qs i got wrong 5

Question 1

1 Anchor Ltd is preparing its financial statements. After transferring the balances on all the income and
expense ledger accounts to the profit and loss ledger account, the total credits in the profit and loss
ledger account exceed the total debits by £4,000.
Requirement
Which two of the following statements about Anchor Ltd are correct?
A Anchor Ltd has reported a loss for the year of £4,000.
B Anchor Ltd has reported a profit for the year of £4,000.
C To begin to calculate the closing capital account balance, Anchor Ltd should credit the capital
account and debit the profit and loss ledger account with £4,000.
D The opening balance on the profit and loss ledger account for the next reporting period is
£4,000 credit.
E The closing balance on the profit and loss ledger account of £4,000 should be deducted from
the capital account to give the profit for the year

Answer 1

Correct answer(s):
B Anchor Ltd has reported a profit for the year of £4,000.
C To begin to calculate the closing capital account balance, Anchor Ltd should credit the capital
account and debit the profit and loss ledger account with £4,000.
Total credits exceed total debits, which means there is a credit balance in the account – this
represents a profit for the period. The correct entry to transfer the profit for the year to the capital
account is debit profit and loss ledger account, credit capital account. This step is required in order
to start to calculate the closing balance on the capital account which is included in the statement of
financial position. Option D is incorrect as the balance on the profit and loss ledger account is
cleared to the capital account, it is not brought down to the next period. Option E is incorrect, the
closing balance on the profit and loss ledger account is the profit for the year.

Question 2

4 Which of the following statements concerning the preparation of financial statements is true?
A The balances on income and expense accounts are brought down at the end of the accounting
period to be carried forward to the next accounting period.
B The balances on asset and liability accounts are summarised in an additional ledger account
known as the statement of financial position ledger account.
C The statement of profit or loss ledger account is a list of all the balances extracted from the
business’s accounts.
D Loss for the year is a credit entry in the statement of profit or loss ledger account.

Answer 2

4 Correct answer(s):
D Loss for the year is a credit entry in the statement of profit or loss ledger account.
A loss decreases capital and is therefore debited to the capital account in the statement of financial
position. The other side of the entry is to credit it to the statement of profit or loss ledger account.

Question 3

7 Plym plc is a VAT registered retailer. All transactions attract VAT at the rate of 20%. For the year to
30 June 20X7, Plym plc made purchases of £69,600 including VAT and made sales of £89,400
excluding VAT. There was no change in the figures for opening and closing inventory in the
statements of financial position as at 30 June 20X6 and 20X7.
Requirement
What was Plym plc’s gross profit for the year ended 30 June 20X7?
A £19,800
B £4,900
C £31,400
D £16,500

Answer 3