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 preparing the financial statements for the year ended 31 December 19X7, a number of adjustments are necessary:

(i) A contra settlement had been agreed during the year offsetting an amount due from Zeta Limited in the sales ledger of £1,080 against the balance due to that company in the purchase ledger. No entry had been made for this contra.

(ii) The following amounts due from sales ledger customers are to be written off:

Customer £

P 840 Q 120 R 360 S 2,090 T 180

(iii) The provision for doubtful debts, which stood at £3,060 after the debts in (ii) above had been written off, is to be increased to £5,200.

(iv) During the year £200 cash received from Tau Limited had mistakenly been entered into the account of Vau Limited in the sales ledger.

Further information:

The purchase ledger balances included £56,000 relating to a purchase in September 19X7 on extended credit terms.

The £56,000 balance is due to be cleared by payments in four equal instalments at sixmonthly intervals as follows:

£

31 March 1998 14,000 30 September 1998 14,000 31 March 1999 14,000 30 September 1999 14,000 No ledger control accounts are kept by Theta Limited.

(a) Prepare journal entries to give effect to adjustments (i)–(iv). (4 marks)

(b) Calculate the amounts which should appear under the various headings in the company’s published balance sheet as at 31 December 19X7 for debtors and creditors, assuming that there are no other items for inclusion apart from those stated above. (6 marks)

(ACCA, Paper 1, The Accounting Framework, June 1998) (modified)