Chapter 6 Flashcards
The following trade payables account of Amir contains a number of errors of principle.
The discounts received from suppliers were not expected to be taken when the purchase was made but Amir subsequently decided to pay within the required time limit. Payments to credit suppliers totalling £82,800 have not been recorded.
What is the closing credit balance on trade payables once the errors and omissions have been corrected?
Select one:
a. £66,300
b. £62,200 Incorrect
c. £65,500
d. £54,000
The correct answer is: £54,000
4100 moves to the Dr side and taken from the credit side.
The following three matters were discovered by Daisy when she prepared her month end bank reconciliation.
(1) The electronic banking transaction report includes a receipt of £560 in respect of a payment from a credit customer. This was not automatically matched to a transaction by the accounting system. On investigation, it was discovered that there was a bank error and the correct amount was £650.
(2) Bank charges debited by the bank have not yet been entered in the cash at bank account.
(3) The value of unpresented cheques exceeded the value of uncleared lodgements.
Which of these matters will require adjustments to the cash at bank account?
Select one:
a. (1) and (2) only
b. (2) and (3) only
c. (2) only
d. (1) and (3) only
2 only
on FI learn end of chapter quiz 2
Carl’s draft financial statements show a profit of £10,000. The following errors are discovered. (1) A debt of £2,000 needs to be written off as irrecoverable. The bookkeeper has incorrectly recorded this write-off as £200. (2) Carl has drawn cash of £7,000 from the business and failed to record this in the accounting records. (3) Sales include £5,000 in respect of goods with a gross margin of 20% which do not meet the revenue recognition criteria and need to be reversed. After adjusting for the above, what is Carl’s revised profit?
Select one:
a. £200
b. £3,200
c. £7,000
d. £7,200
(1) The amount written off needs to be increased by £1,800 (£2,000 – £200). This will reduce profits by £1,800.
(2) Needs to be recorded as drawings – no impact on profits.
(3) As the sale should not be recognised yet, the profit element should be removed.
The correct answer is: £7,200
The following tasks form parts of an entity’s accounting process.
(1) Extract trial balance
(2) Close off nominal ledger accounts
(3) Account for closing inventory, accruals and prepayments
(4) Calculate net profit In which order are these tasks carried out?
Select one:
a. (1), (3), (2), (4)
b. (1), (2), (3), (4)
c. (2), (1), (3), (4) Correct
d. (2), (3), (4), (1)
c
18 Owais’s trial balance included a suspense account which had been automatically opened by the
computerised accounting system. Using the exception report, the bookkeeper identified that the
balance in the suspense account was due to the following unmatched transactions:
(1) A payment to a credit supplier for £135 related to an invoice for £120. The business missed the
deadline to take the early settlement discount it had expected to take.
(2) A receipt of £90 from a credit customer who had unexpectedly (but appropriately) taken an early
settlement discount of £10.
(3) Interest received in the business bank account of £70.
Requirement
What is the balance on the suspense account?
A Debit £25
B Credit £25
C Debit £65
D Credit £65
Credit £25
The balance can be found by working out what double entries the computerised accounting system
has made:
Item 1 Debit Suspense a/c, Credit Cash at bank a/c £135
Item 2 Debit Cash at bank a/c, Credit Suspense a/c £90
Item 3 Debit Cash at bank a/c, Credit Suspense a/c £70
19 All of Elmo’s sales and purchases attract VAT at 20%. A customer has just returned goods sold for
£230 excluding VAT.
Requirement
The double entry for this transaction is:
A Debit Trade receivables £276, Credit VAT £46, Credit Revenue £230
B Debit Revenue £276, Credit Trade receivables £276
C Debit Revenue £230, Debit VAT £46, Credit Trade receivables £276
D Debit Trade receivables £230, Debit VAT £46, Credit Revenue £276
19 Correct answer(s):
C Debit Revenue £230, Debit VAT £46, Credit Trade receivables £276
22 Beta Ltd has calculated a draft gross profit of £150,000 and a draft net profit of £83,000 for the year
ended 31 December 20X3.
Two issues were then discovered:
(1) Inventory costing £5,000, with a resale value of £7,500, was received into the warehouse on 2
January 20X4 but had been included in the closing inventory amount at 31 December 20X3.
(2) £10,000 relating to staff training costs was incorrectly capitalised as part of the purchase cost of
a new machine which had been purchased on 1 July 20X3. Beta Ltd depreciates machinery on a
straight-line basis at a rate of 20% per annum. Depreciation should be included as an
administrative expense in the year.
Requirement
After correcting these issues, what amounts should Beta Ltd report for gross profit and net profit?
A Gross profit: £142,500; Net profit: £66,500
B Gross profit: £145,000; Net profit: £69,000
C Gross profit: £145,000; Net profit: £74,000
D Gross profit: £142,500; Net profit: £65,500
22 Correct answer(s):
B Gross profit: £145,000; Net profit: £69,000
26 Catt plc has prepared its draft statement of profit or loss at 31 May 20X1 which shows a gross profit
of £99,500. Catt plc has now discovered that at both the beginning and the end of the period, one
line of inventory, the Sungsa, has been included at selling price: £1,240 at 31 May 20X1 and £3,720
at 1 April 20X0. The Sungsa is always sold at a mark-up of 25% by Catt plc.
Requirement
After correcting this error Catt plc’s gross profit for the year to 31 May 20X1 is:
A £99,996
B £99,004
C £98,880
D £100,120
26 Correct answer(s):
A £99,996
As opening inventory is debited to cost of sales in the statement of profit or loss, an overstatement or
overvaluation here decreased profit and so should be added back. The reverse is true of closing
inventory.
27 Mayo plc has prepared a draft statement of profit or loss that shows a net profit of £75,000 for the
year ended 30 April 20X5. Subsequently, the following matters have been discovered.
(1) A subscription notice for £1,000 was received in April 20X5 for the year to 30 April 20X6. Mayo
plc pays the subscription in two equal instalments. The first instalment was paid on 28 April 20X5
and posted to the cash at bank account and to administrative expenses. No other entries have
been made.
(2) Goods that cost £400 and sold at a gross margin of 75% were returned by Dandy Ltd on 30 April
20X5, after the inventory count had taken place. No credit note was issued.
Requirement
Once these matters have been dealt with Mayo plc’s net profit for the year ended 30 April 20X5 will
be:
A £75,400
B £74,300
C £75,100
D £75,700
27 Correct answer(s):
B £74,300
The whole of the subscription relates to the following year, so the instalment paid should all be
treated as a prepayment, which reduces expenses in the year and so should be added back to the
draft net profit.
The problem with the returned goods is that the draft net profit reflects the revenue made on sale of
the goods, less the cost of those goods, therefore the profit on the sale should be deducted from the
draft net profit.
28 Hood plc has a draft net profit of £540,000 for the year ended 31 October 20X2. It discovered the
following errors:
(1) Repair costs of £6,600 incurred on 1 November 20X1 were debited to fixtures and fittings. Hood
plc depreciates fixtures and fittings at 25% per annum.
(2) An early settlement discount of £1,785 taken unexpectedly, but appropriately, by a customer
was debited to trade receivables and credited to sales.
Requirement
On correction of these errors Hood plc’s net profit will be:
A £535,050
B £531,480
C £533,265
D £536,430
28 Correct answer(s):
B £531,480
The repair costs should have been expensed fully to the statement of profit or loss, reducing profits
by £6,600, and the depreciation charged of £1,650 should be added back. The net effect is to
decrease profits by £4,950.
The early settlement discount was not expected to be taken, so the original sales invoice would have
been recorded gross of this discount. Now the discount has been taken, it should have been
credited to trade receivables and debited to sales. As the amount has currently been credited to
sales, the reduction in profit will be £1,785 × 2 to remove the credit and post the debit to sales.
29 Net profit was calculated as being £10,200. It was later discovered that capital expenditure of £3,000
had been treated as revenue expenditure, and revenue receipts of £1,400 had been treated as
capital receipts.
Requirement
What is the net profit after correcting for these errors?
A £5,800
B £8,600
C £11,800
D £14,600
29 Correct answer(s):
D £14,600
£10,200 + £3,000 + £1,400 = £14,600.
31 In relation to trade payables at the year end of 30 April 20X1, Jitka plc has discovered that:
(1) a contra of £85 with trade receivables is required; and
(2) an early settlement discount of £2,220, which was taken appropriately by a credit customer, was
credited to revenue and debited to trade payables. Jitka plc had not expected the customer to
take the discount.
Before these discoveries, the balance on trade payables was £72,560.
Requirement
In its statement of financial position as at 30 April 20X1 Jitka plc will have a figure for trade payables
of:
A £70,255
B £74,695
C £74,865
D £76,915
31 Correct answer(s):
B £74,695
The early settlement discount of £2,220 should have been debited to revenue and credited to
receivables, so the debit entry posted to payables needs to be reversed.
