1 Correct Answer

None of the above

None of these statements are correct.

The trial balance is a summary of the closing balances on each general leger account. It
does not show the detailed transactions which took place during the year.

The trial balance is not part of the double entry system. Neither debits nor credits are
actually posted to it. It is simply a device for checking postings to the double entry
system, by showing whether debits and credits are equal and which can show at a
glance any unusual balances which may need to be investigated.

Where there has been a suspense account created, this will show up on the trial
balance. However, there are many errors which cannot be identified simply through
examining the trial balance - such as amounts posted correctly but to the wrong
expense account.

2 Correct Answer
Cash receipt from customer

As cash has been debited, this means that cash has been received. If it was received
from a cash sale, the credit would be to sales. However it has been credited to trade
receivables, presumably in settlement of a credit sale. So the correct narrative will be
'cash receipt from customer'.

3 Correct Answer
$26,000

When a new partner is introduced, the goodwill is credited to the capital accounts of the
existing members according to the original profit sharing ratio, and then written off in the
new profit sharing ratio. For Ai this will be:

$
Capital balance on 01 December 20X0 24,000
Goodwill in old ratio (16,000 x 1/2) 8,000
Goodwill in new ratio (16,000 x 3/8) (6,000)
New capital balance 26,000

4 Correct Answer
Drawings: current account
Interest on drawings: current account

Both drawings and interest on drawings are recorded in the partners' current accounts.

The partners' capital accounts only record capital balances and any capital paid in or
withdrawn.

5 Correct Answer
$344 loss

$
Cost 20X5 15,000
Depreciation 20% (3,000)
Carrying amount 20X6 12,000
Depreciation 20% (2,400)
Carrying amount 20X7 9,600
Depreciation 20% (1,920)
Carrying amount 20X8 7,680
Depreciation 20% (1,536)
Carrying amount 20X9 6,144
Proceeds of sale (5,800)
Loss on sale 344

6 Correct Answer
Purchases and trade payables

Sales and Trade receivables relate to the issue of a sales invoice.

7 Correct Answer
$29,125

Lindsay's profit can be calculated as:

$
Increase in net assets (191,779 - 144,804) 46,975
Less capital introduced (52,250)
Plus drawings 34,400
Profit for the year 29,125

8 Correct Answer
A business received an invoice from its energy provider on 2 February relating to
the final calendar quarter - Accrual
A business has estimated its telephone expense for sales employees during the
year but is yet to receive an invoice - Accrual

Neither are examples of prepayment.

9 Correct Answer
'Double entry bookkeeping' means that two sets of records are False
maintained
In double entry bookkeeping we have a basic check on the accuracy of True
the entries, as the total value of the debit entries and the total value of
credit entries should be equal

Double entry bookkeeping does not involve the use of two sets of records. It is called
double entry because for each debit there will be a corresponding credit.

10Correct Answer
Dr Sales returns $880, Dr Sales tax $154, Cr Trade receivables $1,034

Amy should debit the net amount of $880 to sales returns. This removes it from her
sales total. The sales tax of $154 should be debited to the sales tax account, as this
amount is no longer owed to the sales tax authorities. The gross amount of $1,034 is
credited back to trade receivables, to reverse the debit of the original invoice.

11 Correct Answer
1 only

There is no amount carried forward for income and expenditure general ledger
accounts. Trade receivables closing balance is not shown here – customer receipts and
other adjustments are not taken into consideration in the sales general ledger account.

12 Correct Answer
Payment to a supplier:
Dr Trade payables
 Cr Bank

Cash pruchase of equipment - Credit purchase of equipment

Gain on disposal of property, plant and equipment - Loss on disposal of property, plant
and equipment
Increase in allowance for irrecoverable debt - Decrease in allowance for irrecoverable
debt

13 Correct Answer
$53,370

Marek's current assets will be:

$
Inventory at 30 November 20X9 18,736
Trade receivables (31,749 - 744) 31,005
Prepayments 3,629
53,370

14 Correct Answer
Year to 31 October 20X8 Understated
Year to 31 October 20X9 Overstated

In the year to 31 October 20X8 Benni's profit has been charged with the whole cost of
the depreciable asset, instead of just the depreciation charge. The profit is therefore
understated.

In the year to 31 October 20X9 Benni's profit should have been charged with
depreciation, but this does not happen because the asset was not capitalised. The
profit for the year is therefore overstated.

15 Correct Answer
Dr Provisions
Cr Operating expenses

Incorrect answers:
Dr Operating expenses
Cr Provisions
Increase in provision

Dr Provisions
Cr Bank
Payment of expenses previously provided for

Dr Bank
Cr Provisions
Cash reimbursement

16 Correct Answer
A credit of $1,008

Ethel has reduced her allowance for irrecoverable debt from $14,862 to $13,854. This
is a reduction of $1,008, which will be credited back to irrecoverable debt expense.

17 Correct Answer
Dr Irrecoverable debt expense
Cr Trade receivables

The irrecoverable balance will be written off to profit or loss. This is a debit because it is
an expense.

The credit will be to trade receivables. Trade receivables is an asset (debit) account, so
amounts written off are credited.

18 Correct Answer
$2,500

A provision should be entered in the statement of financial position, for the likely amount
of compensation, which is $2,500.

19 Correct Answer
$453

As we are adjusting the general ledger balance, we ignore the outstanding lodgement
as this would just be an adjustment to the bank statement balance. The corrected credit
balance is:

$
Original credit balance 358
Incorrect recording of cheque (254 - 245) (9)
Overdraft interest 104
453

20 Correct Answer
Debit Trade payables
Credit Office stationery

The original invoice for this stationery will have been credited to trade payables and the
credit note will now be debited to trade payables.

These are not goods for resale, they are office stationery, so the value of the items
returned will be credited to office stationery.

21 Correct Answer
$129,935

Cost of sales will be:

$
Opening inventory 5,288
Purchases (127,569 - 11,564 + 12,826) 128,831
Closing inventory (4,184)
129,935

22 Correct Answer
$2,929

$
Invoices paid 2,974
Less opening accrual (533)
Plus closing accrual 488
Charge for the year 2,929

23 Correct Answer
$7200
As Nicky is not registered for sales tax, they must recognise gross amounts only.
Gross amount = 120% x $6,000 = $7,200

24 Correct Answer
The sales returns have been credited to the purchase returns account Yes
and correctly posted to the receivables control account
Cash sales have been omitted from the records entirely No

Where the bookkeeper is unsure what the correct accounting entry is, they might use a
suspense account to balance the journal entry. This suspense account should not
appear in the final accounts but will be shown in the trial balance before being
investigated and removed.

Cash sales omitted will not appear anywhere and so will not cause any trial balance
imbalance.

25 Correct Answer
$840

$750 + $4,200 - $3,450 - $300 - $360 = $840

26 Correct Answer
$11,981

Borim's charge for the current year will be:

$
Invoices paid 11,874
Less accrued in previous year (855)
Plus closing accrual for this year 962
11,981

27 Correct Answer
Assets Increase
Liabilities Do not change
The assets of the seller (receivables) increase. (As the value of the goods has been
removed from inventory, the increase in net assets will be the amount of the profit.)
Liabilities are unaffected.

28 Correct Answer
Profit increased by $480
$10,080 - $7,200 = $2,880 decrease in allowance for receivables
$2,880 - $2,400 = $480 net credit to irrecoverable debt expense (i.e., increases profit)

Incorrect answers:

Profit decreased by $9,600 - Incorrect impact and incorrect amount (year-end

allowance plus write off)
Profit increased by $9,600 - Correct impact but with incorrect amount (year-end
allowance plus write off)
Profit decreased by $480 - Incorrect impact but with correct amount

29 Correct Answer
$6,960 debit
$3,360 (Dr) + ($6,200 - $2,600) (Dr) = $6,960 Dr

Incorrect answers:

$240 debit - $3,600 deducted

$240 credit - $3,600 deducted and with balance as credit
$6,960 credit - Correct balance but with no balance as credit

30 Correct Answer
$40,755

Inventory should be held at the lower of cost and net realisable value. For the damaged
items, net realisable value will be below cost. The total of inventory will be:

$
Undamaged items (41,875 - 1,960) 39,915
Damaged items (1,200 - 360) 840
40,755

31 Correct Answer
$1,200 gain
 $
Sale proceeds 43,000
Carrying amount of asset (87,600 - 45,800) (41,800)
Gain on disposal 1,200

32 Correct Answer
2 and 3 only

The electronic bank transfers to suppliers will already be included in the general ledger,
so require no adjustment. They will appear on the bank statement once the bank has
processed them.

The bank charges and the direct payment into the bank account are items that will be
picked up from the bank statement and need to be entered into the ledger.

33 Correct Answer
$197,660

$
B/F 31 October 20X8 237,950
Disposals (12,890)
Additions 19,500
Depreciation (46,900)
Balance 31 October 20X9 197,660

34 Correct Answer
$13,000 + $4,000 - $1,500 - $300 = $15,200

$2,200 - Opening balance ignored

$2,800 - Opening balance iognored and loss incorrectly added
$15,800 - Loss incorrectly added

35 Correct Answer
It assumes that the business will continue in operation for the foreseeable future

The principle of going concern assumes that a business will continue operating for the
foreseeable future.
36 Correct Answer
$14,400

Vivienne's share of the profit is:

(27,800 - 3,800) x 3/5 = $14,400

Her drawings will be deducted from her current account.

37 Correct Answer
Both statement 1 and statement 2

Financial records will consist of:

Source documents
Data in an accounting system
Subsidiary ledgers
Financial statements

Source documents include invoices, credit notes, petty cash vouchers, wages records
and cheque stubs.

Businesses are required to keep financial records by law. A sole trader is required to
keep records to submit with sales tax returns (if registered) and in support of profits
subject to income tax.

38 Correct Answer
An early settlement discount of $1,050 which has not yet been recognised by
Parminder

Incorrect answers:

The supplier has sent an invoice for $1,050 which has not yet been received by
Parminder - Once recognised, an invoice would further increase supplier’s balance in
Parminder’s records

Parminder has returned goods worth $1,050 which the supplier has not yet recognised -
Once recognised, a return would further reduce the supplier’s balance in their records

Parminder has paid the supplier $1,050 which the supplier has not yet recognised -
Once recognised, a payment would further reduce the supplier’s balance in their
records
39 Correct Answer
As a current liability of $2,358

Unpresented cheques and outstanding lodgements will both be adjusted against the
bank statement balance, to bring it to the balance in the general ledger.

Therefore, the balance to be reported is the general ledger balance. As this is a credit
balance we know that it is a liability (overdraft).

40 Correct Answer
Profit + capital introduced - drawings

Profit and additional capital are added to the capital balance, drawings are a
deduction. The difference is therefore:

Profit + capital introduced - drawings

41 Correct Answer
Business entity

This is the business entity concept - the principle that, for accounting purposes, the
business is treated as a separate entity.

42 Correct Answer
Dr Trade payables 950
Cr Purchases 950

$750 + $200 = $950

Incorrect answers:

Dr Purchases 950
Cr Trade payables 950
Correct amount but with debits and credits transposed

Dr Purchases 1,850
Cr Trade payables 1,850
Incorrect amount (includes payment of $900) and with debits and credits transposed

Dr Trade payables 1,850

 Cr Purchases 1,850
Incorrect amount

43 Correct Answer
$74,516

$
Profit per draft statement of profit or loss 75,862
Loan interest due to Hilary (1,346)
Correct profit for the year 74,516

The interest due on partner's drawings does not appear in the statement of profit or
loss. It will be accounted for when the profit is allocated between the partners.

44 Correct Answer
FIFO will lead to the higher reported profit

Use of FIFO will mean that the 'oldest' inventory is always charged to cost of sales. In a
period of rising prices this will also be the cheapest inventory, thereby minimising cost of
sales and maximising reported profit.

45 Correct Answer
$115920

$131,500 - ($10,000 - $1,000) - $6,580 = $115,920

46 Correct Answer
1 and 3 only

According to IAS 2 Inventories the use of LIFO is not acceptable for valuing
inventory. The weighted average methods are both acceptable.

47 Correct Answer
Property, inventories, cost of sales and administrative expenses

All other choices contain a mixture of debit and credit amounts.

48 Correct Answer
Dr Suspense account 7,480
 Cr Trade payables 7,480

$3,560 + $3,920 = $7,480

Incorrect answers
Dr Suspense account 3,560
Cr Trade payables 3,560
Incorrect amount (ignores $3,920)

Dr Trade payables 3,560

Cr Suspense account 3,560
Incorrect amount (ignores $3,920) and with debits and credits transposed

Dr Trade payables 7,480

Cr Suspense account 7,480
Correct amount but with debits and credits transposed

49 Correct Answer
$150 due from the tax authorities

Total sales tax due to/(from) the tax authorities = output sales tax - input sales tax

So, total sales tax due to/(from) the tax authorities = 300 - 450 = ($150)

So $150 is due from the tax authorities to Alisa.

50 Correct Answer
Error of original entry

A transposition error is an error of original entry.