Explain the effect on income and financial position if (a) the amount of accrued expense were to be underestimated and (b) the inventory at the year-end omitted inventory held in a customs warehouse awaiting clearance.

2. Explain why two companies carrying out identical trading transactions could produce different gross profit figures.

Classify the following items into cost of sales, distribution costs, administrative expenses, other operating income or items to be disclosed after trading profit:

(a) Personnel department costs

(b) Computer department costs

(c) Cost accounting department costs

(d) Financial accounting department costs

(e) Bad debts

f ) Provisions for warranty claims

(g) Interest on funds borrowed to finance an increase in working capital

(h) Interest on funds borrowed to finance an increase in property, plant and equipment.