Self-test Delamare Ltd is a small company which prepares accounts to 30 April each year.

The company operates a manual double-entry book-keeping system but does not maintain any control accounts.

A trial balance extracted at 30 April 2009 revealed that debit balances exceeded credit balances by £5,020. This difference was placed into a suspense account and the company then proceeded to prepare a draft income statement for the year to 30 April 2009. The draft income statement showed a profit of £27,780. The balances remaining in the company’s books after this income statement had been prepared were as follows:

£ £

Property, plant and equipment, at cost 242,500 Allowance for depreciation of PPE 113,400 Inventory at 30 April 2009 43,610 Trade receivables and payables 49,120 54,570 Prepayments and accruals 1,880 3,030 Bank balance 13,450 Dividend paid in January 2009 10,000 Retained earnings at 1 May 2008 76,760 Ordinary shares of £1 50,000 Loan repayable in 2012 30,000 Suspense account 5,020 Profit for year to 30 April 2009 27,780 360,560 360,560 The company’s books of original entry and ledgers were then searched and the following four errors were located:

E1. The sales daybook had been overcast by £100.

E2. Discounts received in April 2009 totalling £690 had been recorded correctly in suppliers’ personal accounts but had been omitted from the discounts received account in the nominal ledger.

E3. A purchase invoice of £6,100 had been recorded correctly in the purchases daybook but had been credited to the supplier’s personal account as £1,600.

E4. Bank charges of £70 had been recorded in the cashbook but nowhere else.

When these errors have been corrected, it will also be necessary to adjust for the following items that have not yet been recorded in the company’s books:

A1. Non-depreciable land which is included in property, plant and equipment at its cost of £30,000 is to be revalued to £75,000;

A2. A 1 for 5 bonus issue of ordinary shares was made on 30 April 2009, financed out of retained earnings.

Requirement for question

(a) Identify the books of original entry (or prime entry) in which each of the following types of transaction should be recorded:

(i) a cash sale;

(ii) a purchase return;

(iii) the payment of a minor expense in cash;

(iv) an increase in an allowance for doubtful receivables.

(b) Write journal entries to correct errors E1 to E4 and to make adjustments A1 and A2. (Narratives are not required).

(c) Prepare a statement of financial position (balance sheet) for Delamare Ltd as at 30 April 2009. Ignore taxation.
(Financial Accounting CIPFA Certificate Stage June 2009)