Category: A Accounting

You are given the following information:

What is the figure for sales on credit during 20X5?

Answer

Step 1:

Closing Account Receivable = opening AR + total sale – cash received

So, Total sale = closing AR – opening AR + cash received = 2,250 – 2,500 +21,250 =21,000

Step 2:

Total sale = cash sale + credit sale

Credit sale = total sale – cash sale

Credit sales = $21,000 – $1,250= $19,750

At 1 January 20X2 the capital structure of ABC, a limited liability company, was as follows:

On 1 April 20X2 the company made an issue of 50,000 25c shares at $1.20 each, and on 1 July the company made a bonus (capitalisation) issue of one share for every five in issue at the time, using the share premium account for the purpose.

Calculate the company’s share capital and share premium account at 31 December 20X2.

Answer

Public issue

Dr. Cash………………………………60,000

Cr. Share capital……………………………………. 12,500

Cr. Share premium…………………………………47,500

Bonus Issue

Dr. share premium………………15,000

Cr. Share Capital…………………………………..…15,000

At 30 June 20X4 a company had $2m 10% loan notes in issue, interest being paid half-yearly on 30 June and 31 December.

On 30 September 20X4 the company redeemed $500,000 of these loan notes at par, paying interest due to that date.

On 1 April 20X5 the company issued $1,000,000 9% loan notes, interest payable half-yearly on 31 March and 30 September.

What figure should appear in the company’s statement of profit or loss for interest payable in the year ended 30 June 20X5?

Answer

Journal Entry

30 September 20X4

Dr. Loan………………………………………………..500,000

Dr. Interest Expense……………………………….50,000

Cr. Cash…………………………………………………………………550,000

1 April 20X5

Dr. Cash………………………………………………1,000,000

Cr. Loan……………………………………………………………..….1,000,000

30 June

Dr. Interest Expense (112,500+22,500)..135,000

Cr. Cash……………………………………………………………………112,000

Cr. Accrued Interest…………………………………………………..22,500

At 30 June 20X4 a company’s capital structure was as follows:

In the year ended 30 June 20X5 the company made a rights issue of 1 share for every 2 held at $1 per share and this was taken up in full. Later in the year the company made a bonus issue of 1 share for every 5 held, using the share premium account for the purpose.

What was the company’s capital structure at 30 June 20X5?

Answer

*1,000,000 x 1 /2 = 500,000

** (1,000,000 + 500,000) x 1/5 = 300,000

At 31 December 20X3 the capital structure of a company was as follows:

During 20X3 the company made a bonus issue of 1 share for every 2 held, using the share premium account for the purpose, and later issued for cash another 15,000 shares at 80c per share.

What is the company’s capital structure at 31 December 20X3?

Answer

Journal Entry

Bonus Issue

Dr. share premium………………6,250

Cr. Share Capital………………………………..…6,250

Public issue

Dr. Cash………………………………12,000

Cr. Share capital…………………………………….7,500

Cr. Share premium…………………………………4,500

XYZ Co sells goods with a one year warranty and had a provision for warranty claims of $16,000 at 31 December 20X2. During the year ended 31 December 20X3, $6,250 in claims were paid to customers. On 31 December 20X3, XYZ Co estimated that the following claims will be paid in the following year:

What amount should XYZ Co record in the statement of profit or loss for the year ended 31 December 20X3 in respect of the provision?

Answer

statement of profit or loss

XYZ Co sells goods with a one year warranty under which customers are covered for any defect that becomes apparent within a year of purchase. In calendar year 20X6, XYZ Co sold 25,000 units.

The company expects warranty claims for 4% of units sold. Half of these claims will be for a major defect, with an average claim value of $25. The other half of these claims will be for a minor defect, with an average claim value of $5.

What amount should XYZ Co include as a provision in the statement of financial position for the year ended 31 December 20X6?

Answer

XYZ Co should provide on the basis of the expected cost. The expected cost would be calculated as (2% x 25,000 x $25) + (2% x 25,000 x $5) = $12,500 + $2,500 = $15,000

Dr. warranty Expense…………..15,000

Cr. Provision for warranty…………………..15,000

At the beginning of the year, the allowance for receivables was $1,000. At the year-end, the allowance required was $2,000. During the year $700 of debts were written off, which includes $200 previously included in the allowance for receivables.

What is the charge to statement of profit or loss for receivables expense for the year?

Answer

At 1 January 20X4, there was an allowance for receivables of $3,000. During the year, $1,000 of debts were written off as irrecoverable, and $800 of debts previously written off were recovered. At 31 December 20X4, it was decided to adjust the allowance for receivables to 10% of receivables which are $20,000.

What is the total receivables expense for the year?

Answer

At 31 December 20X6 a company’s trade receivables totaled $216,000 and the allowance for receivables was $12,000.

It was decided that debts totaling $3,250 were to be written off. The allowance for receivables was to be adjusted to the equivalent of five per cent of the receivables.

What figures should appear in the statement of financial position for trade receivables (after deducting the allowance) and in the statement of profit or loss for receivables expense?

Answer

Net trade receivables = $216,000 – $3,250  – $10,638  = $202,112

At 1 July 20X5 a limited liability company had an allowance for receivables of $20,750. During the year ended 30 June 20X6 debts totaling $36,500 were written off. At 30 June 20X6 a receivables allowance of $54,500 was required.

What figure should appear in the company’s statement of profit or loss for the year ended 30 June 20X6 for receivables expense?

Answer

Receivables expense = $36,500 + ($54,500 – $20,750) = $70,250

At 30 September 20X4 a company’s allowance for receivables amounted to $9,500, which was equivalent to five per cent of the receivables at that date.

At 30 September 20X5 receivables totaled $217,000. It was decided to write off $7,000 of debts as irrecoverable. The allowance for receivables required was to be the equivalent of five per cent of receivables.

What should be the charge in the statement of profit or loss for the year ended 30 September 20X5 for receivables expense ?

Answer

At 1 July 20X4 the receivables allowance of ABC Co was $4,500.

During the year ended 30 June 20X5 debts totaling $3,650 were written off. The receivables allowance required was to be $4,000 as at 30 June 20X5.

What amount should appear in ABC Co ‘s statement of profit or loss for receivables expense for the year ended 30 June 20X5?

Answer

At 31 December 20X5 a company’s receivables totalled $100,000 and an allowance for receivables of $12,500 had been brought forward from the year ended 31 December 20X4.

It was decided to write off debts totaling $9,500. The allowance for receivables was to be adjusted to the equivalent of 5% of the receivables.

What charge for receivables expense should appear in the company’s statement of profit or loss for the year ended 31 December 20X5?

Answer

David’s draft financial statements for the year to 31 October 20X6 report a loss of $2,972. When he prepared the financial statements, David did not include an accrual of $3,252 and a prepayment of $1,668.

What is David’s profit or loss for the year to 31 October 20X6 following the inclusion of the accrual and prepayment?

Answer

During 20X6, ABC, a limited liability company, paid a total of $15,000 for rent, covering the period from 1 October 20X5 to 31 March 20X7.

What figures should appear in the company’s financial statements for the year ended 31 December 20X6 ?

Answer

Statement of profit or loss and other comprehensive income

Rental Expense = $15,000 x 12/18 = $10,000

Statement of financial position

Prepayment = $15,000 x 3/18 = $2,500

XYZ , a limited liability company, receives rent for subletting part of its office premises to a number of tenants.

In the year ended 31 December 20X7 XYZ received cash of $79,650  from its tenants.

Details of rent in advance and in arrears at the beginning and end of 20X7 are as follows:

All rent owing was subsequently received

What figure for rental income should be included in the statement of profit or loss of XYZ for 20X7?

Answer

A business compiling its financial statements for the year to 31 January each year pays rent quarterly in advance on 1 January, 1 April, 1 July and

1 October each year. After remaining unchanged for some years, the rent was increased from $6,000 per year to $7,500 per year as from 1 July 20X3.

Which of the following figures is the rent expense which should appear in the statement of profit or loss for year ended 31 January 20X4?

Answer

5 months/12 months x $6,000 = $2,500

7 months/12 months x $7,500 = $4,375

Total rent: $2,500 + $4,375 = $6,875

The year end of ABC Co is 30 November 20X0. The company pays for its gas by a standing order of $2,400 per month. On 1 December 20W9, the statement from the gas supplier showed that ABC Co had overpaid by $800. ABC Co received gas bills for the four quarters commencing on 1 December 20W9 and ending on 30 November 20X0 for $5,200, $5,600, $8,400 and $8,000 respectively.

What is the correct charge for gas in ABC’s statement of profit or loss for the year ended 30 November 20X0?

Answer

Diesel fuel in inventory at 1 November 20X5 was $3,125 , and there were invoices awaited for $425. During the year to 31 October 20X6, diesel fuel bills of $21,350 were paid, and a delivery worth $325 had yet to be invoiced. At 31 October 20X6, the inventory of diesel fuel was valued at $2,450.

What is the value of diesel fuel to be charged to the statement of profit or loss and other comprehensive income for the year to 31 October 20X6?

Answer

Diesel fuel purchased

Balance c/fwd = Balance b/fwd + purchase – payments

A business compiling its financial statements for the year to 31 July 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 $15,000 per year to $18,000 per year as from 1 October 20X5.

What figure should appear for rent expense in the business’s statement of profit or loss and other comprehensive income for the year ended 31 July 20X6?

Answer

A company has sublet part of its offices and in the year ended 30 November 20X5 the rent receivable was:

Rent was paid quarterly in advance on 1 January, April, July, and October each year.

What amounts should appear in the company’s financial statements for the year ended 30 November 20X5?

Answer

Statement of financial position

Sundry payables 3,000 x 1/12 =$250 (December rent received in advance)

At 31 March 20X4 a company had oil in hand to be used for heating costing $2,050 and an unpaid heating oil bill for $900.

At 31 March 20X5 the heating oil in hand was $2,325 and there was an outstanding heating oil bill of $800 .

Payments made for heating oil during the year ended 31 March 20X5 totaled $8,650

Based on these figures, what amount should appear in the company’s statement of profit or loss and other comprehensive income for heating oil for the year?

Answer

Used Oil = opening oil + purchase – ending oil

Closing accrual for oil = opening accrual + purchase – payment

Purchase = Closing accrual for oil + payment – opening accrual

= 800 + 8,650 – 900= 8,550

So used oil = $2,050 +8,550 – 2,325= 8,275

A company pays rent quarterly in arrears on 1 January, 1 April, 1 July and 1 October each year. The rent was increased from $22,500 per year to $30,000 per year as from 1 October 20X4.

What rent expense and accrual should be included in the company’s financial statements for the year ended 31 January 20X5?

Answer

Accrual for Rental= 7,500 x 1/3 = 2,500

ABC company receives rent for subletting part of its office block.

Rent, receivable quarterly in advance, is received as follows:

What figures, based on these receipts, should appear in the company’s financial statements for the year ended 30 November 20X4 ?

Answer

Statement of profit or loss

$68,000 Credit

Statement of financial position

Rent received in advance (Cr) $6,000

ABC Co purchased a patent on 31 December 20X5 for $375,000.

ABC  Co expects to use the patent for eight years, after which it will be valueless. According to IAS 38 Intangible assets, what amount will be amortised in ABC Co’s statement of profit or loss and other comprehensive income for the year ended 31 December 20X6?

Answer

The patent should be amortised over its useful life of 8 years.

(375,000-0) /8 = $46,875

A company purchased an asset on 1 January 20X4 at a cost of $250,000. It is depreciated over 50 years by the straight line method (nil residual value), with a proportionate charge for depreciation in the year of acquisition and the year of disposal. At 31 December 20X5 the asset was re-valued to $300,000. There was no change in the expected useful life of the asset.

The asset was sold on 30 June 20X6 for $298,750.

What profit or loss on disposal of the asset will be reported in the statement of profit or loss of the company for the year ended 31 December 20X6?

Answer

Annual depreciation was initially $250,000/50 years = $5,000.

After revaluation, annual depreciation is $300,000/48 years = $6,250.

Note: The balance on the revaluation surplus at 30 June will be transferred to realised profits (retained profits reserve), but this will not be reported as profit in the statement of profit or loss.

AAA Co purchased a machine with an estimated useful life of 5 years for $34,000 on 30 September 20X3. AAA Co planned to scrap the machine at the end of its useful life and estimated that the scrap value at the purchase date was $4,000. On 1 October 20X6, AAA Co revised the scrap value to $2,000 due to the decreased value of scrap metal.

What is the depreciation charge for the year ended 30 September 20X7?

Answer

Carrying amount at 1.10.X6: 34,000 – ((34,000 – 4,000) × 3/5) = $16,000 Revised depreciation charge:

(Carrying amount – revised residual value)/remaining useful life

= (16,000 – 2,000 )/2 = $7,000

XYZ Co purchased an asset for $25,000 on 1.1.X3. It had an estimated useful life of 5 years and it was depreciated using the straight line method. On 1.1.X5 XYZ Co revised the remaining estimated useful life to 4 years.

What is the carrying amount of the asset at 31.12.X5?

Answer

Carrying amount at 1.1.X5 = 25,000 – (25,000 x 2/5) = $15,000

New depreciation charge = Carrying amount/Revised useful life

= $15,000 /4 years = $3,750

Carrying amount at 31.12.X5 = $15,000 – $3,750  = $11,250

A non-current asset (cost $35,000, depreciation $22,000 ) is given in part exchange for a new asset costing $43,000. The agreed trade-in value was $15,000. Which of the following will be included in the statement of profit or loss?

Answer

ABC Co purchases a motor vehicle on 30 September 20X4 for $3,750 on credit. ABC Co has a policy of depreciating motor vehicles using the reducing balance method at 20% per annum, pro rata in the years of purchase and sale.

What are the correct ledger entries to record the purchase of the vehicle at 30 September 20X4 and what is the depreciation charge for the year ended 31 December 20X4?

Answer

To record the purchase of the asset:

Depreciation charge is 3,750 x 20% x 3/12 = $187.5

Jon is entering an invoice for a new item of equipment in the accounts. The invoice shows the following costs:

Jon is registered for sales tax. What is the total value of capital expenditure on the invoice?

Answer

At 31 December 20X5 ABC, a limited liability company, owned a building that had cost $200,000 on 1 January 20W6.

It was being depreciated at 5% per year.

On 31 December 20X5 a revaluation to $250,000 was recognized. At this date the building had a remaining useful life of 10 years.

What is the balance on the revaluation surplus at 31 December 20X5 and the depreciation charge in the statement of profit or loss for the year ended 31 December 20X6 ?

Answer

Revaluation surplus = fair value – carrying amount

Revaluation surplus = (250,000 – (200,000 – (200,000 x 5% x 10)) = $150,000.

Depreciation charge = (250,000/10) = $25,000

XYZ Co acquired a lorry on 1 April 20X3 at a cost of $7,500. The lorry has an estimated useful life of four years, and an estimated resale value at the end of that time of $1,500. XYZ Co charges depreciation on the straight line basis, with a proportionate charge in the period of acquisition.

What will the depreciation charge for the lorry be in XYZ Co ‘s accounting period to 31 August 20X3?

Answer

Depreciation charge =

[($7,500 – $1,500)/4 years] x (5 months /12 months) = $625

Y purchased some plant on 1 January 20X2 for $9,500. The payment for the plant was correctly entered in the cash book but was entered on the debit side of the plant repairs account.

Y charges depreciation on the straight line basis at 20% per year, with a proportionate charge in the years of acquisition and disposal, and assuming no scrap value at the end of the life of the asset.

How will Y’s profit for the year ended 30 April 20X2 be affected by the error?

Answer

Profit is understated by $9,500 – $633 = $8,867

*9,500 x 20% x 4/12= $633

The carrying amount of a company’s non-current assets was $50,000 at 1 August 20X4. During the year ended 31 July 20X5, the company sold non-current assets for $6,250 on which it made a loss of $1,250. The depreciation charge for the year was $5,000. What was the carrying amount of non-current assets at 31 July 20X5?

Answer

Gain(loss) on disposal = proceeds – carrying amount of disposal

Carrying amount of disposal = proceeds – gain(loss)