Study deck

Question 1

which of the two of the following are the main purposes of preparing accounts

Answer 1

So if we are asked a question on why we are preparing accounts we need to think about who use the accounts - these are financial statements so we need to think about financial implications, any question that relates to operating profit, use of assets, any financial measures, this includes BS items,

Question 2

proprietor’s funds - what effect does the profit for the period have on the proprietor’s funds and is the net assets related to this account

Answer 2

so a proprietors funds lead directly to the profit so if we have a decrease in profits this will be the same for the funds, the relation for the net assets is that they equal the proprietors funds

Question 3

what do we need to think of if we are trying to work out the total liabilities of the business: Closing assets 123,000, Opening capital 78,000 profit 14,000, drawings 9,000

Answer 3

So in this question we have Assets, and equity to work with, if you think about the main formula which is Capital = Assets - Liabilities.

Capital 78,000 + 14,000 - 9,000 = 83,000
Assets = 123,000
83,000 = 123,000 - Liabilities

Liabilities = £40,000

Question 4

this question asks us what the impact is on the following transactions, 1. Buying a car on credit / 2. Introducing capital

Answer 4

So this question is asking on the impact regarding the net assets, so for the first one, if we are thinking about buying a car on credit it increase out assets but also increases the liabilities of paying the car so there is a net zero affect. 2 - if we are introducing capital this will increase the cash we have in the business so we have an overall increase.

Question 5

What is the Dr/Cr for sales on credit

Answer 5

Dr Trade rec / Cr sales

Question 6

how to we treat an expenditure as double entry

Answer 6

Dr Expenses/Cr Bank

Question 7

is the balance Brought forward on an asset account a debit or credit / is the balance Brough forward on drawings a debit or credit

Answer 7

so we need to think a about what the account is doing, if we have drawing in a capital account this would be a debit to reduce it and therefore brought forward, this is the same for an asset, if we’ve got an account Brought forward then it needs to be a debit

Question 8

which section of the financial statements is part of the double entry-system

Answer 8

the profit and loss account is the only part that is made up of the double entry system - NOT the BS

Question 9

what is consider Capex

Answer 9

This would only be assets that have been bought in new that is not for sale or a replacement part.

Question 10

Jing pays the insurance premium on her office building annually in advance. She paid £1,700 on 2 January 20X1 for the year to 31 December 20X1. Her year end is 30 September 20X1.

Answer 10

so the first thing we need to think about is that we are told that the expense has been paid in advance which would make it a prepayment. These questions also need us to think about timings

so we are told that the year end is September 30. so this means that we have 3 months of insurance that has been prepaid. 1700 / 12 x (3/12) = £425

Question 11

Sue has an accrual brought forward in ‘heat and light expense account’ of £56. During the year she paid invoices totalling £389, and the profit and loss account showed an expense for heat and light of £395.

What was showing on the balance sheet at the year end?

Answer 11

so in the year we have paid 389 while incurring 395 which means we have £6 of accruals on top of the 56 which is an accrual of £62 brought forward.

Question 12

Stephanie has received some revenue for work she will do next year - what will be the journal for the year.

Answer 12

Deffered asset is recorded as a liability and therefore if we have received some revenue for work carried out we will need to credit the liability to increase it and then debit the sale account

Question 13

Kamala buys a machine for £24,000. She owns it for 8 years and then sells it for £6,000. The provision for depreciation on the machine at the date of sale was £15,000.

Answer 13

24,000 - 15,000 = 9,000
Sold for 6,000 = 3,000 Loss

Question 14

Mahbuba buys a machine for £78,000. It has a residual value of £12,000 and a useful life of 5 years. She depreciates machinery on a straight line basis charging on a monthly basis in the year of acquisition.

How much depreciation would be charged in the year of acquisition if she bought it 3 months into her accounting year?

Answer 14

so for this we need to start by deducting the the residual value from the cost of the machine: £78,000 - £12,000 = £66,000 then we depreciate this over 5 years: £66,000/5 = £13,200 we have been told that this was bought 3 months into the accounting period which means we need to charge 9/12 = 9,900

Question 15

ABC Ltd signed a Hire Purchase agreement for a new piece of plant and machinery with a cash price of £375,000. ABC Ltd paid a 10% deposit, and must make 60 equal monthly instalments of £6,875, with the first payment due with the deposit.

What is the annual finance charge that ABC Ltd must debit to its profit or loss account?

Answer 15

initial liability = £375,000 - £37,500 = £337,500

Total repayments = 60 x £6,875 = £412,5000 - £337,500 = £75,000 / 5 = £15,000

Question 16

how to we value stock

Answer 16

Stock is valued at the lower of cost or NRV, FRS102 has no say on what method stock should be valued.

Question 17

Eloise is an IT consultant, working on a contract for P Ltd. The contract started on 1 October 20X0 and is due to complete by 31 March 20X1. Eloise’s company has a 31 December year-end.

Which TWO of the following statements about revenue recognition are correct?

Answer 17

The correct answer relates to recgonising the revenue when it is earned and in the period it relates to.

Question 18

Delta plc had 100 boxes of widgets in stock on 1 June valued at £45 each. On 3 June it received 150 boxes at a unit price of £50. On 5 June 85 boxes were sold at a price of £70 each. A further 75 boxes arrived in stock on 20 June at a cost of £42 each, and 90 boxes were sold on 26 June at a price of £75 each.

Assuming Delta uses the weighted average stock valuation method what is the value of its stock at 30 June? (Answer to the nearest £)

Answer 18

Dont get thrown off by how much they sell the stock for, we want the value of the stock at each point of sale and that is what we deduct per box / add per box.

Question 19

Clara’s business had net assets at the start of the year of £12,000 and closing net assets of £15,500. Capital introduced was £1,000 and drawings were £4,000.

Answer 19

For this question we need to add any capital introduced and deduct any drawings from the opening net asset. in this question it is 12,000+1,000-4,000 = 9,000. we are then told that the closing net assets is 15,500 which means the difference is the profit for the year. which is 6,500

Question 20

Tyrus sells goods for £700, offering a trade discount of 10%.

What would he record as his sales figure?

Answer 20

as this question is asking us about the sales figure we only want to put in as much we are selling it for, there would be a trade discount jounral but that is seperate

Question 21

breakdown the following into assets or liabilities: Accruals,prepayments,accrued income, deferred income

Answer 21

Acrualls = This is a liability as it relates to expenditure that we have received the benefit of but we have not paid for

Prepayments = This is an asset as we have essentially set money aside to cover an expense,

Accrued income = This is an asset, this is work that we have carried but we have yet to been paid for so could essentially be viewed as a trade recievable but the flip side.

Deffered income = this is a liability, this is similar to accrued income but under the accrual principle we must record it as a liabilty until the work has been carried out at which point we can recgonise as an asset

Question 22

Aditya has a £6,500 balance on his deferred income account at the start of the year. This relates to rental income from the office building he rents out. During the year he received £82,000 from his tenant, and at the end of the year the tenant had prepaid rent of £7,900.

How much rental income is shown in the profit and loss account for the year?

Answer 22

the first thing to note that as the tenant has prepaid the rent for us this will be a deferred income balance as it income that we have yet to deilver the benefit for. as we know, deferred is a liabilty so to increase this we credit meaning the balance at the start is a credit, we then need to add the bank payments to the account to give us a credit total of 88,500, we know now that the balance c/f needs which is 7,900. so to get the amount in the P&L account we need to find the outstanding amount. which is £80,600

Question 23

Moniza buys a machine for £13,300. It has a residual value of £2,300 and a useful life of 5 years. She depreciates machinery on a 20% reducing balance basis charging a full year’s depreciation in the year of acquisition.

How much depreciation would be charged in the second year of ownership?

Answer 23

if we have a question about written down allowance we do not need to factor in the residual value.