Financial Accounting 1 st Year Examination

Financial Accounting 1 st Year Examination August 2015 Solutions & Marking Scheme & Examiner s Comments Page 1 of 20

NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians Ireland. They are intended to provide guidance to students and their teachers regarding possible answers to questions in our examinations. Although they are published by us, we do not necessarily endorse these solutions or agree with the views expressed by their authors. There are often many possible approaches to the solution of questions in professional examinations. It should not be assumed that the approach adopted in these solutions is the ideal or the one preferred by us. Alternative answers will be marked on their own merits. This publication is intended to serve as an educational aid. For this reason, the published solutions will often be significantly longer than would be expected of a candidate in an examination. This will be particularly the case where discursive answers are involved. This publication is copyright 2015 and may not be reproduced without permission of Accounting Technicians Ireland. Accounting Technicians Ireland, 2015. Page 2 of 20

1 st Year Examination: August 2015 Financial Accounting Suggested Solutions and Examiner s Comments Students please note: These are suggested solutions only; alternative answers may also be deemed to be correct and will be marked on their own merits. Statistical Analysis By Question Question No. 1 2 3 4 5 6 Average Mark (%) 62 42 52 27 34 49 Nos. Attempting 196 189 196 150 147 76 Statistical Analysis - Overall Pass Rate 38% Average Mark 44% Range of Nos. of Students 0-39 83 40-49 40 50-59 43 60-69 20 70 and over 12 Total No. Sitting Exam 198 Total Absent 56 Total Approved Absent 6 Total No. Applied for Exam 260 General Comments: The overall standard of answers was mixed. Most candidates are attempting the required number of questions. Candidates in the main attempted the correct number of questions and question parts.. The general presentation of scripts was acceptable. The majority of candidates are now filing question parts together, though some continue to scatter question parts through-out the examination booklet. The main areas of weakness around presentation are as follows: Poor and untidy handwriting No workings presented for some questions Workings presented all combined in the rough work section of the paper despite the answer book explicitly stating not to do this Cluttered answers each new question should be attempted on a new page Page 3 of 20

Examiner s Comments on Question One Generally this was a well answered question with candidates displaying a good fundamental knowledge of the primary statements. Most candidates dealt well with the additional write off of irrecoverable debts and the calculation of the closing allowance. However many are still confused as to the movement in allowance being recorded in the Statement of Profit and Loss and the closing allowance being recorded in the Statement of Financial Position. Most candidates dealt well with depreciation, however the calculation of the insurance prepayment proved more challenging. Most candidates recognised that the bank figure was an overdraft but the two required adjustments to the bank figure proved more challenging. Many candidates increased payables by the penalty, however the treatment in the statement of profit and loss was much weaker. The naming of the primary statements is still an area of weakness. These are very easy marks to earn. Solution One P. Potter Statement of Profit and loss for the year ended 30 June 2015 [0.5 marks] Ref to Workings Sales 410,850 0.5 Sales returns (21,410) 0.5 Net sales 389,440 Cost of sales Opening inventory 17,950 0.5 Purchases 275,980 0.5 Purchases returns (9,400) 266,580 0.5 284,530 Less closing inventory (17,190) 0.5 Cost of sales (267,340) Gross Profit 122,100 Discount received 2,780 0.5 Less Expenses Rent expense 21,950 0.25 Depreciation delivery vans 5 6,474 1 Insurance 4 10,500 1 Rates and water charges 7,540 0.25 Wages and salaries 71,950 0.25 Carriage outwards 3,120 0.5 Discount allowed 1,970 0.5 Interest charged 3 745 0.5 Telephone, internet and media 5,510 0.25 Increase in the allowance for receivables 1 4,679 0.75 Irrecoverable debts 1 7,130 0.75 Irrecoverable debts recovered 2 (840) 0.75 Power, light and heat 3,140 0.25 Total expenses (143,868) Operating loss (18,988) Page 4 of 20

Solution One (Cont d) P. Potter Statement of financial position as at 30 June 2015[0.5 ] Non-current assets Ref to Workings Land 174,500 174,500 Deliver Vans 5 64,740 (23,884) 40,856 0.5 215,356 Current assets Closing inventory 17,190 0.5 Receivables 1 101,590 1 Closing allowance 1 (10,159) 91,431 0.5 Prepayments 4 4,000 0.5 112,621 Total assets 327,977 Equity and Liabilities Equity Capital 150,135 0.5 Accumulated profit/loss 52,320 0.5 Losses for 2015 (18,988) 0.5 Accumulated profits 183,467 Drawings (9,675) 0.5 173,792 Current liabilities Payables 3 143,695 1.5 Bank overdraft 2 8,215 1.5 VAT liability 2,275 0.5 154,185 Total Equity and Liabilities 327,977 Working 1 Receivables as per TB 102,740 Additional irrecoverable debts written off (1,150) Restated receivables 101,590 Allowance for irrecoverable debts 10% Closing allowance 10,159 Opening allowance (5,480) Increase in the allowance 4,679 Irrecoverable debts as per TB 5,980 Additional irrecoverable debts 1,150 Restated irrecoverable debts 7,130 Page 5 of 20

Workings 2 Bank as per TB (9,855) Irrecoverable debts recovered 840 (9,015) Suspense account error 800 8,215 Workings 3 Payables 142,950 Interest charges 745 143,695 Workings 4 Insurance 1/12015 to 31/12/2015 8,000 Half a year of a prepayments 50% Prepayment 4,000 Insurance as per TB 14,500 Prepayment (4,000) 10,500 Workings 5 Deliver vans 64,740 Depreciation 10% 6,474 Page 6 of 20

Examiner s Comments on Question Two A popular question that was reasonably well answered most candidates were aware of the correct approach to the question. Challenges arose in the following areas: Point 3 was adjusted in the cash book in error Treatment of the dishonoured cheque point 4 Correct of error around point 5 Correct of error around point 6 Solution 2 Bank Account/Cash Book Balance 52,599 0.75 1 Error 5 8,470 Bank charges 201 1 1 Credit transfer 2,170 O/D penalty 250 1 Dishonoured cheque 1,230 1.5 D. Cheque- penalty 15 0.75 Balance 44,770 SO/DD 1,115 1 55,410 55,410 Balance 44,770 Part B Bank Reconciliation as at 31 March 2015 Balance per bank (41,740) 0.5 Correction of bank error (1,250) 1 Correction of bank error (650) 1 Add outstanding Lodgement 5,120 0.75 Less O/S Cheques 4528 840 4535 1,740 4537 3,670 (6,250) 0.75 Balance (44,770) Page 7 of 20

Part C To: Whom it May Concern From: An Accounting Technician Subject: Importance of Preparing Control Accounts Date: 20/8/2015 I have been asked to prepare a report outlining the importance of regular preparation of bank reconciliations: Identification of errors, such errors may have been made either by the bank, the company or both. For example a business may have omitted to post receipts from receivables. Items such as bank interest, charges, standing orders, direct debits and dishonoured cheques. These will be known by the bank but not identified by a business until it receives the bank statement and prepares the bank reconciliation. Should you have any further queries please feel free to contact me. An Accountant Technician [1.5 marks per reason and 1 mark for report format] Part D A petty cash system operates by setting aside a small amount of cash, called a float. This is withdrawn from the business bank account normally by cashing a petty cash signed cheque in the bank. A responsible member of staff, who keeps it in a safe locked box, controls cash. When a small amount of cash is required within the business a petty cash docket is completed setting out details of the cash requirement and authorised. This docket is placed into the cash box and the cash handed over. Where a receipt is received in respect of the purchase for which the cash was issued, this is then attached to the original withdrawal docket. At any one time the total of the remaining cash in the box and the total of all dockets in the box should equal the exact amount of the original float. At the end of a specific period all dockets are totalled and a cheque is cashed for this exact amount bringing the total petty cash back to the original starting amount. This is known as the imprest system. In most businesses there is a requirement for small amounts of cash. For example to purchase supplies for the canteen where there is no credit facility in the local shop, for the purchase of stamps, newspapers, cleaning and other supplies and the reimbursement of staff incidental expenses. The system must control the flow of cash and regular spot checks should be done. [Total 4 marks] Page 8 of 20

Examiner s Comments on Question Three A popular question that was well answered in the main Part A Generally well answered through few candidates scored full marks. Challenges arose around the treatment of the dishonoured cheque, discount allowed and the closing balance owed by credit customers. Some candidates are not preparing the working in T account format, are getting confused as a result and are loosing marks. Part B Answers here were mixed. Candidates struggled to deal with the correct apportionment of receipts to the financial period and the calculation of the closing Statement of Financial Position figure. Part C Candidates struggled to treat the opening balance correctly and struggled to calculate the required figures from the information provided in the question. Part D Answers were mixed. Some candidates did not identify that the closing inventory figure was priced using two inventory prices. Some candidates did not show good workings for this question. Part E Most candidates calculated the cost of sales correctly and then simply multiplied it by 12% to derive the gross profit figure in error. Many candidates incorporated discount received into the cost of sales figure in error. Part F Answers here were very mixed. Many candidates seemed to get confused between the control account and the listing. Workings tended to be poor for this question. Solution 3 Part A Receivables Control Account Total Total 0.5 Balance b/d. 145,300 Cash receipts 497,280 1 1 Dishonoured cheques 4,800 Discounts allowed 7,500 0.5 0.5 Credit Sales 504,050 Irrecoverable debts 650 0.5 Balance c/d 148,720 1 654,150 654,150 Balance b/d 148,720 [5 ] Part B Financial year: 1 November 2013 to 31 October 2014 Date of receipt Period covered Total 1 October 2013 3 months to 31 December 2013 7,500 2 months 5,000 1 30 December 2013 3 months to 31 March 2014 7,500 3 months 7,500 0.5 4 April 2014 3 months to 30 June 2014 9,000 3 months 9,000 0.5 1 July 2014 3 months to 30 September 2014 9,000 3 months 9,000 0.5 1 October 2014 3 months to 31 December 2014 9,000 1 month 3,000 1 33,500 At the year end there is 2 months rent prepaid. This is recorded in the Statement of Financial Position as a current liability of 6,000 (prepaid income). [1.5 marks] [5 ] Page 9 of 20

Part C PRSI/NIC Account 1 Payments to Revenue Auth. 9,100 Balance b/d 9,100 1 Employers PRSI/NIC 3,710 1 0.5 Balance c/d 14,100 PAYE & EE PRSI/NIC 10,390 1.5 23,200 23,200 Balance b/d 14,100 [5 ] Solution 3 Part D Units Price Inventory 1 Opening inventory 100 2.10 100*2.10 5 Purchases 700 2.60 100*2.10 700*2.60 9 Sales (600) 200*2.60 18 Purchases 500 2.80 200*2.60 500*2.8 27 Sales (50) 150*2.60 500*2.8 31 st Closing inventory 650 Value of closing inventory: (150*2.60) + (500*2.8) = 1,790 [5 ] Part E Total Sales 500,000 Cost of sales Opening inventory 50,000 0.5 Purchases 460,000 0.5 Purchases returns (20,000) 440,000 0.5 Carriage inwards 2,000 0.5 492,000 Less closing inventory (52,000) 0.5 Cost of sales (88%) (440,000) Gross Profit (12%) 60,000 2 Discount received 2,180 [5 ] [0.5 marks for excluding discounts received from the calculation] [2 marks above for GP is for an appreciation of the process and the logic.] Page 10 of 20

Part F Total Awarded Payables ledger control 24,200 Purchase day book overcast (200) 1.5 24,000 Payables listing 24,000 Credit invoice not recorded 200 1.5 Debit balances not included in list (200) 1.5 24,000 [0.5 marks for agreeing the listing and the control account] [5 ] Page 11 of 20

Examiner s Comments on Question Four A reasonably popular question however answers tended to be poor. Part A many candidates could only distinguish between external and internal ausit to the extend that one is performed by persons external to the business and internal audit by employyes of the business entity. Some candidates seemded to get management accounting and interal audit confused. Most candidates we not able to explain why these audits are carried out. Part B many candidates explain what ethics are but not why they are important and therefore failed to score high marks for this question type. Some candidates did not relate ethics to an Accounting Technician. Part C The concept of accruals was generally answered well though some candidates explain an accrual as opposed to the accruals concept The concept of going concern, historical cost and materiality were generally well understood. Some candidates failed to note that prudence should only be applied under conditions of uncertainty. Solution 4 Part A External Audit The users of accounting information need assurance as to the accuracy and reliability of financial statements. The external audit process strives to provide a high level of assurance to users by providing an independent examination of the company s books and financial statements. To fully appreciate the importance of auditing we must examine the relationship that exists between a company s shareholders, directors and auditors. The shareholders are the owners of the company. Large companies may have thousands of shareholders. In many companies there exists a division of ownership and management/control. The shareholders elect directors to manage and run the company on a day-to-day basis on their behalf. The directors run the company and report back to the shareholders on an annual basis. Reporting is carried out through the financial statements, with respect to the company s performance in the statement of profit and loss, position in the statement of financial position and liquidity in the statement of cash flow. Accounting is not an exact science and there are many areas where judgements and estimates will have been made. In addition directors have complete access to all information about the company s performance, and are being rewarded based on how well the company performs. There is therefore an inbuilt bias for directors to portray the best financial picture possible in the financial statements and a danger that directors may act in their own private interests, rather than those of the shareholders. This scenario is referred to as an agency problem. To help overcome the agency problem shareholders elect an auditor. The auditor upon examining the books and financial statements of the company forms an opinion and prepares an audit report that must be included in the financial statements. If the auditors are satisfied that the books and financial statements of the company have been prepared in line with the relevant statutory requirements and professional standards, the audit report will state that the financial statements of the company gives a true and fair view of the state of affairs of the company at the end of the accounting year. The audit report gives shareholders an impression as to the extent to which they can rely upon the financial statements prepared and presented to them by the directors. [3 marks] Internal Audit Large companies in addition to external auditors tend to have an internal audit department. This is because in order to run a company effectively and meet their legal responsibilities, directors need assurance in a number of areas in addition to the accuracy of their published financial statements (external audit). It is becoming more expected for companies to have internal auditors. Page 12 of 20

In contrast to external auditors, internal auditors are employed by and answer to the company s management. The role of the internal auditor is somewhat different to that of the external auditor. The functions of the internal audit department include: Scrutinising the company s accounting procedures; Testing the internal controls the company has in place to ensure that proper accounting procedures are applied and that the assets of the companies are safeguarded; To assess whether internal policies are being upheld and to examine ways in which these policies can be developed and improved; Testing the efficiency and effectiveness of operations; Stewardship of the company s assets. [3 marks] Part B Ethics in accounting is of utmost importance to accounting professionals and those who rely on their services. Accounting professionals know that people who use their services, especially decision makers using financial statements, expect them to be highly competent, reliable and objective. Those who work in the field of accounting must not only be well qualified but must also possess a high degree of professional integrity. People need to have confidence in the quality of the complex services provided by accountants and accounting technicians. Because of these high expectations, accountants have adopted a code of ethics, also known as codes of professional conduct. These ethical codes call for their members to maintain a level of self-discipline that exceeds the requirements of laws and regulations. By joining professional organisations like Accounting Technicians Ireland accounting technicians agree to uphold the high ethical standards of their profession. [3 marks for general and 2 marks for accounting technical] Part C Accruals Income is recognised in the financial statements as it is earned, not when the cash is received. Expenditure is recognised as it is incurred, not when it is paid for. When income is incurred over time (e.g. rental/interest income) or expenditures are time-based (e.g. rent payments), the income and expenditure recognised in the income statement should relate to the time period, not to the receipts and payments of cash. For example the sale of a good is recognised in the financial statements when the rights and rewards of ownership have passed from the seller to the purchaser not when the cash is received. Going Concern Financial transactions are usually prepared on the assumption that the business will continue in operational existence for the foreseeable future. This means that the financial statements are drawn up on the assumption that there is no intention or necessity to close down the business. If the financial statements are not prepared on the going concern basis then they must be prepared on what is known as the break-up basis. The break-up basis reflects the following: Some non-current assets may be sold at less than their value on the statement of financial position, whilst a machine may have a use for specific business, it may be scrap or no use to other businesses. In contrast, property may be sold for a value in excess of that shown in the statement of financial position based on original cost. If the entire inventory is sold at once then it will not be sold for as much money as if it were sold in the normal way. Some receivables may decide not to pay the business if it is known the business is about to go into liquidation. Page 13 of 20

In most cases financial statements are prepared on a going concern basis unless there is evidence to the contrary. Historical Cost Assets are recorded at historical cost i.e. what they were bought for. Liabilities are valued at the amount initially received in exchange for the obligation. Thus the figure shown in the financial statements for an item is the value of the item when the transaction occurred, not its current market value. Historical cost has many drawbacks, a significant one being that the non-current assets of the business tend to be undervalued and therefore the statement of financial position does not show the true value of the business. Historical cost continues to be used however for the following reasons: it is simple and cheap to apply, figures used are objective and verifiable and the lack of a sound and acceptable alternative. An example of the historical cost concept is valuing buildings at a cost price of 100,000 even though the current market value of the buildings is 250,000. Materiality Materiality is a threshold quality that is demanded of all information given in the financial statements. When immaterial information is given in the financial statements, the resulting clutter can impair the understand ability of the other information provided. An item s size is judged in the context both of the financial statements as a whole and of the other information available to users that would affect their evaluation of the financial statements. An example of a material item is the value of non-current assets of 250,000 in the financial statement of an entity with total assets of 320,000. The non-current assets are material to the financial statements of the entity. Prudence In conditions of uncertainty, a cautious approach should be taken, so that gains and assets are not overstated and losses and liabilities are not understated. This means that: Sales and profit should not be included in the income statement until the cash has been received or that there is reasonable certainty that the cash maybe received. In contrast, losses should be recognised in the income statement as soon as they are foreseen and considered reasonably certain. An example of prudence can be seen in the allowance for receivables. As at the year end the entity does not know which receivables will not be able to pay the balances due. If it did these balances would need to be written off as irrecoverable debts. However based on past experience and knowledge of the economy the entity knows that in all probability not all receivables will be able to discharge the balances owed. The entity therefore sets up an allowance for receivables to reflect balances that the entity expects not to receive and this is deducted from receivables in the statement of financial position. Therefore the figure reported for receivables can be thought of as the funds the entity expects to receive as opposed to the total balances owed as at the year end. [3 marks each derived as follows: 2 marks each of the explanation and 1 mark for example.] 9 Page 14 of 20

Examiner s Comments on Question Five Not a popular question and answers were very mixed. Candidates struggled with both the disposal and the addition in the deliver van at cost account. Many candidates made a reasonable attempt at calculating the depreciation on the delivery van disposed of. Very few candidates realised that in order to complete the accumulated depreciation account they needed to calculate the depreciation figure of the year. Candidates incorrectly stated that either straight line or reducing balance depreciation was better for assets that lose value fast. Thus missing the point that it is the depreciation % that determines how fast the asset depreciates and the method used is matched to the pattern of consumption of the asset. Total Question 5 Part A Capital Expenditure: this is expenditure on goods that will last for more than one year and are not bought for resale but to be used by the business to help generate sales. Examples include premises, equipment, delivery vans etc. That is capital expenditure is expenditure on non-current assets or the repayment of loans. Revenue (Current) Expenditure: this is expenditure on goods that will be used up within one year and are not bought for resale. They relate to the day-to-day running of the business and are incurred in the for the purpose of the trade of the business. Examples include wages, rent, rates, telephone etc. 3 marks for explanation and 1 mark for the examples 4 Part B Deliver Vans at Cost Account Date Details Date Details Total 0.5 1/1/14 Balance c/d 101,750 1/4/14 Disposal A 25,000 0.5 0.5 1/4/14 Cheque additions 32,000 1 1/4/14 Trade-in additions 5,500 31/12/14 Balance 114,250 139,250 139,250 1/1/15 Balance c/d 114,250 [0.5 for balancing the T account] Total Deliver Vans Accumulated Depreciation Account Date Details Date Details Total 2 1/4/2014 Disposal 12,501 1/1/14 Balance c/d 32,410 0.5 31/12/14 Balance b/d 36,579 31/12/14 Statement of P&L 16,670 1.5 49,080 49,080 1/1/2015 Balance c/d 36,579 [0.5 for balancing the T account] Page 15 of 20

Deliver Vans A Disposal Account Date Details Date Details 1/4/14 Cost 25,000 1/2/10 Accumulated Depreciation 12,501 1/4/14 Trade in 5,500 Statement of P&L 6,999 25,000 25,000 [0.5 marks per correct entry for a total of 2 marks] Delivery Van A Depreciation Calculation: [2 marks from above broken down as follows:] 2010 25,000 * 15% * 1/12 = 313 0.75 2011 25,000 * 15% * 1 = 3,750 2012 25,000 * 15% * 1 = 3,750 0.75 2013 25,000 * 15% * 1 = 3,750 2014 25,000 * 15% * 3/12 = 938 0.5 12,501 Depreciation Calculation 2014: [1.5 marks from above broken down as follows:] Continuing 76,750 * 15% * 1 = 11,513 0.5 Disposed of MV 25,000 * 15% * 3/12 = 938 0.5 Addition 37,500 * 15% * 9/12 = 4,219 0.5 16,670 Page 16 of 20

Part C (i) Depreciation refers to the measure of wearing out and consumption in the useful economic life of a non-current asset. There are two methods of calculating depreciation: the straight line method and the reducing balance method. Straight Line Method Using this method the amount of depreciation charged every year is the same. It is therefore appropriate for assets were the consumption of economic benefit is relatively even over the life of the asset for example buildings. The formula for the straight line method of depreciation is as follows: Depreciation Charge per Annum = Cost Estimated Residual Value Expected Life of Fixed Asset Reducing Balance Method The reducing balance method calculates the per annum depreciation charge by multiplying the net book value (NBV) of the non-current asset by a fixed percentage rate. The result of using the reducing balance method is that the depreciation charge is the highest in the first year after purchase and falls in each subsequent year. It is therefore appropriate for assets were the consumption of economic benefit is relatively high in first years after purchase and reduces thereafter for example motor vehicles. The formula for the reducing balance method of depreciation is as follows: Depreciation Charge per Annum = NBV of non-current asset * Depreciation % Rate [4 ] (ii) Whether the straight line or reducing balance method of depreciation is chosen depends upon how the asset is expected to consume economic benefit. The method used should approximate how the asset is expected to consume economic benefit. Where assets are expected to consume economic benefit evenly over the life of the asset the straight line method is normally considered appropriate. Thus using the straight line method for the building would appear appropriate. Using the reducing balance method means that the depreciation charged is the highest in the first year after purchase and falls in each subsequent year. Thus using the reducing balance method for manufacturing equipment would appear appropriate. 1 mark for stating SL/RB 2 marks for justification [3 ] [20 ] Page 17 of 20

Examiner s Comments on Question Six Not a very popular question. Part i this was reasonably well answered. Some candidates failed to include the bank figure, subscriptions in arrears and advance confused some candidates and some candidates prepared the accumulated fund as at 31 December 2014 in error. Part ii answers here were mixed. The calculation of purchases and the bar wages figure caused the most problems. Some candidates prepared the Trading account in T account format. No marks were deducted for this. However those that prepared the trading account in T account format seemed to get confused as to whether an item was a debit or credit and scored poorly as a result. Part iii this in general was very well answered. Part iv the calculation of subscriptions while improved remains a challenge for others as does, the release of one year of the annual subscription, insurance calculation, loan interest calculation and depreciation of fixtures and fittings. Solution 6 Part i 1/1/2014 1/1/2014 Total Assets Court and clubhouses 211,710 0.25 Fixtures and fittings 16,510 0.25 Fixtures and fittings (accumulated depreciation) (8,050) 0.25 Bar inventory 9,630 0.25 Subscriptions in arrears 25,150 0.25 Insurance prepaid 8,120 0.25 263,070 Liabilities Bar payables 7,200 0.25 Subscriptions in advance 4,610 0.25 Bar wages due 2,275 0.25 4% long term loan 120,000 0.25 Bank 16,750 0.25 Life subscriptions fund 60,000 0.25 (210,835) Opening Accumulated Fund 52,235 [3 marks] ii Happy Racket Badminton Club [0.5 for title] Bar Trading Account for the year ended 31 December 2014. Total Sales 92,160 0.5 Cost of sales Opening inventory 9,630 0.5 Purchases 44,070 1.5 53,700 Less closing inventory (10,180) 0.5 Cost of sales (43,520) Gross Profit 48,640 Less expenses Bar wages (57,225) 1.5 Bar loss (8,585) Page 18 of 20

Working 1 above broken down as follows: Total Bar Payables A/C Total 0.5 Bank 44,300 Balance b/d 7,200 0.5 0.5 Balance c/d 6,970 Bar Trading Account Purchases 44,070 51,270 51,270 Balance b/d 6,970 Working 2 above broken down as follows: Total Wages A/C Total 0.5 Bank 57,050 Balance b/d 2,275 0.5 0.5 Balance c/d 2,450 Bar Trading Account 57,225 59,500 59,500 Balance b/d 2,450 Part iii Dinner Dance Total Proceeds 16,940 0.5 Advertising (450) 0.5 Catering for dinner dancer (3,890) 0.5 General expenses for dinner dance (1,150) 0.5 11,450 Part iv Happy Racket Badminton Club Income and expenditure account for the year to 31 December 2014 Total Income Subscriptions 176,010 2.5 Release of one year life subscriptions 20,000 1 Interest received 95 0.5 Proceeds of dinner dance 11,450 0.5 Fees from non-members 6,720 0.5 214,275 Expenditure Light and heat 7,210 0.25 Bank charges 250 0.25 Insurance 12,990 1.5 Loss on bar 8,585 0.5 Loan interest 4,800 1 General repairs and maintenance 32,040 0.5 Depreciation fixtures and fittings 1,851 0.5 (67,726) Excess of income over expenses 146,549 [0.5 for leaving out repayment of the loan principle] Page 19 of 20

Workings above broken down as follows: Total Subscriptions Account Details Details Total 0.5 Opening subs in arrears 25,150 Opening subs in advance 4,610 0.5 I/E value for subs 176,010 Cash received for subs 172,450 0.5 0.5 Closing subs in advance 3,700 Closing subs in arrears 27,800 0.5 204,860 204,860 Opening subs in arrears 27,800 Opening subs in advance 3,700 Total Insurance Account Details Details Total 0.5 Opening balance 8,120 Income and Exp A/C 12,990 0.5 Bank 12,000 Closing balance 7,130 0.5 20,120 20,120 Opening balance 7,130 Loan Interest Working Loan principle 120,000 Interest at 4% 4% 4,800 Loan interest paid 3,800 Loan interest to be accrued 1,000 Fixtures and fittings 16,510 Additions 2,000 18,510 Depreciation 10% 1,851 Page 20 of 20