1 For each of the following errors in the financial statements, write the appropriate journal to correct the error: 1. Bank charges of 56 have been omitted from the cash book 2. An amount of 52 for stationery has been posted to motor expenses in error 3. A motor expense has been posted as 5,421 instead of the correct amount of 5,241 (10 Marks) Question 2 The following information is provided for Alderson Ltd for the month ended 31 December 2020. The balance shown on the cash book is 157. Consider the following information and calculate the adjusted cash book balance for 31 December 2020. 1. Lodgements not yet presented at the bank amount to 675 2. Bank charges of 79 shown on the bank statement have not been recorded. 3. A cheque in the amount of 76 has not been presented to the bank. 4. Direct debits of 426 appear only on the bank statement (7 Marks) Question 3 A. Using the information below, produce the Trade Receivables T-account for this week to ascertain the amount that the company is owed by its customers. 01 November 02 November 03 November 04 November 05 November 06 November 07 November The opening balance on the trade receivables account is 12,256 Cash sales were recorded in the amount of 200. Credit sales were made in the amount of 350 Payments of 769 were received in respect of credit sales A large sale to a new customer for 1,430 was made on credit A credit customer returned their goods costing 250 Credit sales were made in the amount of 874 (13 Marks) B. A client of yours has been extended credit by her suppliers and now intends to offer credit to her customers in return. Offer a short explanation of the changes she can expect to see in her financial statements. (5 Marks) Question 4 Ben is a sole trader and had assets of 580,200 and liabilities of 404,320 on 1 January 2019. During the year ended 31 December 2019 he paid 42,000 capital into the business and he paid himself wages of 600 per month. At 31 December 2019, Ben had assets of 614,330 and liabilities of 397,989. What is Ben's profit for the year ended 31 December 2019? (5 Marks) Question 5 Tom Mahomes is a self-employed performance services agent: he owns and manages a business that provides musical instruments, broadcast technology and consultancy services to musicians, writers and performers in the music industry in the United Kingdom (UK). Income is also generated from the operation of a music and comedy festival at Hardwick Hall, Durham (UK). The business is called 'Mahomes Music Services'. Tom is a sole trader: the business is not a limited company. Mahomes Music Services operates from three sites, all of which are rented: the business does not own the buildings from which it operates. Financial statements for Mahomes Music Services are prepared to 31 October. On 31 October 2020, Tom extracted a trial balance from the business's accounting records. This trial balance is provided, below: Trial balance at 31 October 2020 Trading account: Sales 923,750 Opening inventory 341,250 Purchases 652,400 Other revenue and expenses: Festival income 152,000 Rent 30,000 Heating and lighting 5,200 Advertising expenses 13,000 Wages 29,000 Motor expenses 10,800 Discounts allowed 2,100 Statement of financial position accounts: Motor vehicles at cost 50,000 Motor vehicles- accumulated 10,000 depreciation at 1 November 2019 Equipment at cost 150,000 Equipment-accumulated 30,000 depreciation at 1 November 2019 Receivables 45,900 Allowance for receivables 4,000 Bank 23,100 VAT liability 60,000 Payables 33.000 Loan Capital Drawings Total 100.000 200,000 160,000 1,512,750 1,512,750 CONTINUED Tom has also provided the following additional information: 1) The closing inventory on 31 October 2020 was valued at 325,100. 2) 3) 4) 5) 6) 7) 8) 9) The business supplied broadcast technology to a festival on 20 August 2020 for which it has not yet received payment. Tom expects that, eventually, the business will receive 15,200. Tom depreciates Mahomes Music Services' motor vehicles using the reducing-balance method; a rate of 20% per annum is applied. The business's equipment is depreciated using the straight-line method; a rate of 10% per annum is applied. Tom expects that 3,900 due from customers will be irrecoverable and must be written off. The allowance for irrecoverable receivables is to be set at 5% of net receivables at the year end. On 1 September 2020, Mahomes Music Services paid rental expenses of 9,000 for the three-month period to 30 November 2020. The business paid 6,000 for advertising on 1 August 2020. This expense was in respect of the four-month period to 30 November 2020. Tom estimates that an accrual for Mahomes Music Services' heating and lighting expenses is required: he estimates that an accrual of 890 is needed. 10) The business's long-term loan is repayable in ten years' time. Interest payable on the loan is 8% per annum and is paid once per year. Opportunities for performance services agencies in the UK music industry mean that Tom plans to expand Mahomes Music Services; this will be financed by converting the business into a limited company and the issue of equity share capital. On 1 November 2020, the business will be incorporated and become 'Mahomes Music Services Ltd. 100,000 equity shares will be issued at a unit issue price of 1.00 per share on 1 November 2020: the nominal value of Mahomes Music Services' equity share capital will be 1.00. On 1 May 2021, a further 25,000 equity shares will be issued at a unit issue price of 1.25. Tom would like to raise additional finance to support the expansion of the business, but is unsure of the other financing arrangements that are available to limited companies. He has stated: "I know that limited companies can raise finance by issuing equity share capital, but what are the alternatives? Other performance service agency businesses borrow money that is secured against their non-current assets: will I be able to do this for Mahomes Music Services Ltd?" Page 6 of 7 ACCT1041-WE01 Expansion of the business will mean that Tom will need greater support from professional accountants. He has read about some of the recent 'scandals' in which some accountants have failed to apply the required standards of professional ethics. Tom has stated: "I'm concerned about paying fees to accountants who seem to have poor standards of professional ethics. The business is going to need much more support with financial reporting, auditing and tax accounting. These are very different activities." Required: (i) Prepare a statement of profit or loss for Mahomes Music Services for the year ended 31 October 2020. Support your response with full workings. (ii) (12 marks) Prepare a statement of financial position for Mahomes Music Services as at 31 October 2020. Support your response with full workings. (8 marks) Prepare journal entries to record the issues of equity share capital on 1 November 2020 and 1 May 2021, respectively. Support your response with full workings. (3 marks) (iv) Critically advise Tom Mahomes of the other financing arrangements that might be used by Mahomes Music Services Ltd. (V) (8 marks) Critically discuss the need for different standards of professional ethics for financial reporting, auditing and tax accounting. (9 marks) (Total 40 marks)