Rectification of Error

Question 1

1. Which ONE of the following is an error of principle?
   A. A gas bill credited to the gas account and debited to the bank account
   B. The purchase of a non-current asset credited to the asset at cost account and debited to the supplier’s account
   C. The purchase of a non-current asset debited to the purchases account and credited to the supplier’s account
   D. The payment of wages debited and credited to the correct accounts, but using the wrong amount

Answer 1

C. The purchase of a non-current asset debited to the purchases account and credited to the

Question 2

A trial balance extracted from a sole trader’s records failed to agree, and a suspense account was opened for the difference. Which of the following errors would require an entry in the suspense account in correcting them?

1. Discount allowed was mistakenly debited to discount received account.
2. Cash received from the sale of a non-current asset was correctly entered in the cash book but was debited to the disposal account.
3. The balance on the rent account was omitted from the trial balance.
4. Goods taken from inventory by the proprietor had been recorded by crediting drawings account and debiting purchases account.

A. All four items
B. 2 and 3 only
C. 2 and 4 only
D. 1 and 3 only

Answer 2

B. 2 and 3 only

Question 3

A trial balance shows a total of debits of Rs.347,800 and a total of credits of Rs.362,350.
After adjusting for the following errors, what is the balance on the suspense account?

1. A credit sale of Rs.3,670 was incorrectly entered in the sales day book as Rs.3,760.
2. A non-current asset with a carrying value of Rs.7,890 was disposed of for Rs.9,000. The only accounting entry was to debit cash.
3. The provision for doubtful debts was increased from Rs.8,900 to Rs.10,200. The allowance account was debited in error.

A. Rs.26,150 debit
B. Rs.26,060 debit
C. Rs.26,240 debit
D. Rs.2,950 credit

Answer 3

A. Rs.26,150 debit

Explanation:

1. There will be no effect as the error is in the book of original entry that will require rectification of double entry with same amount
2. Debit suspense account with 9,000 and credit disposal account
3. Difference of 1,300 needs to be credited twice in the provision for doubtful debts account and debit 2,600 to suspense account.

Question 4

The trial balance of Bab-al-Shams shows total debits of Rs.125,819 and total credits of Rs.118,251. Which of the following explains the difference in full?

A. Discounts allowed of Rs.3,784 have been shown on the wrong side of the trial balance.
B. Discounts received of Rs.3,784 have been credited to the payables ledger control account.
C. The sales day book has been undercast by Rs.7,568.
D. An opening accrual of Rs.7,568 has been omitted from the rental expense account.

Answer 4

D. An opening accrual of Rs.7,568 has been omitted from the rental expense account.

Question 5

This information is relevant to the following TWO questions:
A company’s draft financial statements for 20X5 showed a profit of Rs.630,000. However, the trial balance did not agree, and a suspense account appeared in the company’s financial statements. Subsequent checking revealed the following errors:
1. The cost of an item of plant Rs.48,000 had been entered in the cash book and in the plant account as Rs.4,800. Depreciation at the rate of 10% per year (Rs.480) had been charged.
2. Bank charges of Rs.440 appeared in the bank statement in December 20X5 but had not been entered in the company’s records.
3. One of the directors paid Rs.800 due to a supplier in the company’s payables ledger by a personal cheque. The bookkeeper recorded a debit in the supplier’s ledger account but did not complete the double entry for the transaction (The Company does not maintain a payables ledger control account).
4. The payments side of the cash book had been understated by Rs.10,000.

Q 1 Which of the above items would require an entry to the suspense account in correcting them?
A. All four items
B. 3 and 4 only
C. 2 and 3 only
D. 1, 2 and 4 only

Q 2 What would the company’s profit become after the correction of the above errors?
A. Rs.634,760
B. Rs.624,760
C. Rs.624,440
D. Rs.625,240
(630,000 – 4,320 depreciation less charged – 440 bank charges not recorded)

Answer 5

Q1 B. 3 and 4 only

Q2 D. Rs.625,240
(630,000 – 4,320 depreciation less charged – 440 bank charges not recorded)

Question 6

The draft accounts of GoGo business for the year ended 31 July 20X9 show a profit of Rs.54,250 prior to the correction of the following errors:
1. Cash drawings of Rs.250 have not been accounted for.
2. Bad debts of Rs.420 were not accounted for in the journal.
3. Rental received Rs.300 has been classified as Interest income.
4. A cheque of Rs.200 was received from a customer, but no bookkeeping entries have yet been made.
What is the correct profit of the business for the year?

A. Rs.53,580
B. Rs.53,830
C. Rs.54,250
D. Rs.55,830

Answer 6

B. Rs.53,830

(54,250 – 420 unrecorded bad debts) all other rectifications do not affect business profit.

Question 7

Danish gives a cash discount of Rs.40 to a customer. The discount is credited to the discounts allowed account.
The effect of recording the discount in this way is that profit will be:

A. correct
B. overstated by Rs.80
C. understated by Rs.80
D. understated by Rs.40

Answer 7

B. overstated by Rs.80

(Discount allowed that is an expense has been given credit effect hence understating profit with double amount)

Question 8

The book-keeper of High-Hopes was instructed to make a contra entry for Rs.270 between the supplier account and the customer account for Grey-Ground. He recorded the transaction by debiting the customer account and crediting the supplier account with RS.270. The business accounts do not include control accounts.
Which of the following statements is correct?
A. Unless the error is corrected, profit will be over-stated by Rs.540
B. Unless the error is corrected, net assets will be over-stated by Rs.270
C. Unless the error is corrected, net assets will be over-stated by Rs.540
D. The errors should be corrected, but neither the profit nor the net assets are over-stated

Answer 8

D. The errors should be corrected, but neither the profit nor the net assets are over-stated

(Income or expense head is not involved. Net effect on assets and liabilities is NIL)