the statement of financial position immediately after Ian s retirement from the partnership.

3 2 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 7.5 Gil and Hal are in partnership. Profit for the year ended 31 March 20-7 is 51,300 before appropriation of profit. The partnership allows for the following: Partnership commission Gil 18,000 Hal 12,000 Profit share Gil two thirds Hal one third Interest on capital Gil 400 Hal 500 Drawings for the year Gil 24,000 Hal 20,000 Task 1 Prepare the partnership appropriation account for Gil and Hal for the year ended 31 March 20-7. Gil and Hal Partnership appropriation account for the year ended 31 March 20-7 Profit for the year Commission Interest on capital Profit available for distribution Profit share: Gil Hal Total profit distributed Total Gil Hal

c h a p t e r a c t i v i t i e s 3 3 Task 2 Update the current accounts for the partnership for the year ended 31 March 20-7. Show clearly the balances carried down. Dr Partners current accounts Cr Gil Hal Gil Hal 1 Apr 20-6 Balance b/d 2,000 1 Apr 20-6 Balance b/d 4,500 7.6 Partners Deb and Maj shared profits and losses 60:40 until 30 September 20-1 when their capital accounts showed credit balances of: Deb 45,000; Maj 50,000. From 1 October 20-1 they agree to share profits equally. Goodwill is valued at 40,000 and is introduced into their capital accounts and then eliminated. What is the balance of Maj s capital account after the creation and write-off of goodwill? (a) (c) (d) 54,000 credit 46,000 credit 49,000 credit 46,000 debit

3 4 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 8 Introduction to company financial statements 8.1 Fill in the gaps in the following sentences. Choose from the words below. IAS 1. of Financial Statements sets out the contents for financial statements of. and the accounting on which the statements should be prepared. These concepts include. and basis of accounting. equity principles production accruals companies maximum partnerships going concern minimum presentation 8.2 Link the items on the left with the description on the right that best defines them. IAS 2 Inventories IFRSs Guidance on how to determine the carrying amount of non-current assets The primary source of UK company law IAS 16 Property, Plant & Equipment Companies Act Established so that business accounts can be understood from company to company and from country to country Guidance on the acceptable methods of valuing goods held in stock

c h a p t e r a c t i v i t i e s 3 5 8.3 (a) Indicate in which financial statement of a company the following summarised items will appear. Item Statement of Statement of profit or loss financial position (a) (c) (d) (e) (f) Cost of sales Tax liabilities Goodwill Issued share capital Distribution costs Inventories Give two examples of accounting information that might be included in each of the following summarised items: 1 Distribution costs 2 Cost of sales 3 Trade and other receivables 8.4 Which of the following are obligations of the directors of a limited company? 1 To report to shareholders on how the company has been been run 2 To file annual statements with the Registrar of Companies. 3 To disclose the company s financial position in the financial statements (a) 1 only 1 and 2 (c) 1 and 3 (d) All of them

3 6 f i n a l a c c o u n t s p r e p a r a t i o n t u t o r z o n e 8.5 Which of the following items appears in the statement of changes in equity? Choose five items. Cash flows Retained earnings Profit for the year attributable to shareholders Tax liabilities Balance at the start of the period Increase in trade payables Depreciation expense Balance at the end of the period Dividends paid Non-current assets