The following information has been extracted from the payroll of Radley & Co, a partnership, for June.

£
Gross wages and salaries 127,600
PAYE 31,900
Employee NIC 11,484
Employer NIC 14,036
101

What is the total wages and salaries expense to be included in the profit and loss account for June?

£113,564
£185,020
£141,636
£127,600 c
Eiris plc has the following information in its financial statements relating to machinery as at 31 July:

20X4 20X3
£ £
Cost 320,000 260,000
Accumulated depreciation 97,500 90,000
Carrying amount 222,500 170,000
During the year to 31 July 20X4, the following transactions occurred in relation to machinery:

102
Additions £142,000
Sales proceeds from disposals £94,000
Depreciation charge £31,400
What is Eiris plc's profit or loss on disposals of machinery in the year ended 31 July 20X4?

£35,900 loss
£35,900 profit
£4,500 profit
£4,500 loss b
 Harry posts a debit for wages to the rent account in error.

What type of error is this?

103
Commission
Omission
Error of principle
Compensating error a
Kieran has an allowance for receivables of £3,000 at 31 December 20X7. During the year £50 had been received in respect of a debt previously written off, and an
allowance for receivables of £3,100 is to be carried down at 31 December 20X8.

What is the irrecoverable debts figure for the year to 31 December 20X8?
104
£50 charge
£150 charge
£50 credit
£150 credit a

After settling its tax liability on profits for the year ended 30 June 20X3, Spiral Ltd has a debit balance of £500 relating to tax payable included in its trial balance
extracted at 30 June 20X4. Spiral Ltd estimated that its income tax liability for the year ended 30 June 20X4 was £8,000.

What amounts of tax should Spiral be showing in its financial statements?

105
Statement of profit or loss: £8,000 / Statement of financial position: £8,000
Statement of profit or loss: £8,500 / Statement of financial position: £8,000
Statement of profit or loss: £7,500 / Statement of financial position: £8,500
Statement of profit or loss: £8,000 / Statement of financial position: £7,500 b
 Marie’s draft accounts show a loss of £25,000 for the year. Upon investigation, you discover the following:

1. A purchase of plant and equipment on the last day of the year costing £3,000 had had been incorrectly recorded as a repair expense.

2. Cash of £800, received in respect of a debt written off last year had been credited to receivables.

3. Closing inventory includes items costing £2,000 which were sold and delivered to the customer on the year end date.
106
What is the adjusted loss for the year?

£25,200
£23,200
£30,800
£26,800 b
A plc's share capital consists of 400,000 25p equity shares all of which were issued at a premium of 25%. The company made a 2 for 5 rights issue at £1.50 per
share. A plc correctly debited cash at bank but recorded the other side of the transaction in the suspense account.

What adjustment should A plc make to correctly record the rights issue?
107
Debit Suspense £240,000, Credit Share capital £160,000, Credit Share premium £80,000
Debit Suspense £240,000, Credit Share capital £40,000, Credit Share premium £200,000
Debit Suspense £60,000, Credit Share capital £15,000, Credit Share premium £45,000
Debit Suspense £60,000 Credit Share capital £40,000, Credit Share premium £20,000 b
 A company buys a machine for £10,000. It has an estimated residual value of £500, a useful life of ten years and the company depreciates the asset using the
straight line method.

After four years the company decides that the asset has no residual value.

The depreciation charge for the fifth year will be

108
£1,033
£1,000
£967
£950
a

Lemon plc draws up financial statements to 31 December in each year. It pays telephone line rental charges for each year ending 30 April in two equal
instalments, on 1 May and 1 November, in advance. It also pays telephone call charges quarterly in arrears at the end of February, April, July and November. The
total telephone line rental for the year to 30 April 20X4 was £6,300. Telephone call charges for the year commencing 1 July 20X3 were £5,820.

109 What were Lemon plc's prepayment for line rental and accrual for call charges in its statement of financial position at 31 December 20X3?

Prepayment for line rental £2,100, Accrual for call charges £485
Prepayment for line rental £1,575, Accrual for call charges £485
Prepayment for line rental £1,575, Accrual for call charges £970
Prepayment for line rental £2,100, Accrual for call charges £970 a
On 1 April 20X7 a sole trader paid £6,380 in local property taxes for the year ending 31 March 20X8. This was an increase of 10% on the charge for the previous
year.

What is the correct charge for local property taxes in her profit and loss account for the year ended 31 December 20X7?
110
£4,640
£6,220
£6,235
£6,540 c
 Paul and Pete are in partnership, sharing profits in the ratio 3 : 2. On 1 July 20X7 they admitted Paul’s son Rob as a partner. Paul guaranteed that Rob’s profit share
would not be less than £30,000 for the six months to 31 December 20X7. The profit sharing arrangements after Rob’s admission were 5:3:2 for Paul, Pete and Rob
respectively. The profit for the year ended 31 December 20X7 is £280,000, accruing evenly over the year.

What should Paul’s final profit share be for the year ended 31 December 20X7?
111
£30,000
£98,000
£152,000
£154,000 c
Fred and George are in partnership sharing profits and losses in the ratio Fred 60%, George 40%.

Their bookkeeper has by mistake entered the current year's profits in the books as shared equally between them.

What entry needs to be made to correct this error?

112
Debit: George's current account Credit: Fred's current account
Debit: Fred's current account Credit: George's current account
Debit: Fred's appropriation account Credit: George's current account
Debit: George's current account Credit: Fred's appropriation account a
For many years Meadows plc has experienced falling prices for raw material M, and has kept constant inventory levels. It uses the AVCO inventory valuation
method.

If Meadows plc had used the FIFO valuation method, in the financial statements this would result in:
113
Lower cost of sales and higher closing inventory value
Lower cost of sales and lower closing inventory value
Higher cost of sales and lower closing inventory value
Higher cost of sales and higher closing inventory value c
 The following information is available about Celine’s business at 31 October 20X4:

£
Motor van 14,000
Loan (repayable in 4 equal annual instalments starting 1 January 20X5) 100,000
Trade receivables 23,800
Bank balance (a debit on the bank statement) 3,250
Accumulated depreciation 7,000
Trade payables 31,050
Inventory 12,560
114 Petty cash 150
Rent payable 1,200
Allowance for receivables 1,500

What are the correct totals for current liabilities and current assets in Celine’s statement of financial position as at 31 October 20X4?

Current assets: £35,010 / Current liabilities: £34,300

Current assets: £38,260 / Current liabilities: £32,250
Current assets: £38,260 / Current liabilities: £57,250
Current assets: £35,010 / Current liabilities: £60,500 d
The Companies Act in the UK requires the following documents in the financial statements:

a profit and loss account, a balance sheet, a directors report, an auditors report.
115 a profit and loss, statement of financial position, directors report and an auditors report.
a statement of financial position, an income statement, a statement showing changes in equity, a statement of cash flow, accounting policies and explanatory
notes.
a profit and loss account, a balance sheet, a cash flow statement, a directors report and an auditors report. b
 The VAT account in Britney Ltd's nominal ledger currently shows output tax and input tax for the quarter at £232,618 and £142,319 respectively. A review of the
account highlights the following:

1. £5608 of VAT on invoices received has been posted to output tax

2. VAT of £4201 on sales has been posted to the debit of the VAT account

116 3. VAT on a purchase invoice with a total invoice value (including VAT) of £126 has not been recorded at all.

The correct balance on the VAT account is:

£93,092 receivable
£87,464 payable
£84,464 receivable
£93,092 payable c
At 30 September 20X3 Jeff plc’s equity contained the following balances:

Equity shares of £1 each: £40m

Share premium account: £20m

During the year ended 30 September 20X4, the following transactions took place:

1 - 1 December 20X3 - A one-for-four bonus issue, using the share premium account
117
2 - A fully subscribed one-for-two rights issue at £1.80 per share.

What are the balances on each account at 30 September 20X4?

Equity share capital: £75m / Share premium: £21m

Equity share capital: £75m / Share premium: £50m
Equity share capital: £75m / Share premium: £30m
Equity share capital: £70m / Share premium: £35m c
 Extracts from the financial statements of Double Ltd showed balances at 31 December as follows:

20X9 20X8
£ £
£1 Share capital 300,000 120,000
Share premium 260,000 100,000
Bank loan 350,000 50,000

118
A bonus issue of 1 share for every 12 held at 1 January 20X9 was made. An issue of shares for cash was made on 1 October 20X9. Interest on the bank loan of
£12,000 was paid in 20X9.

What was the net cash inflow from financing activities for the year ended 31 December 20X9?

£605,000
£480,000
£640,000
£617,000 c
Which two of the following are fundamental principles of the IESBA Code of Ethics for Professional Accountants?

A Independence
B Confidentiality
C Professional courtesy
D Objectivity
119
E Honesty

A and D
C and E
B and D
A and B c
 On 1 August 20X4, Neptune Ltd had inventory of £380,000. During August 20X4, sales totalled £650,000 and purchases £480,000. On 31 August 20X4 a fire
destroyed some of the inventory. The undamaged goods were valued at £220,000. The business makes all sales with a standard gross profit margin of 30%.

Based upon this information, what was the cost of the inventory destroyed in the fire?
120
£185,000
£130,000
£405,000
£260,000 a
Banana Ltd paid £12,150 against an invoice, taking advantage of an early settlement discount of £150. When Banana Ltd had originally received and recorded the
invoice they had not expect to have sufficient funds to allow them to take the discount.

What is the journal entry to record the payment of the invoice?

121
Debit Cash at bank £12,300, Credit Payables £12,300
Debit Payables £12,300 Credit Cash at bank £12,300
Debit Cash at bank £12,150, Debit Purchases £150, Credit Payables £12,300
Debit Payables £12,300, Credit Cash at bank £12,150, Credit Purchases £150 d
A firm's cash at bank account at 30 June 20X1 shows a balance at the bank of £5600. Comparison with the bank statement at the same date reveals the following
differences:

Unpresented cheques 540

Bank charges 75
Dishonoured cheque 1006
Uncleared lodgements 1060
122

The correct cash at bank account balance at 30 June 20X1 is:

6531
4985
5525
4519 d
 A business compiling its financial statements for the year to 31 October each year pays rent quarterly in advance on 1 January, 1 April, 1 July and 1 October each
year. The annual rent was increased from £96,000 to £120,000 per year from 1 March 20X7.

What figure should appear for rent in the statement of profit or loss for the year ended 31 October 20X7 and in the statement of financial position at that date?
123
Statement of profit or loss: £112,000 Statement of financial position: £20,000
Statement of profit or loss: £104,000 Statement of financial position: £10,000
Statement of profit or loss: £112,000 Statement of financial position: £10,000
Statement of profit or loss: £110,000 Statement of financial position: £20,000 c

Pluto Ltd’s trial balance at 31 December 20X5 included a credit balance of £3,400 on its tax liability account, having already settled the tax liability for the year
ended 31 December 20X4 during the year. Pluto Ltd estimated that its income tax charge arising on its profits for the year ended 31 December 20X5 at £67,900.

What amounts should be included in Pluto Ltd's financial statements for the year ended 31 December 20X5 in respect of tax?
124
Statement of profit or loss: £67,900 tax charge / Statement of financial position: £67,900 tax payable
Statement of profit or loss: £64,500 tax charge / Statement of financial position: £64,500 tax payable
Statement of profit or loss: £64,500 tax charge / Statement of financial position: £67,900 tax payable
Statement of profit or loss: £71,300 tax charge / Statement of financial position: £67,900 c
Brooker paid £130,000 to trade payables during the year ended 31 December 20X5.

At the beginning of the year payables totalled £11,750 and at the end they totalled £13,550. The value of closing inventory was £8,200. Cash purchases were
£2,800. The cost of sales for the year was £148,000.

125 What was the value of opening inventory?

£21,600
£24,400
£18,800
£25,200 a
 The inventory value for the financial statements of a business for the year ended 31 December 20X7 was based on an inventory count on 4 January 20X8, which
gave a total inventory value of £314,400. Between 31 December and 4 January 20X8, the following transactions took place:

£
Purchases of goods 8,400
Sales of goods (profit margin 40% on sales) 16,000
Goods returned to supplier 1,000
126

What adjusted figure should be included in the financial statements for inventories at 31 December 20X7?

£316,600
£314,400
£314,200
£307,800 a
On 1 January 20X4 a company receives news that a major customer has been declared bankrupt. The amount he owed was £25,000 and this had been allowed for
as doubtful at 31 October 20X3, the end of the previous reporting period.

Also on 1 January 20X4 a company receives £12,000 from another customer whose debt was written off in the previous period as they had left the country and
were not expected to return.

127
What entries are required as at 1 January 20X4?

Debit Allowance for receivables 25,000, Credit Receivables account 13,000

Debit Irrecoverable debts written off 13,000, Credit Receivables account 25,000
Debit Irrecoverable debts written off 25,000, Credit Allowance for receivables 25,000
Debit Allowance for receivables 13,000, Credit Irrecoverable debts written off 13,000 b
 A business statement of profit or loss for the year ended 31 December 20X4 showed a net profit of £101,400. It was later found that £20,000 paid for the
purchase of a motor van on 1 January 20X4 had been debited to the motor expenses account. It is the company's policy to depreciate motor vans at 25% per year.

What would the net profit be after adjusting for this error?
128
£86,400
£121,400
£116,400
£96,400 c
A company purchases a machine for £64,000. It has no residual value and an expected useful life of 8 years. It is depreciated using the straight line method for two
years when the company decides to change the depreciation method to reducing balance at 30%.

The annual depreciation for the first year under the new method will be:
129
£8,000
£14,400
£19,200
£9,408 b
 At 30 June 20X6 Ollie plc’s equity contained the following balances:

£
Share capital
Ordinary shares of £1 each 80m
Share premium account 40m

During the year ended 30 June 20X7, the following transactions took place:

130
1 September 20X6 A 1 for 2 bonus issue, using the share premium account.

1 January 20X7 A fully subscribed 1 for 3 rights issue at £1.80 per share.

What are the balances on each account at 30 June 20X7?

Share capital: 160,000,000, Share premium account: 72,000,000

Share capital: 160,000,000, Share premium account: 32,000,000
Share capital: 192,000,000, Share premium account: 72,000,000
Share capital: 192,000,000, Share premium account: 32,000,000 b
 During March 20X9 a business paid out £23,550 in net wages to its employees. In respect of these wages, the following amounts were shown in the statement of
financial position at 31 March X9:

£
PAYE payable 4,620
National Insurance payable – employees' 2,830
– employer's 2,640
131

What were the employees' gross wages BEFORE deductions?

£28,170
£30,810
£31,000
£33,640 c
The VAT account in Salvador’s nominal ledger currently shows output tax and input tax for the quarter at £64,515 and £38,222 respectively. A detailed review of
the account highlights the following:

£350 of VAT included on credit notes received has been debited to the VAT account

VAT of £1,750 on purchases has been posted to the credit of the VAT account
132
The correct amount payable to HM Revenue and Customs is:

£29,093
£24,893
£23,493
£22,093 c
 Gardentime imports garden furniture. The furniture is transported by ship to Portsmouth and then taken by truck to a warehouse in Bristol. The company is
unsure whether the following expenses should be included in the cost of inventory:

Shipping costs to Portsmouth

Purchase price of furniture
Breakdown costs of a delivery truck which broke down between Portsmouth and Bristol while transporting furniture
133 Import duties
Which of the costs should be included in the cost of inventory in Gardentime's statement of financial position?

1, 2 and 3 only
2, 3 and 4 only
1, 2 and 4 only
1, 3 and 4 only c

At 30 September 20X7 a company has receivables totalling £128,000 and a specific allowance for receivables of £4,800 brought forward from the previous year.

It has been decided to write off receivables totalling £10,500 and to adjust the allowance for receivables to £3,000.

134 The net receivables in the statement of financial position as at the year end of 30 September 20X7 will be:

£114,500
£120,500
£135,500
£141,500 a
 Norman plc purchased a van on 1 October 20X7 for a total cost of £20,000 by paying £16,000 cash and trading in an old van. The old van had cost £18,000 and the
related accumulated depreciation was £12,200. The entry made in the accounting records for this transaction was to debit the suspense account £16,000 and
credit cash £16,000.

Which of the following journal entries is required to correctly reflect the purchase and disposal in Norman plc’s accounting records?
135
Debit Van - cost £2,000, Debit Van – accumulated depreciation £5,800, Debit Disposal £8,200, Credit suspense £16,000
Debit Van - cost £20,000, Debit Van – accumulated depreciation £12,200, Credit Disposal £16,200, Credit suspense £16,000
Debit Van - cost £2,000, Debit Van – accumulated depreciation £12,200, Debit Disposal £1,800, Credit suspense £16,000
Debit Van - cost £20,000, Debit Van – accumulated depreciation £5,800, Credit Disposal £9,800, Credit suspense £16,000 c
Orange plc has a balance of £3,500 overdrawn in the cash at bank account at 30 September 20X1. The accountant is in the process of reconciling this to the
transaction report downloaded from the electronic banking system and has discovered the following:

A cheque for £99 received from a credit customer, which was paid into the bank on the 27 September, has been dishonoured on 30 September.
Orange has been charged interest of £31 for the month of September.
A cheque for £200 which was sent to a supplier on 28 September has not yet been presented for payment.
136
What is the correct balance in Orange plc’s cash at bank account as at 30 September 20X1?

£3,370 debit
£3,432 credit
£3,630 credit
£3,830 credit c
 Rory, Imogen and Charlotte are in partnership with fixed capital of £7,000, £3,000 and £2,000 respectively. Interest of 5% per annum is given on capital. They
share profits in the ratio 50:35:15.

In addition, Charlotte has a salary of £2,500 per annum, with Rory personally guaranteeing that Charlotte's total share of profits will not be less than £6,600 per
annum.

137 How will the profit of £25,000 for the year ended 31 July 20X3 be appropriated between the partners?

Rory: £11,300, Imogen: £7,815 Charlotte: £5,885

Rory: £10,585, Imogen: £7,815 Charlotte: £6,600
Rory: £11,250, Imogen: £6,750 Charlotte: £7,000
Rory: £10,930, Imogen: £7,470 Charlotte: £6,600
b
Tariq has been unable to calculate his business' profit or loss for the year ended 31 December 20X7 as fire destroyed most of his accounting records. He has,
however, been able to provide the following information.

Net assets at 31 December 20X6 were £31,600 and £42,900 at 31 December 20X7.

He introduced capital during the year of £6,000 cash.

He took cash drawings of £8,000 and goods with a selling price of £1,000. The cost of the goods was £700.
138

What was Tariq's profit for the year ended 31 December 20X7?

£3,400
£13,300
£14,000
£26,000 c
 Your firm values inventory using the AVCO method. At 1 June 20X7 there were 100 units in inventory valued at £10 each. On 12 June, 50 units were purchased for
£12 each, and a further 50 units were purchased for £15 each on 20 June. On 21 June, 160 units were sold for £20.00 each.

The value of closing inventory at 30 June 20X7 was:

139
£470
£2,350
£493
£1,880 a
The directors of Paphos plc wish to omit an item from the company’s financial statements on the grounds that it is commercially sensitive. Information on the item
would influence the users of the information when making economic decisions.

According to IAS 1 Presentation of Financial Statements the item is said to be:

140
Neutral
Prudent
Material
Substantial
c
Picasso Ltd sells digital cameras and has a year-end date of 30 November 20X8. Picasso accepted an order for 50 digital cameras on 27 November at a selling price
of £200 each. Picasso dispatched 20 cameras on 28 November, which were then received by the customer on 30 November. The remaining 30 cameras were
dispatched on the 29 November and received by the customer on the 2 December. Picasso Ltd remains responsible for the goods until they are delivered to the
customer.

141 How much revenue should Picasso Ltd recognise in the year ended 30 November 20X8 for the sale of the digital cameras?

£10,000
£6,000
£4,000
Nil c
 Taylor Ltd has issued equity share capital of 250,000 shares with a nominal value of £0.50 each and a share premium account balance of £100,000.

What accounting entries are required if Taylor Ltd was to make a bonus issue of one share for four held?

142
Debit: Share premium £31,250 / Credit: Share capital £31,250
Debit: Share capital £31,250 / Credit: Share premium £31,250
Debit: Share capital £62,500 / Credit: Share premium £62,500
Debit: Share premium £62,500 / Credit: Share capital £62,500 a
Asha, a trainee accountant, has prepared the extract below for a statement of cash flows. She is concerned she has made some errors but is unsure which
adjustments are incorrect.

Cash flows from operating activities £’000

Profit before tax: 560
Depreciation: (55)
Profit on disposal of a non-current asset: (36)
Increase in inventories: 9
143 Decrease in trade receivables: 15
Decrease in trade payables: (22)
Cash generated from operations: 471
What should the figure for cash generated from operations be once the errors have been corrected?

£513,000
£525,000
£551,000
£563,000 d
 During 20X2, Harry received £500 rent in respect of the 12 months ended 31 March 20X2. During 20X2, Harry increased rent to £800 and received payment in full
for the 12 months ended 31 March 20X3.

The rental income for the financial year ended 31 December 20X2 and the closing balance in the Statement of Financial Position at that date will be:
144
Rental Income £1,475 Accrual £200
Rental Income £1,475 Deferred income £200
Rental Income £725 Accrual £200
Rental Income £725 Deferred income £200 d
Bill, a sole trader from Harringey, has the following information:

Opening capital £22,000

Capital introduced £10,000
Cash taken for personal use £5,000
Closing capital £56,000

145
What profit did the business make in the year?

£24,000
£34,000
£29,000
£10,800 c
 Bailey Ltd purchased a motor vehicle on 1st July 20X1. The motor vehicle was then depreciated in accordance with the company’s normal accounting policy. A full
year’s charge for depreciation is made in the year of acquisition, with none made in the year of disposal.

The company traded in this vehicle for a new and improved model on 1st April 20X3. The carrying amount at the date of exchange of the original vehicle was
£18,750. Against the purchase of the new vehicle Bailey Ltd received a part exchange allowance of £12,000. The cash price to purchase the new vehicle was
£21,550.

146 The company consistently applies a 25% reducing balance policy to all its motor vehicles.

What was the profit or loss on disposal of the old motor vehicle?

Loss £6,750
Profit £6,328
Profit £422
Loss £7,000 a
Alan has a year end receivables balance of £860,000 after writing off irrecoverable debts in the year of £46,000. At the year end he wants to make a specific
allowance against a debt of £60,000. There was an opening allowance balance of £10,000.

What is the total charge in the Statement of Profit or Loss for irrecoverable debts?
147
£96,000
£136,000
£146,000
£149,000 a
 Paul Ltd rents an office on 1 May 20X1. His rent is £600 per month, increasing to £650 after his first six rental payments. He paid a deposit of £600 on 1 May and
sets up a standing order for £600 to be paid on the last day of every month. He has debited the rent expense with the cash payments but made no further entries.

What is the journal entry to adjust Paul Ltd’s rental expense for the year ended 31 December 20X1?
148
Debit Rent expense £100, Credit Accruals £100
Debit Prepayments £100, Credit Rent expense £100
Debit Rent expense £500, Credit Accruals £500
Debit Prepayments £500, Credit Rent expense £500 d
Which of the following reflect the concept of matching?

Valuing inventory at the lower of cost and NRV.

149 Depreciation.
Adding the profit for the year into the capital balance on the Statement of Financial Position.
Showing net assets and owners capital on the face of the Statement of Financial Position.
b
Ceri trades in CDs. At the beginning of the year, she had unsold CDs valued at £5,700. During the year she purchased CDs at £9,500 of which £460 were returned
to her supplier. At the year-end, £5,900 remained in stock.

At what value should cost of sales be stated?

150
£9,240
£9,300
£8,840
£9,760 c
 Joey received and paid a business electricity bill for £1,200 on 1 November 20X0 in respect of 12 months to 30 September 20X0. His account for the year ended 31
December 20W9 showed an accrual of £70.

What are the entries for the financial year ended 31 December 20X0?
151
Statement of Profit or Loss: Expense £1,200 / Statement of Financial Position: Accrual £100
Statement of Profit or Loss: Expense £1,200 / Statement of Financial Position: Prepayment £100
Statement of Profit or Loss: Expense £1,430 / Statement of Financial Position: Accrual £300
Statement of Profit or Loss: Expense £1,430 / Statement of Financial Position: Prepayment £300 c
While preparing the accounts for Odysseus’s business for the year ended 31 December 20X6, you discover that adjustments need to be made in respect of the
following.

(1) Odysseus had drawn goods from stock with a sales value of £300; the only entry made in the books had been to debit drawings. The business has a consistent
mark-up of 25%.

(2) At 1 January 20X6 there had been an allowance for receivables of £1,000. Odysseus wishes to create an allowance for 20X6 in relation to a customer owing
152 £1,000, making a 40% specific allowance.

What is the effect of these adjustments on the business’s net profit for the year ended 31 December 20X6?

Increase of £500
Increase of £840
Decrease of £840
Decrease of £250 b
 A bank reconciliation is being prepared. Information is given below:

(1) The closing balance shown by the cash at bank account is £670 overdrawn.

(2) The bank has made a mistake in crediting the account with £110 belonging to another customer – an error not yet rectified.

(3) £120 received by the bank under a standing order arrangement has not been entered in the cash at bank account.

(4) Cheques totalling £5,629 have been drawn, entered in the cash at bank account and sent out to suppliers but not presented for payment.
153
(5) Cheques totalling £5,577 have been received and entered in the cash at bank account but not yet credited to the bank statements.

What is the closing balance as shown by the bank statement?

£848 overdrawn
£498 overdrawn
£492 overdrawn
£388 overdrawn d
What is the double entry to record drawings from stock made by a proprietor?

Debit: Wages / Credit: Purchases

154
Debit: Inventory / Credit: Drawings
Debit: Drawings / Credit: Inventory
Debit: Drawings / Credit: Purchases d
According to the Conceptual Framework the enhancing qualitative characteristics are: timeliness, comparability, verifiability and:

Understandability
155
Completeness
Reliability
Fully represented a
 The accountant of Robinson Plc is preparing the statement of changes in equity for the year ended 30 September 20X8. The company had an opening retained
earnings balance at 1 October 20X7 of £172,300. The following balances and transactions arose during the year:

Robinson Ltd issued 12,000 50p equity shares at a premium of £0.10 per share on 1 October 20X7
It paid a dividend totalling £2,400 on 31 January 20X8
Robinson Ltd made a bonus issue on 1 March 20X8 of 3,000 £0.50 equity shares utilising retained earnings
It made a loss for the year of £25,000
156
What is the closing balance of Robinson Plc’s retained earnings at 30 September 20X8?

£141,900
£143,400
£150,600
£193,400 b

The opening balance in Derek's 20X7 accounts for Motor Vehicle cost was £80,000. The accumulated depreciation account had an opening balance of £38,000.

A car which was bought in 20X5 for £25,000 was traded-in during the year for a new car which would have cost £44,000 but an allowance of £10,000 was given for
the old car.

The company's depreciation policy is to charge 20% on cost at the year end. A full year's depreciation is charged in the year of acquisition and none in the year of
157 disposal.

Calculate the depreciation charge for 20X7.

£12,200
£21,800
£17,800
£19,800 d
 Jordanhill Ltd is a manufacturing company and has been experiencing trading difficulties for some time. The directors have concluded that the company is no
longer a going concern and will prepare the financial statements on the break-up basis. The company has a machine with a carrying value of £23,000 in the
statement of financial position. If the machine were to be sold the business has estimated that it would only get £14,000 for it. They had anticipated being able to
use the machine for a number of years and had expected it to generate revenues valued at £16,000.

158 How much should the machine be valued at in the statement of financial position?

£14,000
£16,000
£23,000
£Nil a
Accrued income of £1,750 at the year end was treated as deferred income in a business’s statement of profit or loss:

As a result, the profits were:

159
understated by £1,750
overstated by £1,750
understated by £3,500
overstated by £3,500 c
Clare runs a florist and pays an annual premium to be part of the Interflora group. Her year end is 31st July. On 1st January 20X6 she paid her annual fee to
Interflora of £1,600. On the 1st January 20X7 the fee for the year to Interflora had risen to £1,900.

How much should be included in her accounts for 20X7 for the Interflora expense?
160
£1,750
£950
£800
£1,775 d
 The following balances were extracted from the ledger accounts of Jupiter Ltd as at 30 April 20X8:

£
Property, plant and equipment 209,000
Inventory 4,600
Receivables 5,900
Bank loan 50,000
Capital 100,000
Drawings 23,000
Sales 334,500
Purchases 168,200
Sales returns 7,000
161
Bank overdraft 790
Sundry expenses 73,890

The ledger account balance for trade payables was omitted in error. When this is included, the totals of the trial balance will agree.

What was the balance on the trade payables account?

£7,880
£5,500
£6,300
£1,320 c
 Pluto Ltd’s trial balance at 31 December 20X5 included a credit balance of £3,400 on its tax liability account, having already settled the tax liability for the year
ended 31 December 20X4 during the year. Pluto Ltd estimated that its income tax charge arising on its profits for the year ended 31 December 20X5 at £67,900.

What amounts should be included in Pluto Ltd’s financial statements for the year ended 31 December 20X5 in respect of tax?
162
Statement of profit or loss: £67,900 tax charge / Statement of financial position: £67,900 tax payable
Statement of profit or loss: £64,500 tax charge / Statement of financial position: £64,500 tax payable
Statement of profit or loss: £64,500 tax charge / Statement of financial position: £67,900 tax payable
Statement of profit or loss: £71,300 tax charge / Statement of financial position: £67,900 tax payable c

Galaxy Ltd had non-current assets with a carrying amount of £50,000 at the start of the financial year. During the year, Galaxy Ltd sold assets that had cost £4,000
and had been depreciated by £1,500. Depreciation for the year was £9,000. The carrying amount of assets at the end of the financial year was £46,000.

What was the cash paid for additions to non-current assets during the year?
163
£4,000
£7,500
£9,000
£10,000 b
 At 1 November 20X7, Mercury Ltd’s capital structure was as follows:

£
Ordinary shares of 25p 100,000
Share premium 30,000

On 10 January 20X8, in order to raise finance for expansion, Mercury Ltd made a 1 for 4 rights issue at £1.15. The issue was fully taken up. This was followed by a 1-
164
for-10 bonus issue on 1 June 20X8.

What was the balance on the share premium account after these transactions?

£17,500
£21,250
£107,500
£120,000 c
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