CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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PREPARATION OF FINANCIAL STATEMENTS WITH ADJUSTMENTS
REVISION QUESTIONS C2
210
4 . Wages includes $23,800 cash withdrawn by GBA.
5. Receivables have been analysed as follows:
$
Current month 60,000
30 to 60 days 20,000
60 to 90 days 12,000
Over 90 days 3,000
Allowance to be made for receivables as follows:
30 to 60 days 1%
60 to 90 days 2.5%
Over 90 days 5% (after writing off $600)
6. Sundry expenses includes $3,500 for GBA’s personal tax bill.
7. The loan was taken out some years ago, and is due for repayment on 31 March 20X6.
The fi gure shown in the trial balance for loan repayments includes interest of $800
for the year.
8. The bank deposit account was opened on 1 January 20X5 as a short-term investment;
interest is credited at 31 December annually; the average rate of interest since opening
the account has been 6 per cent per annum.
9. At 1 July 20X4, GBA decided to bring one of his family cars, valued at $8,000, into
the business. No entries have been made in the business books for its introduction.
10. Depreciation is to be provided as follows:
●
20 per cent on cost for delivery vehicles;
●
at 25 per cent on the reducing balance for the car;
●
at 25 per cent on the reducing balance for equipment.
PREPARATION OF FINANCIAL STATEMENTS WITH ADJUSTMENTS
211
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Requirements
(a) Insert the missing items into the income statement for the year ended 30 June 20X5,
set out below.
Income statement of GBA for the year ended 30 June 20X5
$ $ $
Sales 625,000
Less : Returns inwards
…
…
Cost of sales
Opening inventories 98,200
Purchases 324,500
Less: Returns outwards
…
…
…
Less : Closing inventories
…
…
Gross profi t
…
Add :
Interestondeposit account …
Discounts received
…
Decrease in allowance for receivables
…
Less:
Discounts allowed …
Packing materials consumed …
Distribution costs 17,000
Rent and insurance …
Telephone …
Car expenses 2,400
Wages …
Heat and light …
Sundry expenses …
Interest on loan …
Bad debts written off in year …
Depreciation of delivery vehicles …
Depreciation of cars …
Depreciation of equipment
…
…
Profi t
…
PREPARATION OF FINANCIAL STATEMENTS WITH ADJUSTMENTS
REVISION QUESTIONS C2
212
(b) Insert the missing fi gures into the statement of fi nancial position set out below.
Statement of fi nancial position of GBA as at 30 June 20X5
Assets Cost ($) Acc. Dep’n ($) Carrying Amount ( $)
Non-current assets
Delivery assets 112,500 … …
Cars … … …
Equipment
15,000 … …
… … …
Current assets
Inventories …
Receivables …
Less : allowance …
…
Prepayments …
Accrued revenue …
Bank Deposit account 15,000
Bank current account
26,500
…
…
Capital and liabilities
Capital at July 20X4 55,500
Add : Capital introduced …
Add : Profi t for the year …
Less : drawings
…
Current liabilities
Payables …
Accruals …
Loan
…
…
…
(c) With regard to the transaction in the business of GBA, which of the following
t ransactions affect:
●
p r o fi t
●
cash at bank
Affects Profi t Affects Cash at Bank
Payments to suppliers
Depreciation
Sales invoiced to customers
Drawings in cash
Loan repayment
Bad debts written off
PREPARATION OF FINANCIAL STATEMENTS WITH ADJUSTMENTS
213
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Question 3
PLJ has been in business for some years and has kept her drawings slightly below the level
of profi ts each year. She has never made a loss, and therefore feels that her business is grow-
ing steadily. You act as her accountant, and she has passed you the following list of bal-
ances at 30 April 20X7.
$’000
Capital at 1 May 20X6 228
Drawings 14
Plant at cost 83
Plant – acc. Depreciation at May 20X6 13
Offi ce equipment at cost 31
Offi ce equipment – acc. depreciation at May 20X6 8
Receivables 198
Payables 52
Sales 813
Purchases 516
Returns inwards 47
Discount allowed 4
Allowance for receivables at 1 May 20X6 23
Administration costs 38
Salaries 44
Research costs 26
Loan to a friend, repayable in 6 months 25
Bank 50
Bad debits written off 77
You ascertain that inventories at 1 May 20X6 was $84,000 and inventories at 30 April
20X7 was $74,000. On 1 November 20X6, she brought her personal computer, valued at
$2,000, from home into the offi ce; no entries have been made for this.
You are also given the following information at 30 April 20X7:
(i) Depreciation on plant is charged at 10 per cent per annum on cost. Depreciation on
offi ce equipment is charged at 20 per cent per annum on the carrying amount at the
year end.
(ii) Administration costs include insurance prepaid of $3,000.
(iii) Salaries accrued amount to $2,000.
(iv) The research costs are all in relation to pure research.
(v) It is agreed that the allowance for receivables fi gure is to remain at $23,000.
PREPARATION OF FINANCIAL STATEMENTS WITH ADJUSTMENTS
REVISION QUESTIONS C2
214
Requirements
(a) Insert the missing items into the trial balance at 30 April 20X7, set out below, after
adjusting for the computer that PLJ has brought from home, but prior to making any
other adjustments.
Trial balance of PLJ as at 30 April 20X7
Debit ($) Credit ($)
Capital at 1.5.X6 … or …
Capital introduced … or …
Drawings … or …
Plant at cost … or …
Plant – Acc. plant depreciation at 1.5.X6 … or …
Offi ce equipment at cost or value … or …
Offi ce equipment – acc. depreciation at 1.5.X6 … or …
Receivables … or …
Payables … or …
Sales … or …
Purchases … or …
Returns inwards … or …
Discount allowed … or …
Allowance for receivables at 1.5.X6 … or …
Administration costs … or …
Salaries … or …
Research costs … or …
Loan to friend … or …
Bank … or …
Bad debts written off
…
or
…
Inventories at [insert date] . . . … or …
PREPARATION OF FINANCIAL STATEMENTS WITH ADJUSTMENTS
215
FUNDAMENTALS OF FINANCIAL ACCOUNTING
(b) Insert the missing fi gures into the income statement set out below.
Note : Expenditure on pure research is to be treated as a revenue expense.
$’000 $’000
Sales 813
Less: returns inwards
…
…
Less : cost of goods sold
Opening inventories …
Purchases
516
…
Closing inventories
…
…
Gross profi t
…
Less : expenses
Discount allowed …
Administration costs …
Salaries …
Research costs 26
Bad debts written off 77
Depreciation of plant …
Depreciation of offi ce equipment
…
…
Net profi t
…
(c) Insert the missing fi gures into the statement of fi nancial position set out below.
Assets Cost ($’000) Acc. Depreciation ($’000) Carrying amount ($’000)
Non-current assets
Plant and machinery 83 … …
O f fi ce equipment
… … …
… … …
Current assets
Inventories …
Receivables 198
Less : allowance …
…
Loan …
Prepayments … …
…
…
Capital and liabilities
Capital …
Net profi t …
Less : drawings (14.0)
…
Current liabilities
Payables 52
Accruals …
Bank overdraft …
…
…
PREPARATION OF FINANCIAL STATEMENTS WITH ADJUSTMENTS
REVISION QUESTIONS C2
216
Question 4
The following trial balance was extracted from the ledger of Stella Parkinson at the end of
her most recent year.
$ $
Buildings at cost 240,000
Plant at cost 160,000
Accumulated depreciation at start of year
On buildings 40,000
On plant 76,000
Purchases and sales 500,000 808,800
Inventories at start of year 100,000
Discounts 36,000 9,600
Returns 4,400 30,000
Wages and salaries 117,600
Bad debts written off 9,200
Other expenses 45,600
Receivables and payables 76,000 72,000
Bank and cash 3,200
Drawings 48,000
Allowance for receivables 1,000
Opening capital
302,600
1,340,000 1,340,000
The following information is also given at the end of the year:
(a) Closing inventories are $84,000.
(b) Wages and salaries accrued amount to $1,600.
(c) Other expenses prepaid amount to $600.
(d) The allowance for receivables is to be adjusted to 2 per cent of receivables.
(e) Depreciation for the year is to be calculated as:
●
1.5 per cent per annum straight line on buildings;
●
25 per cent per annum reducing balance on plant.
PREPARATION OF FINANCIAL STATEMENTS WITH ADJUSTMENTS
217
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Requirements
(a) Prepare the income statement for the year by inserting the missing fi gures below.
Income statement of Stella Parkinson for the year ended . . .
$ $ $
Sales
Less : returns
Net sales
Less : cost of sales
Opening inventories
Purchases
Less : returns
Less : closing inventories
Gross profi t
Add : discounts received
Less : expenses
Discounts allowed
Wages and salaries
Bad debts written off
Other expenses
Allowance for receivables
Depreciation
Buildings (1.5% 240,000)
Plant (25% 84,000)
Net profi t
PREPARATION OF FINANCIAL STATEMENTS WITH ADJUSTMENTS
REVISION QUESTIONS C2
218
(b) Prepare the statement of fi nancial position at the end of the year by inserting the missing
fi gures below.
Statement of fi nancial position of Stella Parkinson as at . . .
Assets Cost ($) Acc. Depreciation ($) Carrying amount ($)
Non-current assets
Buildings
Plant
Current assets
Inventories
Receivables
Less : allowance
Prepayments
Bank and cash
Capital and liabilities
Opening capital
Net profi t for the year
Less : drawings
Current liabilities
Payables
Accruals
219
Solutions to
Revision Questions
Solution 1
1.1 Answer: (C)
Net sales is calculated as follows:
$
Sales 73,716
Less: returns inwards (5,863)
Net sales 67,853
Discounts are those arising from prompt payment (i.e. cash discounts) and do not
appear in the trading account section of the income statement, but are brought into
the income statement after the calculation of gross profi t.
1.2 Working capital is not affected by movements between current assets and current lia-
bilities, so the payment of payables by cheque would result in a lower bank balance
and lower payables, but would have no effect on working capital. The writing off of
a bad debt of $250 would reduce receivables, and hence working capital. The sale
of inventories would increase receivables by $230, but only decrease inventories by
$100, so working capital would be increased by $130. The net effect of these items
on working capital would be to decrease working capital by $120, so the fi nal result
would be $43,200 $120 $43,080.
1.3 Answer: (C)
(A) and (B) both involved the exchange of an asset (inventories) with another asset of
$500 more. This would result in an increase in working capital of $500. (D) would
result in an increase in working capital of $250. Only (C) will result in a decrease in
working capital, as a non-current asset is acquired by increasing payables.
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