1.

a) Explain how a suspense account can be used as part of the book-keeping error correction process. (4 marks)

b) The following are extracted balances from Harbhajan's business accounts along with other information relating to the business's year end on 30 April 2017. For some reason, the figure for Capital at the beginning of the year has not been supplied, although you have been given the year end net profit figure

: Capital as at 1 May 2016 unknown Machinery at cost 100,000 Sales Revenue 59,000 Motor Vehicles at cost 50,000 Purchases 25,000 Trade Receivables 13,500 Trade Payables 12,500 Accumulated [provision for] depreciation: Machinery 10,000 HM Revenue and Customs: VAT (owing) 7,750 Net Profit as at 30 April 2017 7,105 Accumulated [provision for] depreciation: Motor Vehicles 5,000 Water and Utilities 4,500 Inventory as at 1 May 2016 3,500 Wages and Salaries 3,500 Rent 3,000 Bank (in funds) 1,800 Purchases Returns 1,355 Business Rates 1,250 Bad Debts written off 1,150 Sales Returns 1,250 Discounts Allowed 950 Cash in Hand 760 Drawings 750 Discounts Received 550 The Rent figure includes 600 relating to May, June and July 2017. The Machinery still has to be depreciated at year end by 10% straight line. There was unpaid Wages and Salaries at year end 30 April 2017 of 800. Stocktake at year end 30 April 2017 valued Inventory at 5,000. Motor Vehicles need year end depreciation (diminishing [reducing] balance at 10%)

Use the information given about Harbhajan's business as appropriate to prepare Statement of Financial Position for its year end, including the missing figure for Capital. (12 marks)

c) Explain the problems from a working capital perspective for a business which has

i) too many orders and

ii) too few orders. (4 marks)

2.

a) The double-entry ledger is conveniently divided so that accounts with similar characteristics are placed together. Identify each of the recognized ledger divisions and describe, with an example, the account types that each division contains. (4 marks)

b) ABC Dealing is a business owned and run by Alan B Crick. Whilst the following events took place in the first few days of this month, ledger accounts have not yet been written up and that will become your task here.

01-Jun The business bank account is in funds by 1,500 and there is 2,000 cash in the business's office safe. Open accounts as relevant and simply show these as existing balances brought forward. 01-Jun Bought new inventory on credit from N Joshi and received an invoice for 1,800 inclusive of VAT. 01-Jun Sold goods to Joan's Phones on credit and sent an invoice for 3,500 plus VAT. 01-Jun Alan B Crick puts 2,500 into the business bank account and puts 2,500 into the office safe. This is all new money to his business. 02-Jun Purchased goods for resale in cash from MTC Wholesale and their cash invoice/receipt was 2,000 goods, plus VAT. 03-Jun Sold more goods for 2,700 including VAT and all customers paid by cheque. 05-Jun Goods returned by Joan's Phones and ABC issued a credit note for 250 plus VAT. 06-Jun Alan purchased a second-hand van solely for use within ABC Dealing from D Trotter in cash for 1,200 including VAT. TASK for part b) Opening ledger accounts as necessary and following recognized bookkeeping and accounting principles, correctly record each of the transactions stated above. (12 marks) c) Explain the principles and characteristics of Value Added Tax from a business accounting perspective.