Accounting

Question 1

Fundamental characteristics of conceptual framework

Answer 1

Relevance
- Predictable value + Confirmatory value

Faithful representation
- Complete
- Neutral
- Free from error
- Showing substance over form

Question 2

Enhancing characteristics of conceptual framework

Answer 2

Comparability
Verifiability
Timeliness
Understandability

Question 3

Record an accrual

Answer 3

Dr Expense
Cr Accrual

Exp Charge = Closing accrual + cash paid in period - opening Accrual

Question 4

Record a prepayment

Answer 4

Dr prepayment
Cr expense

Exp Charge = Closing prepayment + Cash paid in year - opening prepayment

Question 5

Accrued income
- Paid in arears

Answer 5

Given service/product but not received cash yet.
Dr Accrued income - Asset
Cr Income

Question 6

Deferred income
- Paid in advance

Answer 6

Received cash but not given service/product
Dr Income
Cr Deferred income

Question 7

Gross profit margin

Answer 7

Sales always 100%
Cost - 80%
Gross profit - 20%

eg where profit margin is 20%

Question 8

Mark-up on cost

Answer 8

Sales - 120%
Cost always 100%
Gross profit - 20%

eg where mark-up is 20%

Question 9

Record closing inventory

Answer 9

Lower of
- cost (FIFO or AVCO)
- Net realisable value

Dr inventory (SFP)
Cr Cost of sales (SPL)

Question 10

Drawing inventory by owner

Dr drawings - cost
Cr …

Answer 10

Purchases
- Expense

Question 11

Record depreciation

Answer 11

Dr Depreciation exp (SPL)
Cr Accumulated depreciation (SFP)

Question 12

Disposal/part exchange

Answer 12

Eliminate cost (Dr disposal, Cr NCA cost)

Eliminate acc depn (Dr Acc Depn, Cr Disposals)

Record proceeds (Dr cash/ NCA Cost, Cr Disposal)

For Part ex (Dr NCA cost, Cr Cash)

Question 13

Impairment, recoverable amount

Answer 13

Greater of
- Fair value less cost to sell
- Value in use

Question 14

Impairment charge

Answer 14

Carrying amount - recoverable amount

Dr Impairment exp (SPL)
Cr Acc depn (SFP)

Question 15

Increase in allowance for irrecoverable debt
(like a liability)

Answer 15

Dr Irrecoverable debt
Cr allowance for receivables

Question 16

Irrecoverable debt expense for period

Answer 16

Debts written off during year
+ Increase in allowance
- Debts written off now recovered
- Decrease in allowance

Question 17

VAT on sales

Answer 17

Dr Trade receivables (VAT inc)
Cr Sales (VAT exl)
Cr VAT

Question 18

VAT Account Debits entries

Answer 18

VAT on purchase (input)
Payments to HMRC
cf - Owe HMRC

Question 19

VAT Account Credit entries

Answer 19

bf - Owed HMRC
VAT on sales (output)
Receipts from HMRC

Question 20

Types of errors

Answer 20

Omission - left out
Commission - Wrong account but right statement
Principle - Debit expense rather than asset
Compensating - 2 errors cancel each other out
Transposition - 67, 76

Question 21

Cash generated from

Answer 21

(increase)/decrease in inv
(increase)/decrease receivables
increase/(decrease) payables