Questions and Answers of Introduction To Accounting

2.1 Indicate which of the following transactions relate to Clive’s business as a newsagent and which are his personal transactions:1 £50 win on Premium Bonds owned by Clive.2 £100 paid for the
2.2 John decides to start up in business on 1 April 20X1, and pays £4,000 from his private bank account into a newly opened business bank account. On 2 April 20X1 John’s father loans the firm
2.3 Roger starts up in business on 1 September 20X0 with a capital of £1,200 which he pays into his business bank account on that day. The bank agrees to provide him with a business overdraft
2.4 The following balance sheet was prepared for Jeff’s business at 1 October 20X0. The firm has an overdraft facility of £700.Jeff Balance Sheet as at 1 October, 20X0 £ £Fixed assets:Machinery
2.5 (a) Prepare the balance sheet of Daley from the following list of assets and liabilities at 31 December 20X1:£Cash 1,750 Stock 5,250 Owed by customers 3,340 Owed to suppliers 2,890 Business
2.6 Prepare balance sheets to determine the amount missing from each of the following columns of balances at 31 December 20X1:A B C D E F£ £ £ £ £ £Capital at 1 Jan 20X1 2,500 2,000 3,000 4,000
2.7 Review your understanding of the following concepts and terms discussed in this chapter by writing a short explanation of each of them:1 Accountancy 2 Entity concept 3 Balance sheet 4 Realization
2.8 For a fish-and-chip shop, indicate which of the following items are current liabilities, which are current assets and which are fixed assets:1 Microwave oven 2 2,000 kilos of King Edward potatoes
2.9 The following list of balances relate to the business of C. Forest at 31 December 20X2:£Plant and machinery 26,500 Stock 14,200 Loan repayable June 20X3 2,500 Capital of C. Forest at 1 January
3.1 The following balance sheet relates to the affairs of Columbus who runs a second-hand car business. The balance sheet of his business at 31 December 20X1 is as follows:Balance sheet as at 31
3.2 The following information is obtained in connection with the business of G. Haze, a trader:31 December 20X3 20X4£ £Fixed assets at book value 9,000 see below Stocks 2,650 3,710 Trade debtors
3.3 The following table shows the cumulative effects of a succession of separate transactions on the assets and liabilities of a business. Each letter identities the assets and liabilities after each
4.1 Stoll, a trader, pays all his business takings into his bank account. All business payments are made by cheque. The following is a summary of his bank account for the year 20X5:Bank Summary
4.2 Bennett commenced business as a retail trader at the beginning of 20X0. He maintains no formal system of ledger accounts for recording business transactions. An accountant has been asked to
4.3 The following is the balance sheet of Stondon, a trader, at 31 December 20X3:Stondon Balance sheet as at 31 December 20X3 £ £ £Fixed assets Furniture and fittings 800 Current assets Stock
4.4 Bert Negus inherited £200,000 during February 1995. This provided him with an opportunity to leave his job as an electrical maintenance engineer with a local company and to start up his own
4.5 The following details are extracted from the books of the Fellowship Club:Balances at 31 Dec. 20X7 31 Dec. 20X8£ £Bar stock 8,200 11,936 Creditors for bar supplies 4,080 4,568 Creditors for
4.6 The Ridlingham Recreation Club consists of a tennis section and a rugby section. The following information has been obtained relating to the position of the club on 1 January 20X1:£Clubhouse at
4.7 You have agreed to take over the role of bookkeeper for the AB Sports and Social Club.The summarized balance sheet on 31.12.94 as prepared by the previous bookkeeper, contained the following
5.1 Mr Wall decided to set up in business as a sole trader on 1 January 20X1. He opened a business bank account into which he pays all the takings and from which he pays all business costs. His
5.2 Blue Land plc’s financial year ends on 22’ May 1998. A number of activities must be undertaken before the final accounts can be prepared.Update Blue Land plc’s cash book and reconcile it
5.3 Ray Gunne set up in business on 1 January 20X3. The firm’s transactions for the first week of January 20X3 were as follows:(a) Pay capital of £10,000 into the bank.(b) Buy premises for £8,000
5.4 At the start of a trading week the bank account of Laser Ltd showed that the company was £6,510 overdrawn. During the week the company undertook the following cash transactions:Day Receipts £
5.5 A young and inexperienced book-keeper is having great difficulty in producing a bank reconciliation statement at 31 December. He gives you his attempt to produce a summarized cash book, and also
5.6 Office Ltd owns a shop that sells typewriters and also repairs office equipment. The following credit sales took place:Day 1 Sold a typewriter for £300 and stationery for £75 to Gum
5.7 On 2 April 1993 Mostar Motors Ltd received their monthly bank statement which showed that there was a bank overdraft of £2,129. This balance was not in agreement with the balance shown in the
6.1 The following are the balances on the accounts of Radio on 1 January:Credit balances £ £Capital 8,500 Trade creditors:Tele 2,300 Trany 1,000 Valve 1,300 4,600 13,100 Debit balances Plant and
6.2 During January, Radio undertook the following transactions:Credit transactions with customers during January Prompt Returns Cash Payment Customer Sales Inwards Received Discount£ £ £ £Vision
6.3 Use the information in Questions 6.1 and 6.2 to prepare the ledger accounts, other than cash, in Radio’s main ledger.
6.4 Use the information in Questions 6.1 and 6.2 to prepare the memorandum debtors and creditors ledger.
6.5 Use the information in Questions 6.3 and 6.4 to prepare reconciliations of the purchases and sales ledger accounts with their memorandum ledgers.
6.6 Prepare Radio’s trial balance from the accounts produced in Questions 6.2 and 6.3.
6.7 (a) Define and distinguish, with examples, the following three classifications of ledger accounts:(i) real accounts;(ii) personal accounts;(iii) nominal accounts.(b) Give the appropriate
6.8 Explain how the accountant makes use of the trial balance.
6.9 The following particulars have been extracted from the books of a trading concern for the year ended 30 September 20X1:£1 Sales ledger debit balances at 1October 20X0 102,300 2 Sales ledger
6.10 Ian Error has produced a trial balance for his business for the year to 30 September 20X2 that does not balance, and the error has been placed in a suspense account.An examination of the
6.11 (a) Aries Ltd maintains a creditors ledger control account in its general ledger as part of its double entry system. Individual accounts for suppliers are maintained on a memorandum basis in a
6.12 The following information for the financial year ended 31 May 1991 has been extracted from the accounting system of George Peace Ltd:£Discounts allowed to credit customers 4,170 Cash and
6.13 The following is a list of typical business transactions:(a) The purchase of goods on credit.(b) Allowances to credit customers upon the return of faulty goods.(c) Refund from petty cash to an
6.14 After completing a training course at a technical college, Michael Faraday set up in business as a self-employed electrician on 1 January 19X5. He was very competent at his job but had no idea
7.1 The following is the trial balance of Push, a sole trader, at 30 June 20X7:£ £Capital 30,350 Sales 108,920 Purchases 72,190 Drawings 12,350 Debtors 7.350 Creditors 6,220 Cash 1,710 Stock 9,470
7.2 Tip was established and started trading on 1 January 20X1 and draws up its accounts to 31 December each year. Its purchases and disposals of fixed assets over the subsequent three years were as
7.3 Prepac Ltd prepared its accounts to 31 December. The following facts relate to 20X8:£Balance on insurance account 1 January 450 (Dr.)Balance on electricity account 1 January 300 (Cr.)Balance on
7.4 At 31 December 20X3 the trial balance of Damp Ltd contained the following balances in repect of motor vehicles:Debit Credit£ £Motor vehicles at cost 127,000 Accumulated depreciation at 1
7.5 At 31 December 20X0 the following balances were shown in the books of E. Rider Ltd:£Sales control account 156,937 (Dr.)Provision for doubtful debts 2,600 (Cr.)Bad debts 750 (Dr.)The list of
7.6 At 31 December 19X7 the totals of the ledger balances of Theta Limited, were as follows:£Sales debit 384,600 credit 2,900 Purchases debit 1,860 credit 222,230 After reviewing these balances in
7.7 During the preparation of the accounts from the books of S. Top, a sole trader, for the year to 30 June 20X7, the following items were found:1 Included in the repairs to machinery account was
8.1 (a) How would you distinguish between capital and revenue expenditure, and why is it important to make a correct allocation?(b) State, with reasons, in which of the two categories you would place
8.2 Simon is a surveyor who purchases old properties in poor condition. He incurs expenditure on improving these properties, which he then resells. His balance sheet at 31 December 20X2 was as
8.3 On 1 January 199X a business purchased a Minilab to process and print films. The Minilab costs £28,000 and has an estimated economic life of 4 years, after which it will have no residual value.
8.4 Buy paid Mr Sale £120,000 cash to acquire his business, Sale & Co., as a going concern on 1 January 20X1. The assets taken over were considered to be worth the following amounts:£Fixed assets
8.5 Give the basic rule for valuing stock. Apply this rule to the facts provided below and calculate the total value of stock to be included in the accounts.Product Cost Net realizable value£ £A
8.6 Brothers manufacture one type of high-quality ornament for the export market. The firm plans its activities three months in advance and its estimates for January, February and March 1994 are as
8.7 What do you understand by the terms ‘perpetual inventory’ and ‘periodic stocktake’?In the case of a trader, how is the figure for cost of goods sold obtained under each of these systems?
8.8 D. Hart, a trader dealing in one product only, has the following transactions over a six-month period:Date Quantity (in units) Unit cost (£)Purchases 1 June 1992 1,500 90 1 August 1992 2,000 92
8.9 Airwaves Ltd are retailers who sell mobile telephones. During January to March 1993 they decided to concentrate their selling activities on the ‘Meteor’ model, which experienced several cost
8.10 Stoval Ltd started to trade on 1 January 20X1. Its purchases of trading stock, at cost, during the first three years of business were£20X1 240,000 20X2 252,000 20X3 324,000 The values of stock
8.11 Where accounts are prepared in accordance with the accruals concept, cash receipts and payments may precede, coincide with or follow the period in which revenues and expenses are recognized.
8.12 The summarized trading account of Change Ltd for 20X1 contained the following information:Trading Account for 20X1£ £Sales 100,000 Less: Opening stock 7,000 Purchases 80,000 Closing stock
8.13(i) Dual aspect;(ii) consistency;(iii) prudence;(iv) matching/accruals; and(v) going concern.(a) Briefly explain each of the concepts mentioned above. (10 marks)(b) Explain how each of the
8.14 (a) SSAP 9, Stocks and Long-Term Contracts, requires stocks of raw materials and finished goods to be valued in financial statements at the lower of cost and net realizable value.(i) Appendix 1
9.1 Jupiter, Mars and Saturn are in partnership sharing profits and losses in the ratio 2 : 1 : 1.The balance sheet of the partnership as at 30 June 1984 disclosed the following financial position:£
9.2 Second and Minute started trading as retail grocers in partnership on 1 January 20X4, but did not keep a set of double-entry books. The firm’s bank account, for 20X4, prepared from the record
9.3 The following is the trial balance of Bean and Stalk, who trade in partnership, at 31 March 20X3:£ £Capital account balances at 1 April 20X2:Bean 30,000 Stalk 10,000 Current account balances at
9.4 Amir and Barry are in partnership with contributed capitals of £70,000 and £50,000, respectively. They have agreed the following appropriation scheme:(a) Interest is to be allowed on
9.5 Alpha, Beta and Gamma were in partnership for many years, sharing profits and losses in the ratio 5 : 3 : 2 and making up their accounts to 31 December each year. Alpha died on 31 December 19X7,
10.1 The following trial balance was extracted from the accounts of Minto plc at 31 October 1986.£ £Called-up share capital 200,000 Share premium 100,000 12% debentures 225,000 Fixed assets at
10.2 You are presented with the following trial balance of Lincoln plc as at 31 December 1992.£000 £000 Share capital, 50p ordinary shares 1,000 Share premium 500 15% debentures 800 Profit and loss
10.3 (a) Within the field of periodic financial reporting, comment on and distinguish between ‘accounting bases’ and ‘accounting policies’ and relate them to the following fundamental
10.4 The following trial balance was extracted from the books of Porchester Ltd on 31 March 20X6:£ £Ordinary share capital (£1 shares) 500,000 Retained profit to 1 April 20X5 1,039,000 10%
10.5 What is the purpose of a bonus issue of shares? Using the information prepared in your answer to Question 10.4, consider whether the issue was reasonable in amount.
10.6 The trial balance of Southgate plc at 31 December 20X9 was as follows:£ £Ordinary share capital (shares £1 each) 500,000 Freehold property at cost 500,000 Furniture and equipment at cost
10.7 The following balances existed in the accounting records of Koppa Ltd at 31 December 19X7.£000 Development costs capitalized, 1 January 19X7 180 Freehold land as revalued 31 December 19X7 2,200
The balance sheets of Southall Ltd at 31 December 20X1 and 31 December 20X2 are as follows:Balance sheets as at 31 December 20X1 and 20X2 20X1 20X2 £000 £000 £000 £000 Fixed assets Plant at cost
11.2 The following balances relate to the affairs of Tufton Ltd as at 31 March 20X0 and 20X1.20X0 20X1£ £Share capital 500,000 600,000 Retained profit 395,800 427,100 10% Debentures 200,000 300,000
11.3 The following information is provided for Sharpener Ltd:Balance sheets as at 31 December 20X4 20X5£ £Fixed assets Cost 650,000 680,000 Less: Accumulated depreciation − 176,500 − 203,700
11.4 The summarized final accounts of Jordin plc are detailed below.Profit and loss account for the year ended 31 May 1996 1997£m £m Sales 500 550 Cost of goods sold (240) (260)Overheads (182)
11.5 The balance sheets of Rapier Ltd at 30 September 1996 and 30 September 1997 are given below.Balance sheets as at 30 September 1996 1997£000 £000 £000 £000 Fixed assets (see note 1)Cost 600
12.1 The summarized trading and profit and loss account of Rubber Ltd for 20X1 and its summarized balance sheet at 31 December 20X1 are as follows:Trading and profit and loss account for 20X1£Sales
12.2 The balance sheets of Galston Ltd as at 31 December 20X5 and 20X6 are as follows:Galston Ltd Balance sheet as at 31 December 20X5 20X6£ £ £ £Fixed assets at cost 303,000 367,500 Less:
12.3 The following information has been extracted from the accounts of Lock Ltd, a wholesale trading company:Balances at 31 December 20X1 20X2£ £Fixed assets 500,000 550,000 Trade debtors 125,000
12.4 Beta Ltd is reviewing the financial statements of two companies, Zeta Ltd and Omega Ltd. The companies trade as wholesalers, selling electrical goods to retailers on credit. Their most recent
12.5 The following information is obtained in connection with the affairs of two companies, manufacturing specialized metal products, in respect of the year ended 31 December 20X5:Metalmax Precision
12.6 The following information is provided relating to the affairs of two companies engaged in similar trading activities:Hot Ltd Cold Ltd£ £Ordinary share capital 800,000 500,000 15% debentures
12.7 The following information relates to the affairs of General Engineering plc:Balance sheets at 31 December 20X7 20X8£000 £000 £000 £000 Fixed assets Plant at cost less depreciation 2,600
12.8 Emerald Ltd and Garnet Ltd are two companies engaged in manufacturing electrical appliances. Both operate from rented premises. Their financial statements at 31 March 1997 were as follows.Profit
12.9 Pereniv Ltd You work in the accounts department of Pereniv Ltd, a company which manufactures materials which it supplies to electrical goods manufacturers. Normal credit terms in the industry,
12.10 The following trial balance has been extracted from the ledgers of JK Ltd at 31 March 1993:£ £Sales (all on credit) 647,400 Stock (1 April 1992) 15,400 Trade debtors and creditors 82,851
13.1 Glen Eagles is the proprietor of a small but long-established manufacturing business that has consistently made an annual profit of £20,000. The financial results of the business have shown
13.2 Tassell Ltd is a manufacturing company specializing in the production of two machines, XX and YY. The manufacturing process for the two machines is different and this necessitates a separate
13.3 During 20X4 Feather Ltd, which has a maximum possible output of 100,000 units, sold 60,000 units of a product and made a net profit of £20,000. The contribution per unit was £2, and the
13.4 Use the information in Question 13.3 to prepare a break-even chart that shows the results of both 20X4 and 20X5.
13.5 The summarized profit and loss account of Latchmere Ltd for 20X6 is as follows:£ £Sales (100,000 units @ £2 each) 200,000 Raw materials 50,000 Wages 100,000 Depreciation 10,000 160,000 Gross
13.6 The directors of Axmede Ltd have decided that the company has £100,000 available for investment in fixed assets and are considering the following two alternative projects, both of which are
13.7 The balance sheet of Harris Ltd as at 30 November 1993 is shown below:You are informed that:(i) The firm’s anticipated sales and purchases for the next six months are:£000 £000 December 410
Drugs ‘R Us operates a mail order pharmaceutical business on the West Coast. The firm receives an average of $325,000 in payments per day.On average, it takes four days for the firm to receive
Consider the following 2007 data for Newark General Hospital (in millions of dollars):a. Calculate and interpret the profit variance.b. Calculate and interpret the revenue variance.c. Calculate and
Suncoast Healthcare is planning to acquire a new x-ray machine that costs $200,000. The business can either lease the machine using an operating lease or buy it using a loan from a local bank.
Big Sky Hospital plans to obtain a new MRI that costs $1.5 million and has an estimated four-year useful life. It can obtain a bank loan for the entire amount and buy the MRI or it can lease the
Assume that you have been asked to place a value on the ownership position in Briarwood Hospital. Its projected profit and loss statements and equity reinvestment (asset) requirements are shown below

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