Ledger Posting/ Trial Balance / Financial statements

Q -1 The transactions of a new business entity during its first five days were as

follows:

Day 1 AVO commenced business introducing $1,000 cash.

Day 2 Bought a motor car for $400 cash.

Day 3 Obtained a $1,000 loan.

Day 4 Purchased goods for $300 cash.

Day 5 Sold goods for $400 on credit.

Required:

Use the accounting equation to illustrate the position of the entity.

Q -2 BR started a business on 1 May and, during the first month, entered into

the following transactions:

1st BR starts business as a sole proprietor with $20,000 in

cash

2nd Pays $15,000 cash into a business bank account

4th Purchases goods on credit from JM for $2,000

6th Purchases goods from ERD on credit for $3,000

7th Pays wages in cash $60

10th Pays rent by cheque $80

12th Sells goods for cash $210

16th Buys furniture for $1,500 paying by cheque

19th Sells goods on credit to SP for $580

22nd Buys goods for cash $3,900

24th Buys fittings for cash $600

24th Pays carriage outwards costs by cheque $25

25th Pays wages by cash $110

25th Sells goods for cash $430

27th Receives part payment from SP of $330 by cheque

27th Pays carriage inwards costs by cheque $20

28th Pays advertising by cheque $25

29th Sells goods on credit to KM for $8,090

30th Withdraws $100 cash for his personal use

Required:

Prepare ledger account entries to record the transactions.

Q 3 - ATH commenced business on 1 February 20X1, paying $500 into a

business bank account. (Note: This TYU is continued in Illustration 1 –

Chapter 4)

During February the following transactions took place. All payments are

made by cheque and all receipts are banked.

1st Bought goods for resale 150

5th Paid rent 50

10th Sales receipts 290

22nd Paid for advertising 25

26th ATH's drawings 100

27th Sales receipts 240

Required:

(a) write up the bank account

(b) write up all the other accounts.

Q 4 - Prepare the trading account & P & L Account for Q No - 2, BR, given that

closing inventory was $1200.

Also prepare the statement of

financial position as at 31 May.

INVENTORY
Q 5 -Consider the following information regarding the movements of inventory

during March:

1 March Opening inventory = Nil

2 March Purchased 10 units @ $3 each

7 March Purchased 20 units @ $4 each

10 March Sold 15 units @ $8 each

13 March Bought 20 units @ $5 each

17 March Sold 5 units @ $8 each

Using these figures we can calculate that the inventory remaining after these transactions was 30
units. The difficulty is in measuring the cost of those units. Is the remaining inventory made up of
items bought recently, or is it made up of items bought earlier? Or is a mixture of the two? How do
we know?

Required:

(a) Prepare a summary of the receipt and issue of inventory, applying the FIFO principle, together
with a trading account for March.

(b) Prepare a summary of receipt and issue of inventory, applying the LIFO principle, together with a
trading account for March.

Q 6 - INV has closing inventory of 5 units at a cost of $3.50 per unit at 31 December 20X5. During the
first week of January 20X6, INV entered into the following transactions:

Purchases

• 2 January – 5 units at $4.00 per unit

• 4 January – 5 units at $5.00 per unit

• 6 January – 5 units at $5.50 per unit.

INV sold 7 units for $10.00 per unit on 5 January.

Required:

(a) Calculate the value of the closing inventory at the end of the first week of trading using the
following inventory valuation methods:

1 FIFO

2 periodic weighted average cost

3 continuous weighted average cost.

(b) Prepare the trading account of INV to determine gross profit for the first week of trading using
each method of inventory valuation.
7) KLM owns and operates a successful pizza business since 20X1. KLM bought the following assets
as the pizza business grew:

• a new oven for the kitchen at a cost of $2,000 (purchased 1 December 20X4)

• a van for deliveries at a cost of $18,000 (purchased 1 June 20X4).

KLM depreciated the oven at 10% straight line and the van at 25% reducing balance. A full year’s
depreciation is charged in the year of purchase and none in the year of disposal.

Required:

What was the total depreciation charge for the year ended 31 October

20X6?

A $2,531

B $2,700

C $4,231

D $2,731

8) A business entity has an accounting year end of 30 April. A machine was purchased on 1 May 20X0
for $1,000 cash and was depreciated using the reducing balance basis of 20 per cent per annum.

Required:

Prepare the ledger accounts or accounts to reflect the first three years of ownership. Note that
statement of profit or loss and statement of financial position extracts are not required.

9) A business entity has an accounting year end of 31 December. On 1 April 20X3, it purchased an
asset for $14,000. The asset is expected to have a useful life to the entity of five years, with an
expected residual value of $2,000. Depreciation is charged on a straight-line basis with a
proportionate charge in the year of purchase and disposal. The machine was sold on 30 September
20X6.

Required:

What was the annual depreciation charge included in the financial statements for each accounting
year that the entity owned the asset?

10) WXY recently acquired the assets and liabilities of ACE for $1,500,000. The assets and liabilities
acquired were valued by WXY as follows:

Land and buildings 750,000

Plant and equipment 240,000

Receivables 38,000

Payables (41,000)

––––––––

1,052,000

––––––––

Required:

Calculate the value of goodwill upon purchase of ACE.

11) A business entity acquired a licence at a cost of $25,000 on 1 July 20X3 which gave it the
exclusive right to use a particular production process for ten years from the date of purchase. The
licence is amortised over its expected useful life, with a proportionate charge in the year of
acquisition.

Required:

What is the amortisation charge relating to the licence for the year ended 31 March 20X4?

12) On 31 December 20X2, a building which originally cost $100,000, and which had a carrying
amount of $70,000, was revalued to $120,000. At that date, the remaining useful life of the building
was considered to be 12 years and the building was depreciated using the straight-line basis.

Required:

Prepare the ledger account entries required to account for the revaluation of the building and
calculate the depreciation charge based upon the revalued amount.

13) HIJ revalued its premises on 1 January 20X7 to $1,600,000. The premises had been purchased on
1 January 20X1 at a cost of $900,000 and depreciation was charged at 2% per annum on a straight-
line basis.

Required:

What was the balance on the revaluation surplus account after accounting for the revaluation?

A $750,000

B $790,000

C $808,000

D $826,000