Frank Wood's Business Accounting HK Edition (3rd Edition) Solution

Question 1-2A
Fixtures $1,200 + Van $6,000 + Inventory $2,800 + Bank $200 + Cash $175 = Total assets $10,375. Loan $2,500 + Creditors $1,600 + Capital (difference) $6,275 = $10,375.
Question 1-4A
Fixed assets Equipment Current assets Inventory of goods Debtors Cash at bank Less Current liabilities Creditors Capital 3,600 4,500 2,800 10,900 (4,100) 6,800 10,200 10,200 A Bao Balance Sheet as at 30 June 20X6 $ $ 3,400
Question 1-6A
Effect upon Assets (a) (b) (c) (d) (e) (f) (g) (h) + Van Cash + Inventory Bank + Cash + Inventory Debtors + Inventory Cash Bank Creditors + Creditors Capital + Capital Liabilities + Creditors Loan from F Du Capital
Frank Woods Business Accounting 1 Solutions Manual Hong Kong Edition Third Edition Pearson Education Limited 2006
Question 1-8A
Fixed assets Equipment ($6,200 + $110) Car Current assets Inventory of goods ($8,100 + $380) Debtors ($4,050 $640 $90) Bank ($9,100 $380 $1,150 + $640 + $1,300) Cash ($195 + $90 + $200) Less Current liabilities Creditors ($2,800 + $110 $1,150) J Ho Balance Sheet as at 7 December 20X9 $ 6,310 7,300 8,480 3,320 9,510 485 21,795 (1,760) 20,035 33,645 33,645 $
13,610
Capital
Question 2-3A
(1) Capital (25) Cash Bank $ 16,000 (2) 400 (12) (19) (30) Van Cash Carton Cars Ltd Office fixtures $ 6,400 180 7,100 480
(5) Old Ltd (15) Cash (30) Bank
Office Fixtures $ 900 120 480 Capital (1) Bank $ 16,000
(12) Bank (21) Loan: B Bei (2) (8) 2 Bank Carton Cars Ltd
Cash $ 180 (15) Office fixtures 500 (25) Bank Vans $ 6,400 7,100 $ 120 400
Old Ltd (5) Office fixtures $ 900
(19) Bank
Carton Cars Ltd $ 7,100 (8) Loan: B Bei (21) Cash $ 500 Van $ 7,100
Question 2-4A
(1) (2) Capital Loan: B Bao Bank $ 9,000 (8) Cash 2,000 (15) Loan: B Bao (17) Clearcount Ltd Loan: B Bao $ 500 (2) 250 Bank $ 2,000 $ 200 500 420
(15) Bank (24) Cash (5) Clearcount Ltd
Display Equipment $ 420 Capital (1) (1) Cash Bank $ 750 9,000
(1) (8) (3) (17) Bank Cash Capital Bank
Cash $ 750 (3) Computer 200 (24) Loan: B Bao Computer $ 600 Clearcount Ltd $ 420 (5) Display equipment $ 420 $ 600 250
F Chung (31) Printer $ 200
(31) F Chung
Printer $ 200
Question 3-2A
(1) Capital (19) Sales (4) (7) J Wat Cash Cash $ 7,400 (2) 54 (7) Purchases $ 410 362 Returns Outwards (12) J Wat (12) Returns outwards (29) Bank (10) Sales (2) Cash (24) Loan: F Ho J Wat $ 42 (4) 368 L Lee $ 218 Bank $ 7,000 (5) Van 1,500 (29) J Wat (31) Fun Ltd Sales (10) L Lee (19) Cash $ 218 54 $ 4,920 368 820 Purchases $ 410 $ 42 Bank Purchases $ 7,000 362
(22) Fun Ltd (5) Bank
Fixtures $ 820 Van $ 4,920 Loan: F Ho (24) Bank $ 1,500
(31) Bank
Fun Ltd $ 820 (22) Fixtures Capital (1) Cash $ 7,400 $ 820
Question 3-4A
(1) Capital (18) Cash (5) Sales (12) Sales (6) Returns outwards (29) Bank (28) Returns outwards Bank $ 18,000 (21) Printer 250 (29) B Hon Cash $ 210 (18) Bank 305 B Hon $ 82 (2) 1,373 G Sze $ 47 (3) (8) P Sin $ 483 (23) Returns inwards $ 160 Purchases Purchases $ 472 370 Purchases $ 1,455 $ 250 $ 620 1,373
(10) Sales
(22) Sales
H Chan $ 394 (25) Returns inwards A Choi (31) Machinery $ 419 $ 18
Capital (1) Bank $ 18,000
(2) (3) (8) B Hon G Sze G Sze
Purchases $ 1,455 472 370 Sales (5) (10) (12) (22) Cash P Sin Cash H Chan $ 210 483 305 394
(23) P Sin (25) H Chan
Returns Inwards $ 160 18 Returns Outwards (6) B Hon (28) G Sze $ 82 47
(31) A Choi (21) Bank
Machinery $ 419 Printer $ 620
Question 4-3A
Jul 1 Bank Cash Capital Stationery Bank Purchases T So Cash Sales Insurance Cash Computer J Ho Expenses Bank C Bao Sales T So Returns outwards Wages Cash Rent Bank Bank C Bao J Ho Bank Stationery News Ltd F Tang Sales News Ltd Bank Dr $ 5,000 1,000 75 75 2,100 2,100 340 340 290 290 700 700 32 32 630 630 55 55 210 210 225 225 400 400 700 700 125 125 645 645 125 125 Cr $
6,000
" " " " " " " " " " " " " " "
2 3 4 5 7 8 10 11 14 17 20 21 23 25 31
Question 4-4A
(1) Capital (24) K Fong (28) Rates Bank $ 11,000 (5) 250 (16) 45 (19) (28) (28) (28) Stationery Rates Rent J Leung D Ma B Bo $ 62 970 75 830 415 6,100
(1) Capital
Cash $ 1,600 (3) (4) (7) (11) (18) (21) (23) Capital (1) (1) Bank Cash $ 11,000 1,600 Purchases Rent Wages Rent Insurance Motor expenses Wages $ 370 75 160 75 280 24 170
(4) Cash (11) Cash (19) Bank (7) Cash (23) Cash (5) (16) Bank (18) Cash (20) B Bo (21) Cash Bank
Rent $ 75 75 75 Wages $ 160 170 Stationery $ 62 Rates $ 970 (28) Bank Insurance $ 280 Van $ 6,100 Motor Expenses $ 24 $ 45
(2) (2) (2) (3) J Leung D Ma P Lo Cash
Purchases $ 830 610 590 370 Sales (6) (6) (6) (15) (15) (15) D To B Ho K Fong T Lee F Sin G Man $ 370 290 410 205 280 426
Returns Outwards (10) D Ma $ 195
(13) B Ho (28) Bank (10) Returns outwards (28) Bank
Returns Inwards $ 35 J Leung $ 830 (2) D Ma $ 195 (2) 415 P Lo (2) Purchases $ 590 Purchases $ 610 Purchases $ 830
(28) Bank (6) (6) Sales Sales
B Bo $ 6,100 (20) Van D To $ 370 B Ho $ 290 (13) Returns inwards $ 35 $ 6,100
(6) (15) Sales (15) Sales (15) Sales Sales
K Fong $ 410 (24) Bank T Lee $ 205 F Sin $ 280 G Man $ 426 $ 250
Question 4-6A
(A) (B) (C) (D) (E) (F) (G) (H) (I) Goods bought on credit $27,000. Borrowed $35,000 and immediately spent it on land and buildings $35,000. Sold goods costing $20,000 for $30,000 on credit. Debtors paid $13,000. Debtors paid $2,000; this amount was taken by proprietors. Took $5,000 drawings by cheque and paid off $3,000 accrued expenses by cheque. Equipment costing $30,000 sold for $21,000 paid by cheque. Goods taken for own use $1,000. Took $6,000 cash as drawings. Could also be $6,000 cash stolen thus reducing cash and causing a loss.
Question 5-6A
(1) Sales (21) Sales (1) (1) Sales (8) Sales (21) Sales (1) 0 Balance b/d Balance b/d G Woo $ 310 (19) Bank 90 (31) Balance c/d 400 90 K Hung $ 42 (31) Balance c/d 161 430 633 633 $ 633 $ 310 90 400
633
(1) (8) Sales Sales
F Dai $ 1,100 (10) Returns inwards 224 (19) Bank (31) Balance c/d 1,324 543 M Lok Sales $ 309 (10) Returns inwards (12) Cash 309 T So $ 15 (2) 175 190 J Lee $ 278 (2) (9) 278 (1) Purchases Purchases Balance b/d $ 63 215 278 278 Purchases $ 190 190 $ 82 227 309 $ 31 750 543 1,324
(1) (1)
Balance b/d
(15) Returns outwards (28) Bank
(31) Balance c/d
(28) Bank (31) Balance c/d
P Tin $ 180 (2) 30 210 (1) Purchases $ 210 210 Balance b/d 30
(15) (28) (31) (31) Returns outwards Bank Returns outwards Balance c/d
F Ruan $ 21 (2) 100 (9) 18 215 354 (1) Purchases Purchases $ 190 164
354 Balance b/d 215
Woo, Hung and Dai are debtors. Lee, Tin and Ruan are creditors.

Question 5-7A
20X7 May 1 " 19 " 21 20X7 May 1 " 8 " 21 20X7 May " " " 20X7 May 1 " 10 " 12 20X7 May 2 " 15 " 28 20X7 May 2 " 9 20X7 May 2 " 28 2 G Woo Dr $ 310 90 K Hung Dr $ 42 161 430 F Dai Dr $ 1,100 224 Cr $ Balance $ 1,100 1,324 1,293 543 Cr $ Balance $ 42 Dr 203 Dr 633 Dr Cr $ 310 Balance $ 310 Dr 0 90 Dr
Sales Bank Sales
Sales Sales Sales
1 8 10 19
Sales Sales Returns inwards Bank M Lok
31 750
Dr Dr Dr Dr
Sales Returns inwards Bank T So
Dr $ 309
Cr $ 82 227
Balance $ 309 Dr 227 Dr 0
Dr $ Purchases Returns outwards Bank J Lee Dr $ Purchases Purchases P Tin Dr $ Purchases Bank 180 15 175
Cr $ 190
Balance $ 190 Cr 175 Cr 0
Cr $ 63 215
Balance $ 63 Cr 278 Cr
Cr $ 210
Balance $ 210 Cr 30 Cr
20X7 May " " " "
F Ruan Dr $ 2 9 15 28 31 Purchases Purchases Returns outwards Bank Returns outwards Cr $ 190 164 Balance $ 190 354 333 233 215
21 100 18
Cr Cr Cr Cr Cr
Question 6-2A
(1) (28) (28) (30) Capital T Pok J Fan Capital Bank $ 15,000 71 42 900 (6) (7) (23) (23) (23) (25) (30) Rent Rates J Sin F Bo T Ren Van Balance c/d $ 175 130 272 1,200 500 6,200 7,536 16,013
16,013 (1) (5) Sales (26) Loan: B Ban (1) (3) (3) (3) (3) (19) (19) (19) (1) J Sin F Bo T Ren R Chen R Chen T Ren F Jia Balance b/d Balance b/d Balance b/d 7,536 Cash $ 610 (17) Wages 750 (30) Balance c/d 1,360 1,070 Purchases $ 290 (30) Balance c/d 1,200 610 530 110 320 165 3,225 3,225
$ 290 1,070 1,360
$ 3,225
3,225

(30) Balance c/d
Sales $ 2,383 (5) (11) (11) (11) 2,383 (1) Cash T Pok J Fan T Gao Balance b/d $ 610 85 48 1,640 2,383 2,383
(30) Balance c/d
Capital $ 15,900 (1) Bank (30) Bank 15,900 (1) Balance b/d $ 15,000 900 15,900 15,900
(6) (1) (7) (1) (17) Cash (1) (30) Balance c/d Balance b/d Bank Balance b/d Bank Balance b/d
Rent $ 175 (30) Balance c/d 175 Rates $ 130 (30) Balance c/d 130 Wages $ 290 (30) Balance c/d 290 Returns Outwards $ 45 (18) J Sin (18) R Chen 45 (1) Balance b/d $ 18 27 45 45 $ 290 $ 130 $ 175
(20) J Fan (20) T Pok (1) Balance b/d
Returns Inwards $ 6 (30) Balance c/d 14 20 20 $ 20 20

(21) Turnkey Motors (25) Bank (1) (18) Returns outwards (23) Bank Balance b/d
Vans $ 4,950 (30) Balance c/d 6,200 11,150 11,150 J Sin $ 18 (3) 272 290 F Bo $ 1,200 (3) T Ren $ 500 (3) Purchases 430 (19) Purchases 930 (1) Balance b/d $ 610 320 930 430 Purchases $ 1,200 Purchases $ 290 290 $ 11,150 11,150
(23) Bank (23) Bank (30) Balance c/d
(18) Returns outwards (30) Balance c/d
R Chen $ 27 (3) Purchases 613 (19) Purchases 640 (1) Balance b/d $ 530 110 640 613
(30) Balance c/d
F Jia $ 165 (19) Purchases (1) Balance b/d $ 165 165
(11) Sales
T Pok $ 85 (20) Returns inwards (28) Bank 85 J Fan $ 48 (20) Returns inwards (28) Bank 48 $ 6 42 48 $ 14 71 85
(11) Sales
(11) Sales (1) (30) Balance c/d Balance b/d
T Gao $ 1,640 (30) Balance c/d 1,640 Turnkey Motors $ 4,950 (21) Van (1) Balance b/d $ 4,950 4,950 $ 1,640
(30) Balance c/d
Loan: B Ban $ 750 (26) Cash (1) Balance b/d $ 750 750
Trial Balance as at 30 November 20X7 Dr $ 7,536 1,070 3,225 Cr $
Bank Cash Purchases Sales Returns outwards Returns inwards Capital Vans Rent Rates Wages R Chen T Ren F Jia T Gao Turnkey Motors Loan: B Ban
2,383 45 20 15,900 11,150 175 130 290 613 430 165 1,640 4,950 750 25,236
25,236
6
Question 6-4A
E Pak Corrected Trial Balance as at 31 December 20X9 Dr $ 30,000 10,000 287,220 1,460 390 200 780 45,190 3,000 5,270 4,810 35,000 2,410 26,400 150 7,070 5,300 32,700 52,800 488,250 23,950 488,250 Cr $
Motor vehicles Office equipment Sales Purchases Sales returns Purchases returns Carriage inwards Carriage outwards Wages Insurance Rent and rates Lighting and heating Drawings Commission received Bank overdraft Cash in hand Motor vehicle expenses General expenses Capital Debtors Creditors
402,400
Question 7-3A
B Mui Trading and Profit and Loss Account for the year ended 31 December 20X8 $ Sales Less Cost of goods sold: Purchases Less Closing inventory Gross profit Less Expenses: Salaries Rates Motor expenses General expenses Insurance Net profit $ 235,812
121,040 (14,486)
(106,554) 129,258
39,560 2,400 910 305 1,240
(44,415) 84,843

Question 7-4A
G Go Trading and Profit and Loss Account for the year ended 30 June 20X8 $ Sales Less Cost of goods sold: Purchases Less Closing inventory Gross profit Less Expenses: Salaries and wages Equipment rental Insurance Lighting and heating Motor expenses Sundry expenses Net profit $ 382,420
245,950 (29,304)
(216,646) 165,774
48,580 940 1,804 1,990 2,350 624
(56,288) 109,486
Question 8-3A
Fixed assets Premises Car Current assets Inventory Debtors Bank Cash Less Current liabilities Creditors Capital Balance at 1.1.20X8 Add Net profit Less Drawings B Mui Balance Sheet as at 31 December 20X8 $ 53,000 4,300 14,486 21,080 2,715 325 38,606 (11,200) 27,406 84,706 23,263 84,843 108,106 (23,400) 84,706 $
57,300

Question 8-4A
Fixed assets Building Fixtures Lorry Current assets Inventory Debtors Bank Less Current liabilities Creditors Capital Balance at 1.7.20X7 Add Net profit Less Drawings G Go Balance Sheet as at 30 June 20X8 $ 174,000 4,600 19,400 29,304 44,516 11,346 85,166 (23,408) 61,758 259,758 194,272 109,486 303,758 (44,000) 259,758 $
198,000
Question 8-6A
Fixed assets Office equipment Motor vehicles Current assets Inventory Debtors Cash in hand Less Current liabilities Creditors Bank overdraft Net current assets Less Long-term bank loan Capital Balance as at 1.7.20X8 Add Net profit Less Drawings G Hung Balance Sheet as at 30 June 20X9 $ $ 5,000 5,400 6,900 16,255 55 23,210 10,930 3,230 $
10,400
(14,160) 9,050 19,450 (2,000) 17,450 12,000 34,250 46,250 (28,800) 17,450

Question 8-8A
Capital at 1 January 20X9 = $(18,000 + 4,800 + 24,000 + 760 + 15,600 8,000 6,000) = $49,160 Capital at 31 December 20X9 = $(16,200 + 5,800 + 28,000 + 240 + 4,600 + 16,000 11,000 2,000) = $57,840 Increase in capital ($57,840 $49,160) Add Drawings ($200 52) Less Capital introduced Net profit $ 8,680 10,400 19,080 (4,000) 15,080
Fixed assets Fixtures Motor vehicle Current assets Inventory Debtors Bank Cash Less Current liabilities Creditors Less Long-term liabilities Loan from B Bao Capital account Balance at 1 January 20X9 Add Capital introduced Net profit Less Drawings
A Trader Balance Sheet as at 31 December 20X9 $ 16,200 16,000 28,000 5,800 4,600 240 38,640 (11,000) 27,640 59,840 (2,000) 57,840 49,160 4,000 15,080 68,240 (10,400) 57,840 $
32,200
20
Question 9-2A
Sunny Ray Company Trading and Profit and Loss Account for the year ended 31 December 20X2 $ Sales Less Cost of goods sold: Inventory as at 31 December 20X1 Add Purchases Less Returns outwards Carriage inwards Less Inventory as at 31 December 20X2 Gross profit Less Expenses: Wages Insurance Rent Office expenses Lighting Printing Stationery Carriage outwards Net profit $ $ 180,000
70,000 119,000 (12,000) 107,000 177,000 1,500 178,500 (80,000)
(98,500) 81,500
15,000 2,000 6,000 2,500 3,000 4,000 1,000 4,500
(38,000) 43,500
Question 9-5A
T Fong Trading and Profit and Loss Account for the year ended 31 March 20X9 $ Sales Less Cost of goods sold: Opening inventory Add Purchases Less Returns outwards Carriage inwards Less Closing inventory Gross profit Less Expenses: Wages and salaries Carriage outwards Rates Communication expenses Commissions paid Insurance Sundry expenses Net profit $ $ 276,400
52,800 141,300 (2,408) 138,892 1,350 193,042 (58,440)
(134,602) 141,798
63,400 5,840 3,800 714 1,930 1,830 208
(77,722) 64,076
2
Fixed assets Buildings Fixtures Current assets Inventory Debtors Bank Cash Less Current liabilities Creditors Capital Balance at 1.4.20X8 Add Net profit Less Drawings
Balance Sheet as at 31 March 20X9 $ 125,000 1,106 58,440 45,900 31,420 276 136,036 (24,870) 111,166 237,272 210,516 64,076 274,592 (37,320) 237,272 $
122,106
Question 9-6A
B Chan Trading and Profit and Loss Account for the year ended 30 September 20X8 $ Sales Less Returns inwards Less Cost of goods sold: Opening inventory Add Purchases Less Returns outwards Carriage inwards Less Closing inventory Gross profit Less Expenses: Wages and salaries Carriage outwards Motor expenses Rent Telephone charges Insurance Office expenses Sundry expenses Net profit $ 391,400 (2,110) 72,410 254,810 (1,240) 253,570 760 326,740 (89,404) $ 389,290
(237,336) 151,954
39,600 2,850 1,490 8,200 680 745 392 216
(54,173) 97,781
22
Fixed assets Van Office equipment Current assets Inventory Debtors Bank Cash Less Current liabilities Creditors Capital Balance as at 1.10.20X7 Add Net profit Less Drawings
Balance Sheet as at 30 September 20X8 $ 5,650 7,470 89,404 38,100 4,420 112 132,036 (26,300) 105,736 118,856 49,675 97,781 147,456 (28,600) 118,856 $
13,120
Question 9-8A
(a) (b) Capital Jul Jul Jul " Bank Balance c/d 1 Balance b/d Inventory $ 5,000 OK Ltd $ 3,000 1,400 4,400 Jul 1 Balance b/d Purchases Balance b/d $ 500 3,900 4,400 1,400 1 Balance b/d $ 9,700
31
Aug Jul 1 Balance b/d Sales Balance b/d AB Ltd $ 300 600 900 600 Jul "
31
Bank Balance c/d
$ 300 600 900
Aug
2
Jul Aug Jul 1 Balance b/d Sales AB Ltd Balance b/d 1 1 Balance b/d Balance b/d
Equipment $ 3,700 3,700 Bank $ 1,200 3,200 300 4,700 1,200 Sales 31 Balance c/d $ 3,800 3,800 Aug 1 Balance b/d Jul Bank AB Ltd $ 3,200 600 3,800 3,800 Jul " 31 OK Ltd General expenses Balance c/d $ 3,000 500 1,200 4,700 Jul 31 Balance c/d $ 3,700
Aug Jul
Jul Aug Jul Aug (c) 1 Bank Balance b/d 1 OK Ltd Balance b/d
Purchases $ 3,900 3,900 General Expenses $ 500 500 Ms Chu Trial Balance as at 31 July Dr $ 3,700 5,000 1,200 500 3,900 600 Cr $ Jul 31 Balance c/d $ 500 Jul 31 Balance c/d $ 3,900
Equipment Inventory Bank General expenses Purchases AB Ltd OK Ltd Sales Capital
14,900
1,400 3,800 9,700 14,900
2
(d) Sales Less Cost of goods sold: Opening inventory Add Purchases Less Closing inventory Gross profit Less General expenses Net profit (e) Fixed assets Equipment Current assets Inventory Debtor Bank Less Current liability Creditor
Trading and Profit and Loss Account for July $ $ 3,800
5,000 3,900 8,900 (6,200)
(2,700) 1,100 (500) 600
Balance Sheet as at 31 July $ $ 3,700 6,200 600 1,200 8,000 (1,400) 6,600 10,300 9,700 600 10,300
Capital Add Net profit
Question 10-6A
(a) Accruals concept The accruals concept states that revenues and expenses are recognised in the profit and loss account in the period in which they have been earned, and not when they are received or paid. It also means that revenues should be matched against the expenses incurred in earning those revenues. Example: Telephone bills received for the month of December 20X7 but not paid by year end are to be recognised as expenses for the year ended 31 December 20X7 and matched against revenues earned during that year. (b) Money measurement concept The money measurement concept states that accounting is concerned only with transactions that can be measured in monetary units, and that general agreement can be obtained in respect of the monetary values of such transactions. Example: Accounting can record the value of a motor vehicle but not the value of quality management or good labour relations, even though such an asset can bring benefits to the business through higher profits.
2
(c) Substance over form concept When the legal form of a transaction differs from its real substance, accounting should show the transaction in accordance with its real substance, that is, how the transaction affects the economic situation of the business, so long as it is legally permissible to do so. Example: Machinery acquired under a financial lease will be recorded as an asset with an associated liability, even though the legal ownership of the machinery does not pass to the lessee until the lessee has made the final instalment payment under the lease agreement. (d) Consistency concept The consistency concept states that when a business has once fixed a method for the accounting treatment of an item, it will enter all similar items that follow in exactly the same way from one period to another. The method used can be changed if it can be demonstrated that the change will result in a more appropriate presentation of events or transactions, or is required by a new accounting standard. Example: The depreciation methods and rates adopted for different classes of fixed assets should remain the same from one period to another unless there are compelling reasons to change them. (e) Duality concept The duality concept means that there are two aspects of accounting, one represented by the assets of the business and the other by the claims against it. These two aspects are always equal to each other. Example: The payment of cash to a trade creditor requires the recording of a decrease in trade creditors balance and an equal decrease in cash. (f) Prudence concept The prudence concept ensures that financial statements are neutral, that is, gains and losses are neither overstated nor understated. For revenues or gains, they should not be anticipated and recorded in the books unless their realisation is reasonably certain. For expenses or losses, they should be anticipated and provided for, even if exact amounts are not available. Example: In inventory valuation, if the net realisable value of inventory is higher than the cost, the gain will not be recognised until the inventory is sold. On the other hand, if the net realisable value is lower than the cost, the loss will be recognised immediately.
Question 11-2A
Name of Account Drawings Furniture Rent Sales William Ng (supplier) Discounts allowed Dickson Lo (customer) Cash HSBC (overdraft) (a) Type of Account Personal Real Nominal Nominal Personal Nominal Personal Real Personal (b) Balance Debit Debit Debit Credit Credit Debit Debit Debit Credit
26
Question 13-2A
Cash $ 295 310 Cash Book Bank $ 4,240 (3) (5) 200 (6) 194 (7) 115 (11) (12) (14) (28) 174 (30) (30) 4,923 Cash $ 200 80 Bank $
(1) (2) (3) (4) (9) (11) (13) (16) (20)
Balances b/d Sales Cash F Bei Rates Bank Sales J Chow (loan) K Wu
150 430 1,500
Bank Postage Office equipment L Kan Cash Wages Motor expenses General expenses Insurance Balances c/d
400
310 94 150 81 35 1,970 2,685 320 3,968 4,923
2,685
Question 13-4A
Discount $ (1) (2) (2) (2) (2) (3) (8) (10) (12) (29) (30) (30) Balances b/d S Ba L Ping G Ho M Ren Sales Bank Sales B Au A Lin Sales Balance c/d 41 16 22 52 400 1,260 4 980 135 (30) Total for the month 3,060 Cash $ 420 Cash Book Bank $ 4,940 779 304 418 988 740 Discount $ Rent M Poon G Guo F Bo Cash Wages R To F Du Fixtures Lorry Stationery Balance c/d 9 24 10 540 15 12 295 400 4,320 14,300 56 2,124 3,060 Cash $ 340 Bank $ 351 936 390 400
(5) (6) (6) (6) (8) (14) (16) (16) 276 (20) 324 (24) (30) 12,623 (30) 21,392
70
21,392
Discounts Allowed $ 135 Discounts Received (30) Total for the month $ 70
2
Question 13-6A
(a) 20X9 May " " " " " Discount $ 1 3 10 11 29 31 Balance b/d D Hui Sales Sales S Kam Balance c/d 80 300 Cash $ 400 C Cheng Cash Book Bank $ 20X9 May 3,920 " 1,800 " 1,400 19,784 " " " " " " " " " " " Discount $ 1 1 4 5 6 9 11 12 16 17 23 25 28 31 Balance b/d Travelling expenses Petty cash book Telephone B Li Salaries Purchases Jayson Lo Rent Stamps Wages Drawings Overdraft interest S Kam: dishonoured cheque Balance c/d Balance b/d Cash $ Bank $ 14,000
60 100 32 200 34 1,666 1,650 100 1,850 140 500 820 3,168 1,750
1,400 66 200 700 26,904 19,784
" 80 Jun 1 Balance b/d 700 200 26,904 Jun
31 1
(b) General Ledger 20X9 May 31 Total for the month
Discounts Allowed $ 80 Discounts Received 20X9 May 31 Total for the month $ 66
(c) Sales Ledger 20X9 May 1 " Jun 31 1 Balance b/d Bank: Dishonoured cheque Balance b/d
S Kam $ 20X9 1,400 May 29 1,400 1,400 " 31 Bank Balance c/d $ 1,400 1,400
2
Question 14-2A
(a) Invoice summaries: 22 metres plastic tubing $10 6 sheets foam rubber $30 4 boxes vinyl padding $50 Less Trade discount 25%
A Poon $ 220 180 200 600 (150) 450 B Kong $ 1,000 400 600 2,000 (400) 1,600 A Lai $ 40 660 900 1,600 (400) 1,200 L Mao $ 290 M Au $ 320 480 1,000 1,800 (600) 1,200
50 lengths polythene sheeting $20 8 boxes vinyl padding $50 20 sheets foam rubber $30 Less Trade discount 20%
4 metres plastic tubing $10 33 lengths polythene sheeting $20 30 sheets foam rubber $30 Less Trade discount 25%
29 metres plastic tubing $10 32 metres plastic tubing $10 24 lengths polythene sheeting $20 20 boxes vinyl padding $50 Less Trading discount 33 1 % 3
2
(b) Jun " " " " 1 5 11 21 30 A Poon B Kong A Lai L Mao M Au
Sales Day Book $ 450 1,600 1,200 290 1,200 4,740
Sales Ledger 20X9 Jun 1 20X9 Jun 5 20X9 Jun 11 20X9 Jun 21 20X9 Jun 30 Sales Sales Sales Sales Sales
A Poon $ 450 B Kong $ 1,600 A Lai $ 1,200 L Mao $ 290 M Au $ 1,200
(c) General Ledger
Sales 20X9 Jun 30 Total for the month $ 4,740
Question 15-2A
Workings: Invoices 2 sets golf clubs $800 5 footballs $40 Less Trade discount 25%
F Dai $ 1,600 200 1,800 (450) 1,350
0
6 cricket bats $60 6 ice skates $35 4 rugby balls $30 Less Trade discount 20%
G So $ 360 210 120 690 (138) 552 F Ho $ 540 3,600 4,140 (1,380) 2,760 L To $ 260 (65) 195 M Mo $ 640 (256) 384 Purchases Day Book F Dai G So F Ho L To M Mo $ 1,350 552 2,760 195 384 5,241
6 sets golf trophies $90 4 sets golf clubs $900 Less Trade discount 33 1 % 3 5 cricket bats $52 Less Trade discount 25%
8 goal posts $80 Less Trade discount 40%
(a) (2) (11) (18) (25) (30)
(b) Purchases Ledger
F Dai (2) Purchases $ 1,350
G So (11) Purchases $ 552

F Ho (18) Purchases $ 2,760
L To (25) Purchases $ 195
M Mo (30) Purchases $ 384
(c) General Ledger (30) Total for the month
Purchases $ 5,241
Question 15-4A
(a) (9) C Choy (16) A Chan (31) M Nam Purchases Day Book $ 240 160 50 450 Sales Day Book $ 45 200 160 405
(1) M Ma (7) R Lau (23) T Young
(b) Purchases Ledger
C Choy (9) Purchases $ 240
A Chan (16) Purchases $ 160
M Nam (31) Purchases $ 50
2
Sales Ledger (1) (7) (23) Sales (c) General Ledger (31) Total for the month Sales Sales
M Ma $ 45 R Lau $ 200 T Young $ 160
Purchases $ 450 Sales (31) Total for the month $ 405
Question 16-2A
(3) (3) (3) (8) (8) (8) (20) (20) (20) E Cha E Pat F Tung A Go H Guo J Fung E Pat F Pao E Lee Sales Day Book $ 510 246 356 307 250 185 188 310 420 2,772 Returns Inwards Day Book E Pat F Tung E Pat E Cha $ 18 22 27 30 97
(14) (14) (31) (31)

(1) (1) (1) (5) (5) (5) (5) (24) (24) K Ho M Ko N So R Mo J Chan D Eu C Du C Fung K Cheung
Purchases Day Book $ 380 500 106 200 180 410 66 550 900 3,292 Returns Outwards Day Book M Ko N So J Chan C Du $ 30 16 13 11 70
(12) (12) (31) (31)
Sales Ledger (3) (3) Sales (20) Sales (3) (8) (8) (8) Sales Sales Sales Sales Sales
E Cha $ 510 (31) Returns inwards E Pat $ 246 (14) Returns inwards 188 (31) Returns inwards F Tung $ 356 (14) Returns inwards A Go $ 307 H Guo $ 250 J Fung $ 185 $ 22 $ 18 27 $ 30

(20) Sales (20) Sales Purchases Ledger
F Pao $ 310 E Lee $ 420
K Ho (1) Purchases $ 380
(12) Return outwards (12) Return outwards
M Ko $ 30 (1) N So $ 16 (1) R Mo (5) Purchases $ 200 Purchases $ 106 Purchases $ 500
(31) Returns outwards
J Chan $ 13 (5) D Eu (5) Purchases $ 410 Purchases $ 180
(31) Returns outwards
C Du $ 11 (5) C Fung (24) Purchases $ 550 Purchases $ 66
K Cheung (24) Purchases $ 900

General Ledger
Sales (31) Total for the month $ 2,772
(31) Total for the month (31) Total for the month
Returns Inwards $ 97 Purchases $ 3,292 Returns Outwards (31) Total for the month $ 70
Question 16-4A
(a) 20X9 Jun 2 " " " " " " 20X9 Jun 23 " " 29 30 9 13 16 24 26 30 K King Sales Day Book Invoice No M Chan Less 15% trade discount N Sin E Lam Less 20% trade discount R Man Less 10% trade discount J Kung Less 20% trade discount M Chan Less 20% trade discount Transferred to sales account Sales Returns Day Book Note No M Chan Less 15% trade discount N Sin Transferred to sales returns account Details $ 100 (15) Amount $ 85 70 155 Details $ 1,100 (165) 2,000 (400) 550 (55) 4,300 (860) 1,600 (320) Amount $ 935 400 1,600 495 3,440 1,280 8,150
369 370 372 376 381 384
50 51
6
(b) General Ledger
Sales 20X9 Jun 30 Total for the month $ 8,150
20X9 Jun 30 Total for the month
Sales Returns $ 155
(c) Sales Ledger 20X9 Jun 1 " 2 " 26 Balance b/d Sales Sales
M Chan $ 20X9 830.00 Jun 23 935.00 " 30 1,280.00 " 30 3,045.00 Sales returns Bank Discount ($2,960 4%) $ 85.00 2,841.60 118.40 3,045.00
Question 17-3A
20X7 Apr " " " " " " 1 4 9 12 18 24 30 Fixtures Drawings Purchases Office equipment J Ha Cash Office equipment $ Dr 180,900 Dr 50,000 Dr 2,800 Dr 50,000 Dr 6,500 Dr 6,800 Dr 219,000 : : : : : : : J Ha Purchases Drawings K Lam Fixtures J Chan Super Offices $ Cr 180,900 Cr 50,000 Cr 2,800 Cr 50,000 Cr 6,500 Cr 6,800 Cr 219,000
Question 17-5A
The Journal Dr $ 26,800 2,000 2,000 1,250 500 1,750 600 600 130,000 20,000 110,000 Cr $ 26,800
1 2 3
4 5
Computer Hi-Tech Co Drawings Cash Computer software Licence fee A-Tech Company Cash Jackson Lee Motor car (new) Motor car (old) Grandrace Motors

6 7 8
Sure Win Co Full Gain Co Bellson Ltd Office fixtures Drawings Purchases Cash
Dr $ 8,000 3,000
Cr $ 8,000 3,000
3,500 2,000 1,500
Question 18-3A
(a) Receipts Date $ 20X7 60.00 Aug 1 440.00 " 1 " 3 " 4 " 5 " " " " " " " " " " 7 9 11 13 14 17 19 23 27 28 Details Balance b/d Bank Cleaners wages Stamps A Lee creditor Ball pens Petrol Motor car accessories Envelopes Taxi fares Cleaners wages MTR fares Petrol Dennis Kong creditor Cleaning materials Balance c/d Balance b/d Voucher No Leon Leung Petty Cash Book Total $ Motor Car Postage & Expenses Travelling Cleaning Stationery $ $ $ $ Ledger $
334 335 336 337 338 339 340 341 342 343 344 345 346
40.00 24.00 16.50 12.00 30.00 50.20 12.90 20.00 80.00 35.00 32.00 63.20 55.00 470.80 29.20 500.00
40.00 24.00 16.50 12.00 30.00 50.20 12.90 20.00 80.00 35.00 32.00 63.20 55.00 175.00
112.20
55.00
48.90
79.70
" 500.00
31
29.20 Sept 1 (b) Purchases Ledger 20X7 Aug 27 Petty cash
Dennis Kong $ 20X7 63.20 Aug 1 Balance b/d $ 63.20

Question 18-4A
(a) Receipts Date $ 20X8 244.80 Jan 1 755.20 " 1 " 1 " 3 " 6 " 9 " 9 18.00 " 13 " 14 " 22 " 25 " 27 " 29 10.00 " 31 " 1,028.00 162.80 Feb 837.20 " 1 1 Balance b/d Bank 31 Details Balance b/d Bank Floor cleaning Box files and pencils Taxi fares Ferry fares Reimbursement of taxi fares by staff M Ho creditor Cleaners wages MTR fares Stamps Photocopy paper Paul Chan creditor Box files sold to staff Balance c/d Henry Lo Petty Cash Book Voucher No $ Total $ Postage & Cleaning Stationery Travelling $ $ $ Ledger $
718 719 720 721 722 723 724 725 726 727
75.60 113.60 131.40 32.60
75.60 113.60 131.40 32.60
32.00 320.00 54.00 24.00 30.00 52.00 865.20 162.80 1,028.00
32.00 320.00 54.00 24.00 30.00 52.00 395.60 167.60 218.00 84.00
(b) General Ledger 20X8 Jan 1 " 31 Balance b/d Petty cash
Travelling $ 20X8 5,200.00 Jan 9 218.00 " 31 5,418.00 Petty cash Balance c/d $ 18.00 5,400.00 5,418.00
20X8 Jan 1 " 31 Balance b/d Petty cash
Postage and Stationery $ 20X8 512.00 Jan 31 167.60 " 31 679.60 Petty cash Balance c/d $ 10.00 669.60 679.60
(c) The cashier responsible for the payment of petty cash claims should undertake a check of supporting vouchers related to such expense claims.

Question 19-3A
(a) Date 20X6 Jan " " " " " " " " " Name of Business 1 4 6 6 6 8 15 17 19 21 AB Ltd JY Co DY Co MN Co EG Ltd AB Ltd Hi-Tech Ltd Hi-Tech Ltd Soundbest Co Comlink Co Columnar Purchases Day Book Total $ 430 1,600 2,400 1,800 800 900 96 102 430 850 9,408 Computer Accessories $ 430 1,600 Audio & Video Accessories $ CPDB 1 Household Appliances $
2,400 1,800 800 900 96 102 430 850 3,780 628 5,000 CSDB 1 Audio & Video Accessories $ Household Appliances $
Date 20X6 Jan " " " " " " " Name of Business 9 9 13 20 25 25 26 29 Albert Yu Co TST Co HKSC Ltd F Luk Co Belford Co Longlife Ltd Eatwell Restaurant Beauty Co
Columnar Sales Day Book Total $ 570 87,000 1,200 170 260 180 2,600 490 92,470 Computer Accessories $ 570 87,000
1,200 170 260 180 2,600 490 3,090
87,750
1,630
(b) General Ledger 20X6 Jan 31 20X6 Jan 31 20X6 Jan 31 Total for the month Total for the month Total for the month
Purchases: Computer Accessories CPDB 1 $ 3,780
Purchases: Audio and Video Accessories CPDB 1 $ 628
Purchases: Household Appliances CPDB 1 $ 5,000
Sales: Computer Accessories 20X6 Jan 31 Total for the month CSDB 1 $ 87,750
0
Sales: Audio and Video Accessories 20X6 Jan 31 Total for the month CSDB 1 $ 1,630
Sales: Household Appliances 20X6 Jan 31 Total for the month CSDB 1 $ 3,090
Question 19-4A
G Goh Purchases Analysis Book Total Purchases Telephone $ $ $ 108 108 210 210 65 65 195 195 265 19 364 39 181 181 13 222 222 46 12 193 38 66 2,036 Lighting & Heating $ Motor Expenses Stationery $ $ Carriage Inwards $
20X8 Aug " " " " " " " " " " " " " " "
1 3 4 5 6 8 10 12 15 17 18 19 21 23 27 31
J So T Ho BT F Lo Topp Garages Gilly Shop Topp Garages PowerNorth Ltd G Fang B&T Ltd T Pao Overnight Couriers Ltd J Mo H Kan PMP Ltd Topp Garages
265 19 364 39 13
46 12 193 38 1,109 65 52 66 695 31 84
Question 22-2A
Capital: a, c, f. Revenue: b, d, e, g.
Question 22-4A
See text for how to distinguish between capital and revenue expenditure. (a) Cost of repairs is always revenue; an extension to an asset is always capital. (b) This is capital expenditure in the same way as buying a van to replace a van is capital expenditure. (c) This is capital expenditure because the asset was improved by the expenditure.

Question 22-7A
(a) (b) (c) (d) (e) (f) Revenue Revenue Capital Revenue Capital Revenue (g) (h) (i) (j) (k) (l) Capital Revenue Revenue Capital Revenue Capital
Question 22-10A
(a) (b) (c) (d) (e) Capital Revenue Revenue Revenue Capital (f) (g) (h) (i) Capital Revenue Revenue Capital
Question 22-11A
(a) Balance b/d Survey fees Legal fees Cost of site Architects fees Subcontractor charges Transfer from wages Stock of materials used Premises $ 521,100 Balance c/d 1,500 3,000 90,000 8,700 69,400 11,600 76,800 782,100 Plant $ 407,500 Balance c/d 87,300 2,900 2,310 105,800 2,550 608,360 $ 608,360 $ 782,100
782,100
Balance b/d Vendor of Press A Transport cost (Press A) Installation costs (Press A) Vendor of Press B Installation costs (Press B)
608,360
(b) Cash discount of 2% on Press A. Connected with financing and not the cost of plant. Similarly, debenture interest is not applicable. The $4,700 demolition cost, and $1,400 plus $1,750 cost of hiring lifting gear are not shown separately as they are included in other figures used above.
2
Question 22-13A
(a) Computers Cabling Installation Less Cash discount (2 1 %) 2 Printers (3 $125) Software Amount capitalised Amount charged to revenue: Consumables ($250 $50) Training $ 7,000 300 500 7,800 (195) $
7,605 375 350 8,330 $ 200 500 700
(b) When an amount is not considered to be material i.e. it is not of interest to the users of the financial statements it may be treated as a revenue expense rather than being capitalised. In this case, it might be considered that the cost of the cabling ($300 2 1 % = $292.50) was not material the business may, for 2 example, use $300 as the minimum amount to be capitalised, anything costing less than this being treated as a revenue expense.
Question 23-4A
(a) 20X7 Dec 31 20X8 Dec 31 20X9 Dec 31 (b) 20X7 Dec 31 20X8 Dec 31 Balance c/d Balance c/d ($76,000 6%) Various debts Various debts Various debts Bad Debts $ 20X7 1,240 Dec 31 20X8 2,608 Dec 31 20X9 5,424 Dec 31 Profit and loss Profit and loss Profit and loss $ 1,240 2,608 5,424
Provision for Doubtful Debts $ 20X7 1,640 Dec 31 20X8 4,560 Jan 1 Dec 31 4,560 20X9 160 Jan 1 4,400 4,560 Profit and loss ($41,000 4%) Balance b/d Profit and loss $ 1,640 1,640 2,920 4,560 4,560 4,560
20X9 Dec 31 " 31
Profit and loss Balance c/d ($88,000 5%)
Balance b/d

(c)
Balance Sheet (extracts) 20X7 20X8 $ 39,360 $ 76,000 (4,560) $ 71,440 $ 88,000 (4,400) 20X9 $ 83,600 $ 41,000 (1,640)
Debtors Less Provision for doubtful debts
Question 23-6A
(a) 20X3 (2) Dec 31 (3) Dec 20X4 (4) Mar 31 Journal Entries Dr $ 2,500 12,500 12,500 2,500 2,500 2,500 2,500 1,225 1,225 4,100 4,100 Cr $ 2,500
Bad debts Mr Chan (debtor) Profit and loss ($250,000 5%) Provision for doubtful debts Mr Chan (debtor) Bank Bad debts recovered Mr Chan (debtor) Bad debts Mr Wong (debtor) Provision for doubtful debts Profit and loss ($12,500 $420,000 2%)
(5) Dec (6) Dec
27 31
(b) (i)
Profit and Loss Account Extract for the year ended 31 December 20X4 $
Other income Decrease in provision for doubtful debts Bad debts recovered Operating expenses Bad debts (ii) Balance Sheet Extract as at 31 December 20X4
4,100 2,500 1,225
$ Current assets Debtors Less Provision for doubtful debts 420,000 (8,400) 411,600
(c) (i) Creating a provision for doubtful debts can avoid overstating profits and debtors. (Prudence concept) (ii) Creating a provision for doubtful debts can relate any loss for the period with the related sales in the same period. (Matching concept)

Question 23-8A
(a) 20X2 Apr 1 20X3 Mar 31 Balance b/d Sales (balance) Debtors Ledger Control Account $ 20X3 1,069,000 Mar 31 " 31 1,418,600 " 31 " 31 " 31 " 31 2,487,600 Returns inwards Bank ($1,350,000 $35,000) Discounts allowed Bad debts Creditors ledger control: Set off Balance c/d $ 18,600 1,315,000 96,000 2,500 87,500 968,000 2,487,600
(b) 20X3 Mar 31 " 31 Profit and loss Balance c/d (W1)
Provision for Doubtful Debts Account $ 20X2 11,100 Apr 1 19,320 30,420 Bad Debts Account Debtors ledger control $ 20X3 2,500 Mar 31 Profit and loss $ 2,500 Balance b/d $ 30,420 30,420
(c) 20X3 Mar 31 (d) 20X3 Mar 31
Provision for Cash Discounts Allowed Account Balance c/d ($500,000 99% 2%) $ 20X2 9,900 Apr 1 20X3 Mar 31 9,900 Balance b/d Profit and loss $ 8,000 1,900 9,900
(e) 20X3 Mar 31 (f) 20X3 Mar 31 Profit and loss Debtors ledger control
Discounts Allowed Account $ 20X3 96,000 Mar 31 Profit and loss $ 96,000
Bad Debts Recovered Account $ 20X3 35,000 Mar 31 Bank $ 35,000

(W1) Provision for doubtful debts as at 31 March 20X3 Estimated percentage doubtful % 1 2 3 5 10 Provision required $ 5,000 5,600 3,720 1,400 3,600 19,320
Period debt owing Less than 1 month 1 month to 2 months 2 to 3 months 3 to 6 months Over 6 months
Amount $ 500,000 280,000 124,000 28,000 36,000 968,000
Question 24-4A
(a) Straight line Photocopier cost Yr 1 Depreciation Yr 2 Depreciation Yr 3 Depreciation Yr 4 Depreciation *Calculation:
$23,000 $4,000 4
(b) $ 23,000 (4,750)* 18,250 (4,750) 13,500 (4,750) 8,750 (4,750) 4,000 =
$19,000 4
Reducing balance Photocopier cost Yr 1 Depreciation (35% of $23,000) Yr 2 Depreciation (35% of $14,950) Yr 3 Depreciation (35% of $9,717) Yr 3 Depreciation (35% of $6,316)
$ 23,000 (8,050) 14,950 (5,233) 9,717 (3,401) 6,316 (2,211) 4,105
= $4,750
Question 24-5A
(a) Reducing balance Printer cost Yr 1 Depreciation (60% of $800) Yr 2 Depreciation (60% of $320) Yr 3 Depreciation (60% of $128) Yr 4 Depreciation (60% of $51) Yr 5 Depreciation (60% of $20) $ 800 (480) 320 (192) 128 (77) 51 (31) 20 (12) 8
(b)
Straight line Printer cost Yr 1 Depreciation Yr 2 Depreciation Yr 3 Depreciation Yr 4 Depreciation Yr 5 Depreciation *Calculation:
$800 5
$ 800 (160)* 640 (160) 480 (160) 320 (160) 160 (160) = $160
6
Question 24-6A
(a) Reducing balance Bus cost Yr 1 Depreciation (25% of $56,000) Yr 2 Depreciation (25% of $42,000) Yr 3 Depreciation (25% of $31,500) Yr 4 Depreciation (25% of $23,625) (b) Straight line Bus cost Yr 1 Depreciation Yr 2 Depreciation Yr 3 Depreciation Yr 4 Depreciation
$56,000 $18,000 4 $38,000 4
$ 56,000 (14,000) 42,000 (10,500) 31,500 (7,875) 23,625 (5,906) 17,719 $ 56,000 (9,500)* 46,500 (9,500) 37,000 (9,500) 27,500 (9,500) 18,000
*Calculation:
= $9,500
Question 24-10A
(a) (i) Straight line: $100,000 $20,000 = $80,000 4 = $20,000 depreciation per year. Cost / NBV Depreciation $ $ 100,000 20,000 80,000 20,000 60,000 20,000
4
31.12.20X3 31.12.20X4 31.12.20X5 (ii) Reducing balance: Percentage = 1

$20,000 $100,000
NBV $ 80,000 60,000 40,000
= 33% Cost / NBV Depreciation $ $ 100,000 33,000 67,000 22,110 44,890 14,814 Straight line $ 45,000 (40,000) 5,000 NBV $ 67,000 44,890 30,076
31.12.20X3 31.12.20X4 31.12.20X5 (b) Sale proceeds Balance b/d at 1.1.20X6 Gain on sale
Reducing balance $ 45,000 (30,076) 14,924

(c) See text. Straight line is more appropriate when the economic benefits of using an asset reduce evenly over its useful economic life, such as in the case of office furnishings which will deteriorate gradually through wear and tear. Reducing balance is more appropriate when the economic benefits of using an asset reduce rapidly from the start, such as in the case of a motor vehicle the cost of maintaining it, for example, is very low at the start and, generally, higher the longer it is in use. (d) Net book value represents an estimate of the remaining economic value of an asset expressed financially on a basis which is usually directly related to its original cost, original estimate of its residual value, and original estimated useful economic life.
Question 24-11A
A 2,400 (540) 1,860 (558) 1,302 20X5 Bought 1.10.20X4 Depreciation 30% $1,302 30% $2,187 30% for 12 months Bought 1.4.20X6 Depreciation 30% $911 30% $1,531 30% $2,240 30% for 6 months (391) (656) 911 20X6 (273) (459) (672) 638 20X6 Total depreciation provision = $(273 + 459 + 672 + 540) = $1,944 1,072 1,568 (540) 3,060 1,531 (960) 2,240 3,600 (313) 2,187 3,200 B Forklift trucks C D
20X3
Bought 1.1.20X3 Depreciation 30% for 9 months Bought 1.5.20X4 Depreciation 30% $1,860 30% for 5 months
2,500
20X4
Question 25-3A
(a) 20X5 Jan 1 20X6 Jan 1 Oct 1 Bank Balance b/d Bank Machinery $ 20X5 2,800 Dec 31 20X6 2,800 Dec 31 3,500 6,300 Balance c/d Balance c/d $ 2,800 6,300 6,300

(b) 20X5 Jan 1 Jul 1 20X6 Jan 1 Dec 1 Bank Bank
Fixtures $ 20X5 290 Dec 31 620 910 20X6 910 Dec 31 130 1,040 Balance c/d $ 910 910 Balance c/d 1,040 1,040
Balance b/d Bank
(c) 20X5 Dec 31 20X6 Dec 31 Balance c/d Balance c/d
Provision for Depreciation: Machinery $ 20X5 420 Dec 31 20X6 1,302 Jan 1 Dec 31 1,302 Profit and loss ($2,800 15%) Balance b/d Profit and loss $ 420 420 882* 1,302
$ *$(2,800 420) 15% = 357 $3,500 15% = 525 882 20X5 Dec 31 20X6 Dec 31 Balance c/d Balance c/d Provision for Depreciation: Fixtures $ 20X5 46 Dec 31 20X6 96 Jan 1 Dec 31 96 Profit and loss ($910 5%) Balance b/d Profit and loss $ 46 46 50* 96
$ *$(910 46) 5% = 43.20 $130 5% = 6.50 49.70 rounded to $50. (d) 31 December 20X5 Machinery at cost Less Accumulated depreciation Fixtures at cost Less Accumulated depreciation 31 December 20X6 Machinery at cost Less Accumulated depreciation Fixtures at cost Less Accumulated depreciation Balance Sheets (extracts) $ 2,800 (420) 910 (46) 6,300 (1,302) 1,040 (96) $
2,380 864
4,998 944

Question 25-7A
Workings: AAT 101 Cost Less Estimated residual value Estimated total depreciation Estimated life: 5 years Depreciation charge per year Accumulated depreciation at 1.4.20X6 (2 years 6 months $1,200 p.a.) Depreciation 1.4.20X6 to 30.6.20X6 (3 months $1,200 p.a.) Depreciation to 30.6.20X6 Cost was Written-down value on disposal Trade-in allowance Loss on disposal DJH 202 Cost Less Estimated residual value Estimated total depreciation Estimated life: 8 years Depreciation charge per year Accumulated depreciation at 1.4.20X6 (2 years $1,250 p.a.) Remainder of estimated depreciation Adjust to cover 4 years in future: i.e. $7,500 4, yearly charge is now Depreciation for the year to 31 March 20X7 AAT 101 DJH 202 KGC 303 As above As above Cost $15,000 Residual value $4,000 = $11,000 5 years = $2,200 p.a. 9 For 9 months 30.6.20X6 to 31.3.20X7 = $2,200 12 The Journal Dr $ 15,000 Cr $ 5,000 6,000 4,000 8,500 8,500 $ 300 1,875 1,650 3,825 $ 8,500 (2,500) 6,000 1,200 $ 3,000 300 3,300 8,500 5,200 (5,000) 200 $ 12,000 (2,000) 10,000
1,250 2,500 7,500 1,875
(a) (Dates omitted)
Motor vehicles Motor vehicle disposals Pinot Finance Bank Purchase of vehicle KGC 303. Motor vehicle disposals Motor vehicles Cost of vehicle AAT 101. 0
Provision for depreciation: Motor vehicles Motor vehicle disposals Depreciation to date of vehicle AAT 101 on disposal. Profit and loss Motor vehicle disposals Loss on disposal of vehicle AAT 101. (b) Profit and loss Provision for depreciation: Motor vehicles Depreciation on motor vehicles for the year to 31 March 20X7. Motor Vehicles $ 20,500 Motor vehicles disposals 15,000 Balance c/d 35,500 Provision for Depreciation: Motor Vehicles $ 3,300 Balance b/d ($3,000 + $2,500) 6,025 Profit and loss 9,325
3,300 3,300 200 200 3,825 3,825
(c) (Dates omitted) Balance b/d Purchase of KGC 303
$ 8,500 27,000 35,500
Motor vehicle disposals Balance c/d
$ 5,500 3,825 9,325
Question 25-10A
(a) (i) 20X3 Jan 1 Mar 1 Balance b/f Bank Machinery Account $ 20X3 300,000 Dec 31 180,000 480,000 Balance c/f $ 480,000 480,000
(ii) 20X3 Jan 1 Jul 1 Balance b/f Bank
Motor Vehicles Account $ 20X3 206,000 Oct 1 360,000 Dec 31 566,000 Disposal Balance c/f $ 120,000 446,000 566,000
(iii) 20X3 Jan 1 Balance c/f
Provision for Depreciation on Machinery Account $ 20X3 168,000 Jan 1 Dec 31 168,000 Balance b/f Profit and loss [($300,000 + $180,000) 20%] $ 72,000 96,000 168,000

(iv) 20X3 Oct 1 Dec 31 Disposal Balance c/f
Provision for Depreciation on Motor Vehicles Account $ 20X3 78,840 Jan 1 152,812 Dec 31 $ Balance b/f 106,000 Profit and loss {[($206,000 $120,000) ($106,000 $78,840) + $360,000] 30%} 125,652 231,652
231,652 (v) 20X3 Oct 1 Motor vehicles
Motor Vehicles Disposal Account $ 20X3 120,000 Oct 1 " 1 " 1 120,000 Provision for depreciation Bank Profit and loss: Loss on disposal $ 78,840 15,000 26,160 120,000
(b) The purpose of providing depreciation on fixed assets is to apply the matching principle to fixed assets. The benefits arising from the use of fixed assets are spread over the periods of their useful lives in the business so that the costs incurred in obtaining the fixed assets can be matched against the benefits.
Question 25-12A
(a) 20X3 Jan Apr Sept Nov 1 15 1 1 Balance b/d Cash Cash Cash Plant and Machinery Account $ 20X3 500,000 Aug 1 115,000 Dec 31 350,000 15,000 980,000 Plant disposal Balance c/d $ 120,000 860,000
980,000
20X3 Jan Mar May " 1 1 5 5 Balance b/d Cash Disposal Cash
Office Equipment Account $ 20X3 180,000 May 5 32,000 Dec 31 11,000 9,000 232,000 Disposal Balance c/d $ 18,000 214,000
232,000
20X3 Aug 1 Dec 31
Plant and Machinery Provision for Depreciation Account Disposal (W1) Balance c/d $ 20X3 58,560 Jan 1 201,152 Dec 31 259,712 Balance c/d Profit and loss $ 95,000 164,712 259,712
2
20X3 May 5 Dec 31 Disposal (W2) Balance c/d
Office Equipment Provision for Depreciation Account $ 20X3 3,600 Jan 1 53,800 Dec 31 57,400 Balance b/d Profit and loss $ 36,000 21,400 57,400
20X3 Aug 1 " 1 Dec 31 Plant and machinery Cash (repairs) Profit and loss
Disposal of Plant and Machinery Account $ 20X3 120,000 Aug 1 5,000 " 1 33,560 158,560 Provision for depreciation Cash $ 58,560 100,000 158,560
20X3 May 5 Office equipment
Disposal of Office Equipment Account $ 20X3 18,000 May 5 " 5 " 31 18,000 Provision for depreciation Office equipment Profit and loss $ 3,600 11,000 3,400 18,000
20X3 Sept 1 Nov 1 Cash (W3) Cash (W4)
Repairs and Maintenance Account $ 20X3 8,000 Dec 31 36,000 44,000 Profit and loss $ 44,000 44,000
Workings: (W1) $120,000 20% + $120,000 80% 20% + $120,000 80% 80% 20% = $58,560 (W2) $18,000 10% 2 = $3,600 4 (W3) $48,000 24 = $8,000 (W4) $51,000 $15,000 = $36,000 (b) Profit and Loss Account (extract) for the year ended 31 December 20X3 $ Income: Profit on disposal of plant and machinery Expenses: Depreciation plant and machinery Depreciation office equipment Loss on disposal of office equipment Repairs and maintenance 33,560 164,712 21,400 3,400 44,000
(c) Depreciation is the systematic allocation of the depreciable amount of a fixed asset over its estimated useful life. Depreciation is necessary because of the need to match the revenues of the period with the costs incurred in earning them.

Question 25-13A
(a) Cost of Machine M003: List price Trade discount Transportation charges Installation and set-up Cost of Machine M004: Drafting and design Construction: Materials and components Direct wages Overheads Installation and testing $ 50,000 200,000 80,000 120,000 30,000 480,000 Machinery Balance b/d Purchase of M003 Construction of M004 $ 20X3 730,000 Jul 1 587,000 Dec 31 480,000 1,797,000 Disposal of M001 Balance c/d $ 450,000 1,347,000 1,797,000 $ 585,000 (35,000) 12,000 25,000 587,000
(b) (i) 20X3 Jan 1 Jul 1 Nov 1
(ii) 20X3 Jul 1 Dec 31 Disposal of M001 (W1) Balance c/d
Provision for Depreciation $ 20X3 219,600 Jan 1 374,040 Dec 31 593,640 Balance b/d (W1) Depreciation (W2) $ 320,400 273,240 593,640
Workings: (W1) Accumulated depreciation as at 31 December 20X2: 20X0 $ 90,000 20X1 $ 72,000 56,000 20X2 $ 57,600 44,800 Total $ 219,600 100,800 320,400 $ 35,840 117,400 120,000 273,240
M001 M002 (W2) Depreciation for the year 20X3: M002 M003 M004 $(280,000 100,800) 20% $587,000 20% $480,000 25%

(iii) 20X3 Jul 1 " 1 Machinery Profit on disposal
Disposal of Machinery $ 20X3 450,000 Jul 1 69,600 " 1 519,600 Provision for depreciation Trade-in value $ 219,600 300,000 519,600
Question 26-2A
(a) 20X7 Jul 1 20X8 Jun 30 Inventory b/d Cash and bank Stationery $ 20X8 60 Jun 30 " 30 240 300 General Expenses Cash and bank Owing c/d $ 20X7 470 Jul 1 60 20X8 Jun 30 530 Rent and Rates Cash and bank Rates owing c/d $ 20X7 5,410 Jul 1 393 20X8 Jun 30 " 30 5,803 Motor Expenses Cash and bank Owing c/d $ 20X7 1,410 Jul 1 67 20X8 Jun 30 1,477 Owing b/d Profit and loss $ 92 1,385 1,477 Owing b/d: Rent Rates Profit and loss Rent prepaid c/d $ 220 191 5,022 370 5,803 Owing b/d Profit and loss $ 32 498 530 Profit and loss Inventory c/d $ 205 95 300
(b) 20X8 Jun 30 " 30
(c) 20X8 Jun 30 " 30
(d) 20X8 Jun 30 " 30
(e) 20X7 Jul 1 20X8 Jun 30 Accrued b/d Profit and loss
Commission Receivable $ 20X8 50 Jun 30 " 30 1,132 1,182 Cash and bank Accrued c/d $ 1,100 82 1,182

Question 26-5A
J Wong Trading and Profit and Loss Account for the year ended 31 March 20X9 $ Sales Less Returns inwards Less Cost of goods sold: Opening inventory Add Purchases Less Returns outwards Less Closing inventory Gross profit Add Discounts received Less Expenses: Wages and salaries ($39,200 + $3,500) Rent and insurance ($8,870 $600) Carriage outwards General office expenses ($319 + $16) Discounts allowed Provision for doubtful debts Depreciation: Fixtures and fittings Van Net profit Fixed assets Fixtures and fittings Less Accumulated depreciation Van Less Accumulated depreciation Current assets Inventory Debtors Less Provision for doubtful debts Prepaid expenses Cash in hand Less Current liabilities Creditors Expenses owing ($3,500 + $16) Bank overdraft Net current assets Balance Sheet as at 31 March 20X9 $ $ 1,900 (190) 5,600 (1,400) $ $ 127,245 (3,486) 7,940 61,420 (1,356) 60,064 68,004 (6,805) $ 123,759
(61,199) 62,560 62 62,622
42,700 8,270 3,210 335 2,480 110 190 1,400 1,590 (58,695) 3,927
1,710 4,200 5,910
6,805 12,418 (740) 11,678 600 140 19,223
11,400 3,516 2,490
(17,406) 1,817 7,727
6
$ Financed by: Capital Balance at 1.4.20X8 Add Net profit Less Drawings
25,200 3,927 29,127 (21,400) 7,727
Question 26-7A
20X6 Jan Dec " " 1 31 31 31 Balance b/d Bank (electricity) Bank (oil) Owing c/d Lighting and Heating $ 20X6 192 Dec 31 1,300 " 31 810 162 2,464 Insurance Balance b/d Bank (fire) Bank (general) $ 20X6 1,410 Jun 30 1,164 Dec 31 1,464 " 31 4,038 Bank Profit and loss Prepaid c/d $ 82 2,617 1,339* 4,038 $ 485 854 1,339 Profit and loss Inventory c/d $ 2,259 205
2,464
20X6 Jan 1 Dec 31 " 31
5 * Prepaid calculated: Fire 5 months $1,164 12 General 7 months $1,464
7 12
Question 26-8A
No set answer. Note: Avoid very technical language as it is for a non-accountant. Keep it fairly brief. (a) Assets means the resources possessed by the business, but there is one important qualification to this statement. That is the asset must have cost the business something that can easily be measured in monetary terms. Whilst, therefore, your skill and knowledge may be an asset in ordinary everyday language, it cannot be classed as an asset in an accounting sense as it did not cost the business anything. (b) The house you live in, we assume, is not used at all for your business. It cannot therefore be included as a business asset. Accordingly the increase in the value is also irrelevant. If the house is owned by the business it would be included as an asset at $30,000 until a proper revaluation takes place. (c) Assets are called fixed assets when they are of long life, are to be used in the business and were not bought with the main purpose of resale. Examples are buildings, machinery, motor vehicles, and fixtures and fittings.

On the other hand, assets are called current assets when they represent cash or are primarily for conversion into cash or have a short life. An example of a short-lived asset is that of the inventory of oil held to power the boilers in a factory, as this will be used up in the near future. Other examples of current assets are cash itself, inventories of goods, debtors and bank balances. (d) Some vehicles may have been bought specifically for resale, and are therefore current assets. Other vehicles, such as a breakdown truck, have been bought for use, not resale, and are consequently fixed assets. See definitions in (c) above. (e) The profit in the profit and loss account is calculated by matching up sales for the year with those costs that have been incurred in order to achieve the sales. Some of the costs were paid for in a previous year, some items are still owed for. This means that costs do not mean items paid for in the year. Similarly, a lot of sales will still be owed for see debtors so that this does not equal cash received in the year. As many items in the profit and loss account do not equal cash received or paid out, then obviously there is not necessarily any easy comparison between profit and cash and bank balances. (f) No, that is not true. Depreciation represents the part of the cost used up in the year. As equipment may last for several years, only part of the cost will be charged against one year. The remaining value of the equipment is shown in your balance sheet. The total costs will be charged against your profits, but spread over several years. The total costs will only be charged once against the profits.
Question 26-9A
Mr Yousef Trading and Profit and Loss Account for the year ended 31 May 20X6 $ Sales Less Cost of goods sold: Stock, 1 June 20X5 Add Purchases Carriage inwards Less Stock, 31 May 20X6 Gross profit Less Carriage outwards ($5,144 $2,211) Salaries and wages Rent, rates and insurance ($6,622 + $210 $880) Postage and stationery Advertising Bad debts Provision for doubtful debts Depreciation ($58,000 15%) Net profit $ 138,078
11,927 82,350 2,211 96,488 (13,551) 2,933 26,420 5,952 3,001 1,330 877 40 8,700
(82,937) 55,141
(49,253) 5,888

Fixed assets Equipment at cost Less Depreciation to date Current assets Stock Debtors Less Provision for doubtful debts Prepayments Bank Cash Less Current liabilities Creditors Expenses accrued Working capital Financed by: Capital Balance at 1 June 20X5 Add Net profit Less Drawings
Balance Sheet as at 31 May 20X6 $ $ 58,000 (27,700) 13,551 12,120 (170) 11,950 880 1,002 177 27,560 $
30,300
6,471 210
(6,681) 20,879 51,179
53,091 5,888 58,979 (7,800) 51,179
Question 26-12A
(a) 20X0 Jul 8 Oct 19 20X1 May 5 Nov 28 Mr Chan Mr Lee Bad Debts Account $ 20X0 1,900 Dec 31 4,800 6,700 20X1 7,500 Dec 31 520 8,020 Profit and loss $ 6,700 6,700 Profit and loss 8,020 8,020
Mr Cheung Mr Wong
20X0 Dec 31 20X1 Dec 31 " 31 Balance c/d
Provision for Doubtful Debts Account $ 20X0 6,000 Dec 31 6,000 20X1 Jan 1 2,400 3,600 6,000 Profit and loss ($120,000 5%) $ 6,000 6,000 6,000
Profit and loss ($6,000 $180,000 2%) Balance c/f
Balance b/d
6,000

20X1 Dec 31 (b) 20X2 Jun 30 Balance b/f Profit and loss
Bad Debts Recovered Account $ 20X1 1,900 Mar 5 Mr Chan $ 1,900
Accountancy Fee Account $ 20X2 12,000 Jun 30 " 30 12,000 Wages Account Balance b/f Balance c/f $ 20X2 50,000 Jun 30 8,000 58,000 Profit and loss $ 58,000 58,000 Profit and loss ($12,000 Balance c/f
6 12
$ 6,000 6,000 12,000
20X2 Jun 30 " 30
20X2 Jun 30 Profit and loss
Rental Income Account $ 20X2 240,000 Jun 30 " 30 240,000 Balance b/f Balance c/f $ 220,000 20,000 240,000
Question 26-13A
(a) 20X2 Dec 31 Balance b/f Insurance Account $ 20X2 10,000 Dec 31 " 31 10,000 Electricity Account Balance b/f Balance c/d $ 20X2 1,500 Dec 31 500 2,000 Profit and loss $ 2,000 2,000
3 Profit and loss ($10,000 12 ) Balance c/d
$ 2,500 7,500 10,000
20X2 Dec 31 " 31
20X2 Dec 31 " 31 Rental income Profit and loss
Commission Income Account $ 20X2 10,000 Dec 31 40,000 50,000 Balance b/f $ 50,000 50,000
60
20X2 Dec 31 Balance c/f
Provision for Bad Debts Account $ 20X2 10,000 Dec 31 " 31 10,000 Balance b/f Profit and loss $ 8,000 2,000 10,000
(b) According to the accruals concept, revenue and expenses are accrued (i.e. recognised as income when earned or costs as incurred, not as money is received or paid). They match with one another so far as their relationship can be established. Revenue and profits dealt with in the profit and loss account are matched with associated costs and expenses for the same period. As part of the insurance premium paid related to 20X3, that part of expense should be recorded in the 20X3 profit and loss account in accordance with the accruals concept. Similarly, although the electricity expense of $500 was unpaid at 31 December 20X2, this should still be recorded in the 20X2 profit and loss account according to the accruals concept.
Question 27-3A
(a) FIFO: 15 $19 = $285 (b) LIFO: Received 120 $16 80 $18 Issued Inventory after each transaction $ $ 120 $16 1,920 120 $16 1,920 80 $18 1,440 3,360 75 $16 75 $16 150 $19 60 $16 150 $19 210 15 $16 1,200 2,850 1,200
Jan Apr Jun
45 $16 80 $18 125 150 $19
Oct Nov
4,050 240
(c) AVCO: Received Jan Apr Jun Oct Nov 120 $16 80 $18 125 150 $19 210 Issued Average cost per unit of inventory $ 16 16.80 16.80 18.27 18.27 No of units in inventory 120 200 75 225 15 Total value of inventory $ 1,920 3,360 1,260 4,110 274
6
Question 27-4A
Trading Account for the year ended FIFO $ 6,210 (285) 5,925 2,075 8,000 LIFO $ 6,210 (240) 5,970 2,030 8,000 AVCO (All methods) $ 6,210 Sales (274) 5,936 2,064 8,000 $ 2,750 5,250 $ 8,000
Purchases Less Closing inventory Cost of goods sold Gross profit
125 $22 210 $25
8,000
Question 27-6A
Cobden Ltd Computation of Stock as at 31 May 20X9 Increase $ No adjustment needed Q Cost lower than net realisable value (2) Reduction to net realisable value ($200 + $40 $110) (3) Arithmetic corrected (4) Omitted items (5) Transposition error (6) Goods omitted (7) Hired item not to be included (8) Samples to be excluded (9) Sale or return items reduced to cost ($602 $418) (10) Goods held simply on sale or return basis Net increase Stock as originally computed (1) Decrease $
130 72 126 2,010 9 638 347 63 184 267 2,720 1,126 1442443 1,594 87,612 89,206
62
Question 27-7A
(a) Mary Smith Trading and Profit and Loss Account for the 3 months ended 30 November 20X9 FIFO $ Sales Less Cost of sales (Note 1) Gross profit Less Overhead expenses Sales commission (Note 2) Depreciation of lawn mower (Note 3) Net profit Note 1 (FIFO) Closing stock 10 $489 1 $350 (net realisable value) Purchases (12 $384 + 8 $450 + 16 $489) Less Taken for business use Closing stock Cost of sales (LIFO) Closing stock 10 $384 1 $350 (net realisable value) Purchases Less Taken for business use Closing stock Cost of sales Note 2 Sales commission: FIFO 2 1 % $5,432 = $135.80, rounded to $136 2 LIFO 2 1 % $4,448 = $111.20, rounded to $111 2 Note 3 Depreciation: FIFO $384 LIFO $450
1 8 1 8
LIFO $ $ 15,840 (11,392) 4,448
$ 15,840 (10,408) 5,432
1,520 136 12
(1,668) 3,764
1,520 111 14
(1,645) 2,803
4,890 350 5,240 16,032 384 5,240 3,840 350 4,190 16,032 450 4,190 (4,640) 11,392 (5,624) 10,408
3 months = $12.00 3 months = $14.06, rounded to $14
(b) Mary Smiths income, 3 months to 31 August 20X9: Salary $3,750 ($1,5000 1 ) + Interest $175 ($7,000 10% 1 ) = $3,925 4 4 Business profit, 3 months to 30 November 20X9: $3,764 (c) FIFO: Advantage: related to actual movements of goods; therefore closing stock is nearer to actual current price levels. Disadvantage: during inflation profits include holding gains. LIFO: Advantage: cost of sales is nearer to current price levels. Disadvantage: not related to actual movement of goods; therefore stock valuation will not match up to current price levels.
6
Question 28-2A
(a) 20X7 Jun " " " " " 1 7 16 28 30 30 Balance b/d J Ma T Wong F So G Chan Flynn: Traders credit Cash Book $ 20X7 1,410 Jun 5 62 " 12 75 " 16 224 " 29 582 " 29 64 " 30 " 30 2,417 L Ho J Leung T Sin Blister Disco SLM: Standing order Bank charges Balance c/d $ 180 519 41 22 52 43 1,560 2,417
(b)
Bank Reconciliation Statement as at 30 June 20X7 $ 1,560 22 1,582 (582) 1,000
Balance in hand per cash book Add unpresented cheque Less Bank lodgement not yet entered on bank statement Balance in hand as per bank statement
Question 28-4A
(a) 20X1 Oct 31 " 31 Wong Balance c/d Bank Account $ 20X1 6,310 Oct 31 27,676 " 31 " 31 " " " 33,986 (b) Bank Reconciliation Statement as at 31 October 20X1 $ Adjusted bank account balance Add Unpresented cheques # 168122 # 168126 # 168130 Less Cheque paid in but not yet cleared Balance as per bank statement $ 27,676 OD 31 31 31 Balance b/d Credit side undercast Cheque dishonoured Hung Kee Electricity Telephone Overdraft interest $ 11,260 1,190 13,200 5,680 2,600 56 33,986
12,400 12,800 4,768
29,968 2,292 (7,600) 5,308 OD
6
(c) In an imprest system, a fixed amount of money (petty cash float) is set to meet the petty cash expenses for a period, usually two weeks or a month depending on the frequency of transactions and the amount of the petty cash float. At the end of the period, the petty cash fund is reimbursed with the exact amount of disbursements, and is thus made up again to its original fixed amount.
Question 28-5A
(a) 20X3 Sept 30 " 30 " 30 Balance b/d Debit side undercast (6) Cheque entered twice (7) Bank Account $ 20X3 512,000 Sept 30 100,000 " 30 1,520 " 30 " 30 " 30 613,520 Overdraft interest (1) Post-dated cheque (3) Posting error (4) Cheque dishonoured (5) Balance c/d $ 750 26,500 9,090 80,000 497,180 613,520
(b)
Bank Reconciliation Statement as at 30 September 20X3 $ 497,180 360,500 857,680 (1,200,000) (342,320) 6,000 (336,320)
Updated bank account balance Add Unpresented cheques (9) Less Cheque deposited but not yet credited (2) Overdraft as per original bank statement Add Bank error in deducting standing payment (8) Overdraft as per adjusted bank statement
Question 28-7A
(a) 20X2 Dec 31 " 31 " 31 Balance b/f Trade debtors (5) Trade creditors (7) Cash at Bank Account $ 20X2 180,000 Dec 31 6,600 " 31 500 " 31 " 31 " 31 187,100 Bank charge (2) Overdraft interest (4) Trade debtors (6) Rent (8) Balance c/f $ 200 1,200 7,500 5,000 173,200 187,100
(b)
Bank Reconciliation Statement as at 31 December 20X2 $ $ 173,200 1,500 174,700 (5,400) 169,300
Balance as per correct cash book Add Unpresented cheque (1) Less Uncredited cheque (3) An error by the bank (9) Balance as per bank statement 4,200 1,200
6
(c) A bank reconciliation statement provides: verification of the firms records with explanation on aspects not yet known by the bank, that is, deposits not yet credited and unpresented cheques verifying the amount recorded as received and paid have been received and paid checking the time differences between when amounts recorded as received are banked and amounts recorded as paid are withdrawn updating the firms records for aspects not yet known by the firm, that is, direct deposits such as interest received, and direct withdrawals such as bank fees and dishonoured cheques checking for errors in either the firms records or the banks records (the latter are reported by the bank statement)
Question 29-2A
Balance b/d Sales journal Bank: Dishonoured cheques Sales Ledger Control $ 28,409 Bad debts 26,617 Bank 120 Discounts Returns inwards Set-offs against purchases ledger Balance c/d 55,146 $ 342 24,293 416 924 319 28,852 55,146
Question 29-6A
Particular (1) (2) (3) Purchases ledger control Sales ledger control Sales ledger control Bank Bad debts ($2,000 2) Sales ledger control Purchases ledger control Discounts allowed Sales ledger control Sales Sales ledger control Purchases ledger control Purchases returns Sales ledger control ($5,400 $4,500) Bank General Journal Dr $ 2,500 1,000 1,000 4,000 2,000 2,000 800 800 3,500 3,500 6,000 6,000 900 900 Cr $ 2,500
(4) (5) (6) (7)
66
(b) Balance b/f (derived) Bank: Refund to debtor (2) Bank: Debtor settlement overstated (7)
Sales Ledger Control Account $ 39,160 Purchases ledger control: Set off (1) 1,000 Bad debts (3) 900 Discounts allowed (4) Sales (5) Balance c/f 41,060 $ 2,500 2,000 800 3,500 32,260 41,060
Balance b/f Add Incorrect posting to a debtor (7) Less Purchases ledger: Set off (1) Refund to a debtor omitted (2) Corrected sales ledger balance (c) Sales ledger control: Set off (1) Purchases returns undercast (6) Balance c/f
Corrected List of Debtors Balances $ $ 34,860 900 35,760 (3,500) 32,260
2,500 1,000
Purchases Ledger Control Account $ 2,500 Balance b/f (derived) 6,000 Bad debt error (3) 16,360 24,860 Corrected List of Creditors Balances $ 18,860 (2,500) 16,360 $ 22,860 2,000 24,860
Balance b/f Less Sales ledger: Set off (1) Corrected purchases ledger balance
Question 29-8A
(a) Journal Entries Dr $ 1,800 1,270 1,270 4,200 4,200 Cr $ 1,800
(1) (2) (3) (4) (5) (6)
Sales ledger control account Sales account Returns inward account ($1,960 $690) Sales ledger control account Discounts allowed account ($2,100 2) Sales ledger control account No entry is required. No entry is required. No entry is required.
6
Dr $ (7) (8) (9) No entry is required. No entry is required. Purchases ledger control account Sales ledger control account (10) No entry is required. (11) Bad debts account Sales ledger control account (b) List of Sales Ledger Balances as at 31 October 20X4 $ Original balance b/f Add (5) Error in posting to wrong side ($4,000 2) (7) Error for a debit balance treated as a credit balance ($500 2) (8) Omission of a customers balance Less (4) Error in sales amount ($4,360 $3,460) (6) Error in casting (10) Error in posting of a debtors settlement 8,000 1,000 5,000 900 200 4,800
Cr $
3,160 3,160 5,125 5,125
$ 200,000
14,000 214,000
(5,900) 208,100
(c) 20X4 Oct 31 " 31
Sales Ledger Control Account Original balance (balancing figure) Sales (1) $ 20X4 220,055 Oct 31 1,800 " 31 " 31 " 31 " 31 221,855 $ Returns inward (2) 1,270 Discounts allowed (3) 4,200 Purchases ledger control set off (9) 3,160 Bad debts (11) 5,125 Revised balance 208,100 221,855
Question 30-3A
$ B Wong Dr 1,410 : A Wang Cash Dr 94 : Bank D Fung Dr 734 : D Fong L Hong Dr 72 : Purchases G Tai Dr 128 : Cash (Needs double the amount to cancel out the error and replace it with the correct amount.) (f) Sales Dr 320 : Fittings (g) Cash Dr 400 : Bank (Needs double the amount.) (h) Purchases Dr 1,182 : Fixtures (a) (b) (c) (d) (e) Cr Cr Cr Cr Cr Cr Cr Cr $ 1,410 94 734 72 128 320 400 1,182
6
Question 30-5A
(a) (b) (c) (d) (e) (f) (g) (h) Commissions received Bank charges Motor expenses Fax machine Returns inwards Capital Loan interest Drawings (Needs double the amount.) Dr Dr Dr Dr Dr Dr Dr Dr $ 430 34 37 242 216 2,000 400 168 : : : : : : : : Rent received Rates Bank Purchases Returns outwards Loan: G Ho Van Purchases Cr Cr Cr Cr Cr Cr Cr Cr $ 430 34 37 242 216 2,000 400 168
Question 30-6A
(a) Thomas Smith Corrected Trial Balance as at 31 March 20X8 Dr $ 10,700 310 Cr $
Stock in trade, 1.4.20X7 Discounts allowed Discounts received Provision for doubtful debts Purchases Purchases returns Sales Sales returns Freehold property: At cost Provision for depreciation Motor vehicles: At cost Provision for depreciation Capital: Thomas Smith Bank Trade debtors Trade creditors Establishment and administrative expenditure Drawings
450 960 94,000 1,400 132,100 1,100 70,000 3,500 15,000 4,500 84,600 7,100 11,300 7,600 16,600 9,000 235,110
235,110
6
(b) (Dates omitted)
The Journal Dr $ 1,300 Cr $ 1,300 210 210 1,000 1,000
Stock Capital Being adjustment for items on mislaid stock lists. Trade creditors Purchases returns Being goods returned to J Hardwell Ltd. Sales Trade debtors Being reversal of trade samples sent to John Grey wrongly treated as a sale. Trade samples Purchases Being correction of treatment of trade samples. Repairs and renewals Purchases Being correction of treatment of paint used to paint stockroom wrongly charged to purchases.
1,000 1,000 150 150
Question 31-2A
(a) (Narratives omitted) The Journal Dr $ 125 10 10 140 140 22 22 90 90 Suspense $ 10 Balance 90 Bank charges 100 $ 78 22 100 Cr $ 125
(1) (2) (3) (4) (5)
Sales Office equipment Suspense Purchases Drawings Purchases Bank charges Suspense Suspense K Lam
(b) Purchases K Lam
0
(c)
Statement of Corrected Net Profit for the year ended 31 December 20X7 $ $ 28,400 150 28,550 (147) 28,403
Net profit per the financial statements Add Purchases overcast Private purchase Less Sales shown in error Bank charges omitted Corrected net profit
10 140 125 22
Question 31-5A
(a) Particular (1) Returns outwards Returns inwards Suspense Adjustment for returns inwards wrongly credited to returns outwards account. Repairs and maintenance Plant and machinery Adjustment for repairs and maintenance expense wrongly treated as cost to plant and machinery. Provision for depreciation plant and machinery Depreciation expense plant and machinery Adjustment for depreciation expense wrongly provided ($5,250 20%). Suspense Wong Hung Company Adjustment for incorrect posting to personal account ($6,260 $2,620). Bank interest Suspense Adjustment for failure to post overdraft interest to the bank interest account. Suspense Discounts received Discounts allowed Adjustment for discounts received wrongly debited to the discounts allowed account. Suspense Sales Adjustment for undercast in the sales day book. Hang Fook Company General Journal Dr $ 2,500 2,500 Cr $
5,000
(2)
5,250 5,250
1,050 1,050
(3)
3,640 3,640
(4)
2,800 2,800
(5)
16,320 8,200 8,120
(6)
5,000 5,000

(b) Wong Hung company (3) Discounts received (5) Discounts allowed (5) Sales (6)
Suspense Account $ 3,640 8,200 8,120 5,000 24,960 Balance per trial balance Returns outwards (1) Returns inwards (1) Bank interest (4) $ 17,160 2,500 2,500 2,800 24,960
(c)
Statement for the Correction of Net Profit for the year ended 31 March 20X4 $ $ 235,000
Net profit before correction Add Depreciation expense over-provided (2) Discounts allowed overstated (5) Discounts received understated (5) Sales day book undercast (6) Less Returns inwards wrongly recorded as returns outwards (1) Repairs and maintenance for plant and machinery (2) Bank interest omitted (4) Corrected net profit for the year
1,050 8,120 8,200 5,000 5,000 5,250 2,800
22,370 257,370
(13,050) 244,320
Question 31-6A
(a) Particulars (1) Sales (profit and loss account) Provision for depreciation plant and machinery Loss on disposal (profit and loss account) Plant and machinery Adjustment for disposal of old plant and machinery wrongly treated as sales. Trading account (profit and loss account) Inventories Adjustment for overcast of closing inventory sheet ($1,700 $170 2). Provision for doubtful debts Decrease in provision for doubtful debts (profit and loss account) Adjustment for decrease in provision for doubtful debts ($5,775 $148,000 3%) omitted. Sales (profit and loss account) Purchases (profit and loss account) Suspense Adjustment for cash purchase wrongly credited to the sales account. Journal Dr $ 28,000 38,000 2,000 Cr $
68,000
(2)
1,360 1,360
(3)
1,335 1,335
(4)
1,000 1,000 2,000
2
(5)
(6)
Suspense Returns inwards (profit and loss account) Adjustment for overcast in returns inwards day book. Discounts allowed (profit and loss account) Accounts receivable Adjustment for understatement of discounts allowed to customer ($25,000 2%).
Dr $ 2,000
Cr $ 2,000
500 500
(b)
Statement for the Correction of Net Profit for the year ended 31 November 20X2 $ $ 126,800 3,335 130,135
Net profit before correction Add Decrease in provision for doubtful debts (3) Overcast in returns inwards day book (5) Less Disposal of plant and machinery wrongly treated as sales (1) Loss on disposal of plant and machinery (1) Overcast of closing inventory sheets (2) Cash purchase wrongly credited to the sales account (4) Discounts allowed understated (6) Corrected net profit for the year (c)
1,335 2,000 28,000 2,000 1,360 2,000 500
(33,860) 96,275
Errors of omission where both the debit and credit entries of a transaction are omitted from the books. Errors of commission where the correct amount is entered in the wrong, but same class of, account. Errors of principle where the correct account is entered, but in the wrong class of account. Errors of compensation where the errors on one side of the ledger are compensated by errors of the same amount on the other side. Errors of original entry where the incorrect amounts are entered on the correct side of the correct accounts. Reversal of entries where the correct amounts are entered on the wrong side of the accounts concerned. (Any four)
Question 32-2A
(a) R Cheng Trading and Profit and Loss Account for the year ended 31 March 20X5 $ Sales Less Cost of goods sold: Inventory, 1 April 20X4 Add Purchases Less Inventory, 31 March 20X5 Gross profit Less Expenses Net profit The closing inventory as at 31 March 20X5, as shown above, is $20,000.
(iv) 14,000 82,000 96,000 (20,000)
$ 106,400
(i) (ii) (iii) (vi) (v)
(76,000) 30,400 (21,888) 8,512

Order of solving problem: (i) Average inventory is $17,000. Therefore $14,000 + (a) = $17,000 2 Therefore (a) = $20,000. (ii) can now be found by deducting (a) $20,000 from $96,000 = $76,000. (iii) is 40% of (ii), therefore (iii) is $30,400. (iv) is therefore needed to balance the account, i.e. $106,400. (v) if net profit was 8% of sales, it would be $8,512. (vi) therefore expenses are $30,400 (v) $8,512 = $21,888. (b) The total amount of profit and loss expenditure Cheng must not exceed if she is to maintain a net profit on sales of 8% is, as shown in step (vi), $21,888.
Question 32-4A
(a) Cost of goods sold = Sales less trade discount (b) Sales Cost of goods sold = Gross profit (c) Total expenses = 14% of Sales (d) Gross profit Expenses = Net profit (e) = Inventory turnover So, average inventory, by arithmetical deduction
Cost of goods sold Average inventory
Category X $9,000 15% $9,000 = $7,650 $9,000 $7,650 = $1,350 $1,260 $1,350 $1,260 = $90
$7,650 ?
Category Y $24,000 18% $24,000 = $19,680 $24,000 $19,680 = $4,320 $3,360 $4,320 $3,360 = $960 = 16 = $1,230
$19,680 ?
= 10
= $765
Question 32-6A
(a) Bank transactions Opening balance Add Receipts (11 $81 + 8 $72) Less Payments: Rent Advertising Miscellaneous Drawings (b) Closing inventory A: (3 + 12 11) 4 $54 = B: (3 + 10 8) 5 $48 = Au is correct. $ 216 240 456 $ $ 3,063 1,467 4,530
60 66 12 150
(288) 4,242

(c) Gross profit A : ($81 $54) 11 = B : ($72 $48) 8 = Net profit $489 ($60 + $66 + $12) = $ 351 = $23.9% $ 297 192 489 = 33.33%
(d)
Arthur Au Trading and Profit and Loss Account for the month of October $ $ 1,467
Sales (11 $81) + (8 $72) Opening inventory Add Purchases Less Closing inventory Gross profit Less Expenses: Rent Advertising Miscellaneous Net profit Current assets Inventory Bank Less Current liabilities Rong Capital account Opening balance Add Net profit Less Drawings (e) Profit of $351 Drawings Increase in inventory Increase in bank Increase in creditors Balance Sheet as at 31 October
306 1,128 1,434 (456)
(978) 489
60 66 12
(138) 351
$ 456 4,242 4,698 (1,128)
3,570
3,369 351 3,720 (150)
3,570 $ 150 150 1,179 (1,128) 351

Question 32-7A
(a) Mr Lai Trading and Profit and Loss Account for the year ended 31 March 20X2 $ Sales ($31,250 12 3) Less Cost of goods sold: Opening stock Add Purchases Less Closing stock $(28,125 2 31,250 5,000) Gross profit Less Operating expenses Net profit ($125,000 20%) Fixed assets ($125,000 4) Current assets Stock $(28,125 2 31,250 5,000) Debtors Cash in hand Less Current liabilities Creditors ($52,500 12 2) Bills payable Net current assets Financed by: Capital Add Profit for the year Less Drawings 20,000 31,250 5,000 56,250 8,750 19,375 Balance Sheet as at 31 March 20X2 $ $ $ 31,250 $ 125,000
30,000 52,500 82,500 (20,000)
(62,500) 62,500 (37,500) 25,000
(28,125) 28,125 59,375 50,000 25,000 75,000 (15,625) 59,375
(b) Limitations of ratio analysis Difference in nature of business First, it is impossible to compare two companies which are engaged in completely different businesses sensibly. For example, to compare a retailers figures with those of a manufacturer would be rather pointless. Difference in accounting policies Also, different businesses may adopt different accounting policies in preparation of their accounts. This increases the difficulty in comparing the businesses. Qualitative features of a business Past accounts do not disclose many useful factors. The desire to keep to the money measurement concept, and the desire to be objective, a great deal of desirable information such as the quality of staff, future plans of the business and its position as compared with that of its competitors, etc. is excluded.
6
Lack of a standard form Ratios are not always defined in a standard form. They are not directly comparable if different formulae are used for calculation of ratios.
Question 32-8A
(a) Peter Ltd Trading and Profit and Loss Account for the year ended 31 March 20X4 $ Sales Less Cost of goods sold: Opening stock Purchases Less Closing stock Gross profit ($8,299,200 54%) Less Operating expenses Net profit Fixed assets Current assets Stocks Debtors Cash in hand Less Current liability Creditors Net current assets Less Long-term liability 8% bank loan Capital and reserves Ordinary share capital Retained profit Workings: (1) $5,596,360 Bank loan = Ordinary share capital + $1,493,856 (2) Bank loan = 25% (ordinary share capital + $1,493,856) After solving (1) and (2), 8% bank loan = $1,119,272 and ordinary share capital = $2,983,232. 2,263,968 642,824 1,809,808 4,716,600 (1,886,640) 2,829,960 5,596,360 (1,119,272) 4,477,088 2,983,232 1,493,856 4,477,088 Peter Ltd Balance Sheet as at 31 March 20X4 $ $ 2,766,400 $ 8,299,200
1,553,664 4,527,936 6,081,600 (2,263,968)
(3,817,632) 4,481,568 (2,987,712) 1,493,856

(b) Calculation of the ratios (i) Net profit ratio = Net profit Sales = $1,493,856 $8,299,200 = 18% (ii) Acid test ratio = (Current assets Stock) Current liabilities = ($4,716,600 $2,263,968) $1,886,640 = 1.3 : 1 (iii) Stock turnover ratio = Cost of goods sold Average stock = $3,817,632 [($1,553,664 + $2,263,968) 2] = 2 times (c) Limitations of ratio analysis Difference in nature of business First, it is impossible to compare sensibly two businesses which are completely unlike one another. To compare a supermarkets ratios with those of a chemical factory would be pointless. Difference in accounting policies Different businesses may adopt different accounting policies in the preparation of their accounts. This increases the difficulty in comparing the businesses sensibly. Qualitative features of a business Certain useful information is not disclosed in the accounts. The desire to keep to the money measurement concept and the desire to be objective exclude a great deal of desirable information such as the quality of staff, the future plans of the business and its position compared with its competitors, etc., from ratio analysis. Lack of a standard form Ratios are not always defined in a standard form. They are not directly comparable if different formulae are used in calculating ratios. (Any three points)
Question 33-2A
Cash Bank Fixtures Inventory Debtors Van Less Creditors Opening Capital as at 31 October 20X3 $ 210 4,700 2,800 18,200 26,600 6,800 $
59,310 (12,700) 46,610

Fixed assets Van Less Accumulated depreciation Fixtures Less Accumulated depreciation Current assets Inventory Debtors Prepaid expenses Cash Less Current liabilities Trade creditors Expenses owing Bank overdraft Net current assets Financed by: Capital Balance at 31 October 20X3 Add Net profit Cash introduced Less Drawings
B Wong Statement of Affairs as at 31 October 20X4 $ $ 6,800 (1,360) 3,700 (370) $
5,440 3,330 8,770
23,900 29,400 460 190 53,950 9,100 320 1,810
(11,230) 42,720 51,490
(C) (B) (A)
44,610 ? 7,600 ? (32,200) ?
Missing figures deduced: (A) $51,490, (B) $83,690, (C) $31,480.
Question 33-4A
Workings: Cash $ 194 1,540 12,600 Bank $ 920 Cash 94,200 Trade creditors Rent 2,500 Insurance Drawings* Sundry expenses Balances c/d 97,620 Cash $ 1,310 Bank $ 12,600 63,400 3,200 1,900 11,400 820 4,300 97,620
Balances b/d Receipts from debtors Cash sales Loan from F Tung Bank
14,334
? 180 272 14,334
* Figure for drawings is what is needed to make the cash columns balance, i.e. $12,572.

Capital at 31 December 20X7 Bank Cash Inventory Debtors Prepaid insurance Van Less Creditors $ 920 194 24,200 9,200 340 5,500 40,354 (7,300) 33,054
Purchases Bank Cash Opening creditors + Closing creditors $ 63,400 1,310 64,710 (7,300) 57,410 8,100 65,510
Sales Bank Cash Opening debtors + Closing debtors $ 94,200 1,540 95,740 (9,200) 86,540 11,400 97,940
A Wong Trading and Profit and Loss Account for the year ended 31 December 20X8 $ $ 97,940
Sales Less Cost of goods sold: Opening inventory Add Purchases Less Closing inventory Gross profit Less Expenses: Rent ($3,200 + $360) Insurance ($1,900 + $340 $400) Sundry expenses ($820 + $180) Depreciation: Van ($5,500 $4,600) Net profit Fixed assets Van Less Accumulated depreciation Current assets Inventory Debtors Prepaid insurance Bank Cash Less Current liabilities Trade creditors Rent owing Balance Sheet as at 31 December 20X8 $
24,200 65,510 89,710 (27,100)
(62,610) 35,330
3,560 1,840 1,000 900
(7,300) 28,030
$ 5,500 (900) 27,100 11,400 400 4,300 272 43,472
4,600
8,100 360
(8,460)
35,012 39,612
0
$ Financed by: Capital Balance at 1 January 20X8 Add Net profit Less Drawings ($12,572 + $11,400) Loan: F Tung
33,054 28,030 61,084 (23,972) 37,112 2,500 39,612
Question 33-6A
Jean Smith Trading and Profit and Loss Account for the year ended 31 March 20X6 $ Sales [($25,500 $600) 2 + $600] Less Cost of sales: Purchases ($26,400 + $120 + $880) Less Closing stock Gross profit 50% ($50,400 $600) Less Expenses: Wages Rent ($3,500 $700) Rates Electricity ($760 + $180) Postage, stationery and sundries Van running expenses Van licence and insurance ($250 $125) Van depreciation [($7,600 $100) 20% 1 ] 2 Loan interest ($10,000 5% 1 ) 4 Net profit Fixed assets Van at cost Less Provision for depreciation Current assets Stock Debtors Prepayments ($125 + $700) Bank (W1) Cash Balance Sheet as at 31 March 20X6 $ 7,600 (750) 1,900 2,300 825 4,310 640 9,975 $ $ 50,400
27,400 (1,900)
(25,500) 24,900
14,700 2,800 1,200 940 355 890 125 750 125
(21,885) 3,015
6,850

$ Less Current liabilities Creditors Accrued expenses ($125 + $180) Working capital Less Loan: J Peacock Capital Balance as at 1 April 20X5 Add Net profit Less Drawings ($3,875 (W1) + $8,500) Working: (W1) Cash $ Capital Loan: J Peacock Bankings ($42,000 + $340) Cash sales ($50,400 $2,300) Bank $ 15,000 Van running expenses 10,000 Van licence and insurance 42,340 Van Caravan Wages Rates Rent Electricity Purchases ($26,400 + $120) Postage, etc Bankings Drawings (difference) Balances c/d 67,340 880 305
(1,185) 8,790 15,640 (10,000) 5,640 15,000 3,015 18,015 (12,375) 5,640
Cash $ 890
Bank $ 250 7,600 8,500 14,700 1,200 3,500 760 26,520
48,100
48,100
355 42,340 3,875 640 48,100
4,310 67,340
Question 33-8A
(a) Calculation of capital as at 31 December 20X0 Total assets Less Total liabilities Less Income from wifes investment [(5% + 11%) 100,000 $0.5] Capital as at 31 December 20X0 $ 735,500 (249,500) 486,000 (8,000) 478,000
2
(b)
Chan Lok Man Trading and Profit and Loss Account for the year ended 31 December 20X1 $ $ 1,292,000
Sales (W1) Less Cost of goods sold: Opening inventory Add Purchases (W2) Less Closing inventory Gross profit Add Discounts received Less Operating expenses: Salaries and wages Electricity General expenses (W4) Motor vehicle expenses Depreciation on motor vehicle Depreciation on fixtures and fittings Interest on loan Net profit (c) Balance Sheet as at 31 December 20X1 $ Fixed assets Motor vehicle ($165,000 $33,000) Furniture and fittings ($120,000 $12,000) Current assets Inventory Trade debtors Cash at bank (W5) Cash in hand (W5) Less Current liabilities Creditors Accrued expenses ($11,000 + $10,000) Net current assets Capital as at 1 January 20X1 Add Net profit for the year Less Drawings Add Long-term liabilities Loan Workings: (W1) Sales = [($1,040,000 $64,000) 125% + ($64,000 112.5%)] = $1,220,000 + $72,000 = $1,292,000
125,000 1,072,000 1,197,000 (157,000)
(1,040,000) 252,000 11,000 263,000
70,000 15,000 20,500 42,000 33,000 12,000 11,000
(203,500) 59,500
$ 132,000 108,000 157,000 110,000 219,500 48,000 534,500
240,000
193,000 21,000
(214,000) 320,500 560,500 478,000 59,500 537,500 (77,000) 460,500 100,000 560,500

(W2) Bank Discounts received Balance c/d
Creditors $ 748,000 Balance b/d 11,000 Purchases 193,000 952,000 $ 145,000 807,000 952,000
Total purchases = Credit purchases + Cash purchases = $807,000 + $265,000 = $1,072,000 (W3) Balance b/d Sales Debtors $ 236,500 Cash 1,292,000 Balance c/d 1,528,500 General Expenses $ 22,300 Balance b/d 2,700 Profit and loss account 25,000 Cash Book Cash $ 34,000 1,418,500 Bank Cash $ $ 55,000 Income from wifes investment 1,385,000 Purchases Drawings Payment to creditors Salaries and wages 15,000 Electricity Motor vehicle expenses 1,800 General expenses 2,700 Receipts from trade debtors banked 1,385,000 Balance c/d 48,000 1,440,000 1,452,500 Bank $ 8,000 265,000 77,000 748,000 45,000 15,000 40,200 22,300 $ 4,500 20,500 25,000 $ 1,418,500 110,000 1,528,500
(W4) Bank Cash
(W5)
Balance b/d Receipts from debtors (W3)
1,452,500
219,500 1,440,000

Question 33-12A
(a) Bank Cash Inventory Machinery Debtors Less Accruals Creditors Bank loan 150 5,700 7,000 (12,850) 13,410 (b) P Mak Trading and Profit and Loss Account for the year ended 31 December 20X8 $ Sales Less Sales returns Less Cost of sales: Opening inventory at 1 January 20X8 Add Purchases Less Withdrawal by the owner Closing inventory at 31 December 20X8 Gross profit Add Discounts received Less Expenses: Rent Bad debts written off Wages Insurance Loan interest Depreciation Repairs Electricity Net profit Workings: Sales: $(35,000 80 + 9,700 + 240 8,100 + 9,200 + 640 + 1,100) = $47,700. Purchases: $(31,000 5,700 + 4,800 + 600) = $30,700. Depreciation: $(9,800 + 3,400 10,400) = $2,800. 1,200 5,400 $ $ 47,700 (640) 47,060 P Mak Capital Account on 1 January 20X8 $ $ 6,000 60 2,300 9,800 8,100 26,260
2,300 30,700 33,000 (6,600) (26,400) 20,660 600 21,260
850 240 9,200 850 700 2,800 1,400 570
(16,610) 4,650

Question 33-13A
Fixed assets Machinery at 1 January 20X8 Add Additions Less Accumulated depreciation Current assets Inventory Debtors Prepayments Cash Current liabilities Creditors Bank overdraft Accrued charges: Loan interest ($700 $500) Capital account Balance at 1 January 20X8 Add Net profit Less Drawings ($1,200 + $6,600) 10% bank loan P Mak Balance Sheet as at 31 December 20X8 $ $ 9,800 3,400 13,200 (2,800) 5,400 9,200 100 90 14,790 4,800 2,930 200 $
10,400
(7,930)
6,860 17,260
13,410 4,650 18,060 (7,800)
10,260 7,000 17,260
Question 34-2A
(a) The Shire Golf Club Bar Trading Account for the year ended 31 December 20X3 $ Bar sales Less Cost of goods sold: Opening inventories Add Purchases Less Closing inventories Gross profit Wages of bar staff Profit to income and expenditure $ 84,600
9,400 41,300 50,700 (6,410)
(44,290) 40,310 (29,200) 11,110
6
(b)
Income and Expenditure Account for the year ended 31 December 20X3 $ $ 181,530 11,110 6,508 199,148 37,000 21,500 910 2,400
Income Subscriptions ($183,400 $1,870) Profit on bar trading Profits from raffles Less Expenditure: Golf professionals salary Greenkeepers wages General expenses Depreciation of equipment Surplus of income over expenditure Fixed assets Clubhouse Equipment Less Accumulated depreciation Current assets Bar inventories Bank Less Current liabilities Subscriptions received in advance Financed by: Accumulated fund Balance at 1 January 20X3 Add Surplus of income over expenditure Balance Sheet as at 31 December 20X3 $
(61,810) 137,338
$ 142,000
18,600 (2,400)
16,200 158,200
6,410 3,924 10,334 (1,870) 8,464 166,664
29,326 137,338 166,664
Question 34-3A
(a) City Leisure Centre Refreshment Trading Account for the year ended 31 December 20X4 $ Refreshment takings Less Cost of supplies: Opening inventories Add Purchases Less Closing inventories Gross profit Wages Profit to income and expenditure $ 16,290
680 4,320 5,000 (920)
(4,080) 12,210 (4,680) 7,530

(b)
Accumulated fund as at 1 January 20X4: Equipment $32,400 + Inventory $680 + Bank $3,900 = $36,980. Income and Expenditure Account for the year ended 31 December 20X4 $ $ 45,920 7,530 4,116 890 58,456 26,720 8,700 1,900 5,200 80
(c)
Income Subscriptions ($45,060 + $860) Refreshment bar profit Profits from dances Profit on exhibition Less Expenditure: Wages ($31,400 $4,680) Rent of rooms Travelling expenses of teams Depreciation of equipment Loss on equipment sold Surplus of income over expenditure Balance Sheet as at 31 December 20X4 $ Fixed assets Equipment ($32,400 $420 + $18,200) Less Accumulated depreciation Current assets Refreshment bar inventories Subscriptions owing Bank Financed by: Accumulated fund Balance at 1 January 20X4 Add Surplus for the year 50,180 (5,200) 920 860 6,076
(42,600) 15,856
44,980
7,856 52,836
36,980 15,856 52,836
Question 34-5A
(a) Bar takings Less Cost of goods sold: Opening stock Add Purchases Less Closing stock Gross profit Less Wages Net profit from bar trading
Kong Hong Golf Club Bar Trading Account for the year ended 31 December 20X2 $ $ 90,800
12,000 38,500 50,500 (9,500)
(41,000) 49,800 (45,000) 4,800
(b)
Kong Hong Golf Club Income and Expenditure Account for the year ended 31 December 20X2 $ $
Income: Net profit from bar trading Subscriptions ($253,700 + $4,000 $10,000 + $8,000 $5,500) Donations Bank interest Expenditure: Office rent ($168,000 + $20,000 $18,000) Repairs to club house Loss on disposal of office equipment ($3,000 $4,400) General expenses ($80,500 $8,800 + $7,500) Depreciation office equipment ($85,600 $4,400) 20% Surplus for the year (c) Kong Hong Golf Club Balance Sheet as at 31 December 20X2 $ Fixed assets Office equipment, at net book value ($85,600 $4,400 $16,240) Current assets Stock Subscription in arrears Office rent prepaid Bank Less Current liabilities Bar creditors ($38,500 + $14,000 $42,500) Subscription received in advance General expenses accrued Net current assets Accumulated fund As at 1 January 20X2 ($85,600 + $12,000 + $10,000 + $20,000 + $17,300 $14,000 $4,000 $8,800) Add Surplus for the year
4,800 250,200 21,000 850 170,000 2,000 1,400 79,200 16,240
276,850
(268,840) 8,010
$ 64,960
9,500 8,000 18,000 48,650 84,150 10,000 5,500 7,500
(23,000) 61,150 126,110
118,100 8,010 126,110
Question 34-11A
(a) Balance (in arrears) b/d Income and expenditure Balance (in advance) c/d Subscription Account $ 18,000 Balance (in advance) b/d 145,400 Bank 32,000 Balance (in arrears) c/d 195,400 $ 22,000 150,400 23,000 195,400

(b)
Bar Trading Account for the year ended 31 December 20X3 $ $ 215,750
Sales Less Cost of sales: Opening stock Purchases ($100,360 + $79,000 $110,000) Less Closing stock Less Bar wages Insurance [($24,000 + $9,000 $2,000) 20%] General expenses [($16,625 + $3,200 $4,500) 20%] Profit from bar trading (c)
52,000 69,360 121,360 (45,000) 36,000 6,200 3,065
(76,360) 139,390
(45,265) 94,125
Dalmatian Social Club Income and Expenditure Account for the year ended 31 December 20X3 $ $ 145,400 94,125 28,350 7,050 274,925 24,800 12,260 119,950 11,295 3,560 23,265
Income: Subscriptions Bar profit Annual ball receipts ($114,350 $86,000) Donations Expenditure: Insurance [($24,000 + $9,000 $2,000) 80%] General expenses [($16,625 + $3,200 $4,500) 80%] Salaries Repairs Depreciation on furniture and fixtures [($20,000 + $15,600) 10%] Depreciation on motor vehicles [($165,000 + $99,000 $31,350) 10%] Surplus of income over expenditure (d) Fixed assets Furniture and fixtures, at cost Less Provision for depreciation Motor vehicles, at cost Less Provision for depreciation Current assets Bar stock Members subscriptions in arrears Insurance prepaid Cash and bank Dalmatian Social Club Balance Sheet as at 31 December 20X3 $ 35,600 (7,560) 264,000 (54,615)
(195,130) 79,795
28,040 209,385 237,425
45,000 23,000 2,000 20,720 90,720
0
$ Less Current liabilities Bar creditors Members subscriptions in advance Accrued general expenses Net current liabilities Financed by: Accumulated fund at 1 January 20X3 (W1) Surplus of income over expenditure for the year Working: 79,000 32,000 3,200 114,200
(23,480) 213,945 134,150 79,795 213,945 $
(W1) Accumulated fund at 1 January 20X2: Assets: Furniture and fixtures Provision for depreciation on furniture and fixtures Motor vehicles Provision for depreciation on motor vehicles Bar stock Insurance prepaid Members subscriptions in arrears Cash and bank Liabilities: Bar creditors Members subscriptions in advance Accrued general expenses
20,000 (4,000) 165,000 (31,350) 52,000 24,000 18,000 27,000 (110,000) (22,000) (4,500) 134,150
Question 35-4A
(a) (i) Straight line 20X1 20X2 20X3 20X4 $ 450 450 450 450 1,800 Annual Depreciation Charge (ii) Diminishing balance $ 60% $1,800 1,080 60% $720 432 60% $288 173 60% $115 69 1,754 Laser Printer $ 1,800 Assets disposals Provision for Depreciation: Laser Printer $ 1,720 Balance b/d Profit and loss 1,720 $ 1,685 35 1,720 $ 1,800 (iii) Units of output 35,000 180,000 $1,800 45,000 180,000 $1,800 45,000 180,000 $1,800 55,000 180,000 $1,800 $ 350 450 450 550 1,800
(b) (i) (Dates omitted) Balance b/d (ii) Assets disposals

(iii) Laser printer Profit and loss
Assets Disposals $ 1,800 Provision for depreciation 120 Bank 1,920 $ 1,720 200 1,920
Question 35-5A
J Jones Ltd Manufacturing, Trading and Profit and Loss Account for the year ended 31 December 20X6 $ Inventory of raw materials at 1.1.20X6 Add Purchases Less Inventory of raw materials at 31.12.20X6 Cost of raw materials consumed Factory wages Prime cost Indirect manufacturing costs: Fuel and light [($21,000 + $4,000) 80%] Rent and rates [($21,000 $5,000) 75%] Repairs to plant and machinery Depreciation plant and machinery ($80,000 10%) Add Work in progress at 1.1.20X6 Less Work in progress at 31.12.20X6 Production cost of goods completed c/d Sales Less Returns inwards Less Cost of goods sold: Inventory of finished goods at 1.1.20X6 Add Production cost of goods completed b/d Less Inventory of finished goods at 31.12.20X6 Gross profit Less Expenses: Administration expenses: Fuel and light [($21,000 + $4,000) 20%] Administrative salaries Rent and rates [($21,000 $5,000) 25%] General office expenses Selling and distribution expenses: Carriage outwards Financial charges: Provision for doubtful debts ($20,000 5%) Net profit 2 $ $ 21,000 258,000 279,000 (25,000) 254,000 59,000 313,000
20,000 12,000 9,000 8,000
49,000 362,000 14,000 376,000 (11,000) 365,000 482,000 (7,000) 475,000
23,000 365,000 388,000 (26,000)
(362,000) 113,000
5,000 17,000 4,000 9,000
35,000 4,000 1,000 (40,000) 73,000
Fixed assets Freehold premises Plant and machinery Less Accumulated depreciation Current assets Inventory: Raw materials Work in progress Finished goods Debtors Less Provision for doubtful debts Prepayments Bank Less Current liabilities Creditors Accrual Capital account Opening balance Add Net profit
Balance Sheet as at 31 December 20X6 $ $ 410,000 80,000 (16,000) 25,000 11,000 26,000 20,000 (1,000) 64,000 474,000 $
62,000 19,000 5,000 11,000 97,000
37,000 4,000
(41,000)
56,000 530,000 457,000 73,000 530,000
Question 35-7A
(a) Pure International Limited Manufacturing, Trading and Profit and Loss Account for the year ended 31 December 20X0 $ Opening stock Add Purchases Less Closing stock Raw materials consumed Direct wages Royalties Prime cost Factory overhead expenses: General factory expenses Factory canteen costs Indirect factory labour ($16,600 $3,000 $800) Electricity [($6,000 + $500) 4 ] 5 Rent and rates [($6,275 + $600) 3 ] 5 $ 21,000 105,000 126,000 (19,000) 107,000 80,000 14,000 201,000
21,000 8,300 12,800 5,200 4,125
51,425 252,425

$ Add Work in progress (1.1.20X0) Less Work in progress (31.12.20X0) Factory cost of goods produced Manufacturing profit (20%) Transfer price of finished goods produced Sales Less Cost of goods sold: Finished goods at 1.1.20X0 Value of goods produced Less Finished goods at 31.12.20X0 Gross profit on trading Manufacturing profit Less Operating expenses: Rent and rates [($6,275 + $600) 2 ] 5 Electricity [($6,000 + $500) 1 ] 5 General office expenses ($40,126 $2,100) Delivery van expenses ($9,000 + $450) Office salaries Office maintenance Increase in provision for unrealised profit [($31,860 $31,656) 20% 120%] Net profit for the year
$ 13,338 265,763 (15,558) 250,205 50,041 300,246 420,000
31,656 300,246 331,902 (31,860)
(300,042) 119,958 50,041 169,999
2,750 1,300 38,026 9,450 27,450 800 34 (79,810) 90,189
(b) A large company which has several divisions may operate by separating these divisions into profit centres in order to assess the efficiency and effectiveness of the management. The value of goods transferred out of the production department (the factory), at transfer price value, is a cost to the department receiving the goods (the warehouse), and is income to the production department. The managers in each division are evaluated on a profit measure basis. This leads to transfer pricing where the goods are transferred from factory to warehouse at cost plus a mark-up. On the other hand, warehousing may be evaluated on the basis of sales price less the cost plus mark-up.
Question 35-9A
(a) Labrador Handbags Limited Manufacturing Account for the year ended 31 December 20X2 $ Raw materials, 1.1.20X2 Add Purchases Carriage inwards Less Raw materials, 31.12.20X2 Raw materials consumed Direct wages ($762,000 + $7,500) Prime cost 1,270,000 10,500 $ 121,500 1,280,500 1,402,000 (98,000) 1,304,000 769,500 2,073,500

$ Factory overhead expenses: Insurance ($105,000 $15,000) Electricity Indirect wages ($162,400 + $5,600) Depreciation of plant and machinery [($800,000 20%) + ($90,000 20% 4 12)] Rent and rates Add Work in progress, 1.1.20X2 Less Work in progress, 31.12.20X2 Factory cost of goods produced Manufacturing profit ($2,980,000 30%) Transfer price of finished goods produced (b) Trading Account for the year ended 31 December 20X2 Imported $ 762,000 660,000 68,000 728,000 (62,000) 666,000 96,000 Selfproduced $ 4,318,000 65,000 3,874,000 3,939,000 (78,000) 3,861,000 457,000 90,000 120,000 168,000 166,000 360,000
904,000 2,977,500 24,300 3,001,800 (21,800) 2,980,000 894,000 3,874,000
Sales Less Cost of goods sold: Finished goods at 1.1.20X2 Value of goods produced Purchases Carriage inwards Less Finished goods at 31.12.20X2 Gross profit on trading (c) Gross profit on trading Manufacturing profit
Total $ 5,080,000
(4,527,000) 553,000
Profit and Loss Account for the year ended 31 December 20X2 $ $ 553,000 894,000 1,447,000
Less Selling and distribution expenses [$600,000 $3,500 + ($150,000 20%) + ($30,000 20% 10 12)] Administration expenses [$280,000 + ($120,000 10%)] Increase in provision for unrealised profit [($78,000 $65,000) 30 130] Net profit for the year
631,500 292,000 3,000
(926,500) 520,500

Question 35-10A
(a) Mr Cheung Manufacturing Trading and Profit and Loss Account for the year ended 31 December 20X3 $000 Raw materials Stock as at 1 January 20X3 Add Purchases Add Carriage inwards Less Purchases return of raw materials Less Stock as at 31 December 20X3 Manufacturing wages ($4,691,000 + $162,000) Prime cost of production Production overhead: Depreciation on plant and machinery ($14,400,000 20%) Insurance Rent and rates ($3,510,000 1 ) 2 Electricity and water ($995,000 4 ) 5 Add Work in progress as at 1 January 20X3 Less Work in progress as at 31 December 20X3 Cost of production of finished goods Sales Less Cost of goods sold: Finished goods as at 1 January 20X3 Cost of production Less Finished goods as at 31 December 20X3 Gross profit Add Discounts received Less Operating expenses: Discounts allowed Insurance ($306,000 $50,000) Rent and rates ($3,510,000 1 ) 2 Electricity and water ($995,000 1 ) 5 Office salaries Bad debts Depreciation on office equipment ($1,860,000 25%) Net profit $000 15,600 50,230 1,560 (1,869)
49,921 65,521 (12,740) 52,781 4,853 57,634
2,880 456 1,755 796
5,887 63,521 9,350 72,871 (8,620) 64,251 95,435
20,720 64,251 84,971 (17,570)
(67,401) 28,034 856 28,890
1,157 256 1,755 199 3,520 2,014 465
(9,366) 19,524
6
(b)
Mr Cheung Balance Sheet as at 31 December 20X3 $000 $000 14,400 (6,930) 1,860 (1,065) $000
Fixed assets Plant and machinery, at cost Less Provision for depreciation ($4,050,000 + $2,880,000) Office equipment, at cost Less Provision for depreciation ($600,000 + $465,000) Current assets Stocks raw materials work in progress finished goods Debtors Prepayment Cash at bank Less Current liabilities Creditors Accrued expenses Net current assets Financed by: Capital Balance as at 1 January 20X3 Add Net profit Less Drawings Balance as at 31 December 20X3
7,470 795 8,265
12,740 8,620 17,570 9,960 50 5,055 53,995 9,986 162
(10,148) 43,847 52,112
32,804 19,524 52,328 (216) 52,112
Question 35-12A
Trumpet Manufacturing Company Limited Manufacturing, Trading and Profit and Loss Account for the year ended 31 March 20X1 $ Raw materials, 1.4.20X0 Add Purchases Carriage inwards Less Raw materials, 31.3.20X1 Raw materials consumed Manufacturing wages Prime cost 215,000 4,800 $ 32,800 219,800 252,600 (38,000) 214,600 97,500 312,100

$ Factory overheads: Insurance ($3,600 3 ) 4 Electricity [($12,640 + $4,500) 3 ] 5 Plant maintenance Depreciation of plant ($93,000 20%) Rent and rates [($282,000 $1,800) 2 ] 3 Add Work-in-progress, 1.4.20X0 Less Work-in-progress, 31.3.20X1 Factory cost of goods produced Manufacturing profit Transfer price of finished goods produced (20,800 $30) Sales Less Cost of goods sold: Finished goods, 1.4.20X0 Add Value of goods produced Less Finished goods, 31.3.20X1 Gross profit on trading Manufacturing profit Provision for unrealised profit written back [($18,000 $8,640) $104,000 $624,000] Less Operating expenses: Carriage outwards Audit fee Bank charges Insurance ($3,600 1 ) 4 Loan interest Depreciation of office equipment [($128,000 $25,600) 20%] Office salaries Rent and rates [($282,000 $1,800) 1 ] 3 Electricity [($12,640 + $4,500) 2 ] 5 Provision for doubtful debts Net profit before tax Taxation Net profit after tax Less Appropriations: Transfer to general reserve Interim ordinary dividend Final ordinary dividend ($500,000 12%) Retained profits for the year 2,700 10,284 2,500 18,600 186,800
220,884 532,984 7,142 540,126 (20,126) 520,000 104,000 624,000 1,025,960
18,000 624,000 642,000 (8,640)
(633,360) 392,600 104,000 1,560 498,160
23,000 42,000 1,960 900 4,000 20,480 32,500 93,400 6,856 5,120
(230,216) 267,944 (44,200) 223,744
120,000 40,000 60,000
(220,000) 3,744

Question 36-3A
Jacks Superstores Departmental Trading and Profit and Loss Account for the year ended 31 March 20X5 A $ Sales Less Cost of goods sold: Opening inventory Add Purchases Less Closing inventory Gross profits Add Discounts received Less Expenses: Salaries and wages Rent and rates Delivery expenses Commission Insurance Advertising Administrative and general expenses Depreciation Net profits / (losses) $ 180,000 $ B $ 138,000 $ C $ 82,000
27,100 101,300 128,400 (23,590)
(104,810) 75,190 1,013 76,203
21,410 81,200 102,610 (15,360)
(87,250) 50,750 812 51,562
17,060 62,900 79,960 (18,200)
(61,760) 20,240 629 20,869
45,600 3,100 1,620 4,500 900 769 6,600 1,400
30,400 3,100 1,242 3,450 600 769 6,600 1,400
15,200 3,100 738 2,050 300 769 6,600 1,400
(64,489) 11,714
(47,561) 4,001
(30,157) (9,288)
Question 37-3A
J Fung Cash Flow Statement for the year ended 31 December 20X9 $ Cash flows from operating activities Profit before taxation Adjustments for: Depreciation ($2,000 + $14,200) Operating profit before working capital changes Increase in inventories Increase in trade receivables Decrease in trade payables Net cash from operating activities Cash flows from investing activities Payments to acquire tangible fixed assets Cash flows from financing activities Loan received Capital introduced Drawings 79,000 16,200 95,200 (54,100) (11,100) (8,600) 21,400 (44,000) 30,000 25,000 (78,000) $

Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at 1 January 20X9 Cash and cash equivalents at 31 December 20X9
$ (23,000) (45,600) 34,500 (11,100)
Question 37-5A
S Ma Cash Flow Statement for the year ended 31 December 20X8 $ Cash flows from operating activities Profit before taxation Adjustment for: Depreciation Loss on sale of equipment Operating profit before working capital changes Decrease in provision for bad debts Increase in inventories Decrease in trade receivables Increase in trade payables Net cash from operating activities Cash flows from investing activities Receipts from sale of equipment Cash flows from financing activities Partial repayment of loan from A Woo Drawings Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January 20X8 Cash and cash equivalents at 31 December 20X8 46,770 5,285 560 52,615 (170) (3,035) 1,440 3,010 53,860 4,500 (11,185) (28,000) (39,185) 19,175 9,050 28,225 $
Question 37-8A
(a) Multinational Ltd Cash Flow Statement for the year ended 31 December 20X7 $ Cash flows from operating activities Profit for the year Adjustments for: Depreciation ($2,000 + $6,000 + $6,000) Interest expense Loss on disposal of tangible fixed assets ($1,480 $860) Operating profit before working capital changes Decrease in inventory Decrease in trade receivables and prepayments Increase in trade payables and accruals ($64,100 $400 $41,900) Cash generated from operations Interest paid ($6,000 $400) 00
50,400 14,000 6,000 620 71,020 15,660 4,900 21,800 113,380 (5,600)
$ Net cash from operating activities Cash flows from investing activities Payments to acquire tangible fixed assets ($72,400 + $39,720) (W1, W3) Receipts from disposal of tangible fixed assets ($10,860 + $2,540) (W2, W4) Purchase of long-term investments Purchase of short-term investments Net cash used in investing activities Cash flows from financing activities Drawings Partial repayment of mortgage loan Owners capital withdrawals Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at 1 January 20X7 Cash and cash equivalents at 31 December 20X7 Notes: Analysis of cash and cash equivalents: 31 December 20X7 $ 1,400 (56,400) (55,000) Equipment $ 35,200 Disposal 72,400 Depreciation Balance c/d 107,600 Disposal of Equipment $ 10,000 Bank (balancing figure) 860 10,860 Motor Vehicles $ 8,160 Disposal 39,720 Depreciation Balance c/d 47,880 Disposal of Motor Vehicles $ 4,020 Loss on disposal Bank (balancing figure) 4,020
$ 107,780
(112,120) 13,400 (16,000) (2,400) (117,120) (30,260) (6,000) (13,000) (49,260) (58,600) 3,600 (55,000)
Cash and cash equivalents Bank overdraft Workings: (W1) Balance b/d Bank (balancing figure)
31 December 20X6 $ 3,600 3,600
$ 10,000 6,000 91,600 107,600
(W2) Disposal Profit on disposal
$ 10,860 10,860
(W3) Balance b/d Bank (balancing figure)
$ 4,020 6,000 37,860 47,880
(W4) Disposal
$ 1,480 2,540 4,020 0
(b) The profit earned by Multinational Ltd increased from $30,600 in 20X6 to $50,400 in 20X7. Looking at the figures, it appears the company was doing well. However, the level of overdraft rose significantly during the year ended 31 December 20X7. This was due to purchases of equipment and motor vehicles ($112,120), as well as increases in both short-term and long-term investments ($18,400). The increase in the level of bank overdraft would have been even higher but for significant increases in trade payables and accruals, as well as decreases in inventory, trade receivables and prepayments. Working capital fell by $98,960 compared to 20X6. Criticisms can be made in respect of the management of the business. They include: (i) Excessive levels of drawings and capital withdrawals by the owners when funds were needed for the expansion of the business. The net level of drawings and capital withdrawals rose from $16,400 in 20X6 to $43,260 in 20X7 an increase of $26,860. (ii) The business held substantial short-term and long-term investments while running up a large bank overdraft at the same time. It can significantly improve its cash position by selling off such investments and financing fixed asset purchases with long-term loans. It is not a good practice to finance fixed asset purchases with short-term funds.
Question 37-9A
Hanford Ltd Cash Flow Statement for the year ended 31 December 20X2 $000 Cash flows from operating activities Profit before tax Adjustments for: Depreciation Amortisation of goodwill Amortisation of government grant ($900,000 + $150,000 $780,000) Interest expense Loss on sale of plant Release of plant maintenance provision Operating profit before working capital changes Increase in inventories ($8,260,000 $6,820,000) Increase in trade and other receivables ($6,450,000 $5,260,000) Increase in provision for bad debts ($240,000 $160,000) Increase in trade and other payables ($3,625,000 $3,190,000) Cash generated from operations Interest paid ($15,000 + $90,000 $45,000) Profit tax paid ($480,000 + $810,000 $390,000) Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Receipt of government grant Proceeds from sale of plant (W1) Net cash used in investing activities Cash flows from financing activities Issue of ordinary shares (W2) Issue of notes payable ($900,000 $300,000) Dividends paid* 2,490 960 60 (270) 90 150 (80) 3,400 (1,440) (1,205) 80 435 1,270 (60) (900) 310 (750) 150 60 (540) 1,350 600 (1,200) $000
02
$ Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 31 December 20X1 ($425,000 $30,000) Cash and cash equivalents at 31 December 20X2 ($210,000 $85,000) * This could also be shown as an operating cash flow. Workings: (W1) Property, plant and equipment Balance b/f Revaluation surplus Plant acquired Depreciation Balance c/f Sale at net book value Loss on sale Sale proceeds (W2) Share capital Ordinary shares b/f Bonus issue 1 for 10 Ordinary shares c/f Issue for cash Increase in share premium ($1,050,000 $300,000) Proceeds from issue of ordinary shares $000 (1,500) (150) 2,250 600 750 1,350 $000 5,490 600 750 (960) (5,670) 210 (150) 60
$ 750 520 (395) 125
Question 38-2A
(a) Mowers purchased Carriage Net profit: Fan ( 1 ) 2 Goh ( 1 ) 2 Memorandum Joint Venture Account for Fan and Goh $ $ 135,260 Sales 404 Fan: Mowers taken over 28,126 163,790 $ 123,790 40,000
14,063 14,063
163,790
(b) Fans books Mowers purchased Carriage Bank: Goh Share of net profit Balance c/d Bank: to settle with Goh
Joint Venture with Goh $ 120,400 Bank: Goh 320 Sales 50,000 Mowers taken over 14,063 29,807 214,590 29,807 Balance b/d $ 70,000 104,590 40,000
214,590 29,807
0
Gohs books Mowers purchased Carriage Bank: Fan Share of net profit Balance b/d
Joint Venture with Fan $ 14,860 Bank: Fan 84 Sales 70,000 Balance c/d 14,063 99,007 29,807 Bank: to settle with Fan $ 50,000 19,200 29,807 99,007 29,807
Question 38-4A
(a) 20X0 Mar " " " 31 31 31 31 Purchases Repairing Delivery charges Share of profit Mr Chans Book Joint Venture with Mr Lee Account $ 20X0 300,000 Apr 5 15,000 3,600 114,900 433,500 Cash received from Mr Lee $ 433,500
433,500
(b) 20X0 Mar " " " Apr 31 31 31 31 5 Rent Commission Sundry expenses Share of profit Cash paid to Mr Chan
Mr Lees Book Joint Venture with Mr Chan Account $ 20X0 30,000 Mar 31 25,000 " 31 17,000 114,900 433,500 620,400 Sales Stock taken over $ 620,000 400
620,400
(c) 20X0 Mar " " " " " " 31 31 31 31 31 31 31 Purchases Repairing Delivery charges Rent Commission Sundry expenses Share of profit: Mr Chan ( 1 ) 2 Mr Lee ( 1 ) 2
Mr Chan and Mr Lee Memorandum Joint Venture Account $ 20X0 300,000 Mar 31 15,000 " 31 3,600 30,000 25,000 17,000 114,900 114,900 620,400 Sales Stock taken over $ 620,000 400
620,400
0
Question 38-5A
Memorandum Joint Venture Account for Ren, Ho and Pang $ Paintings ($8,000 + $17,000 + $1,700) Light and heating Rent Van Use of Pangs van General expenses Net profit: Ren ( 1 ) 3 Ho ( 1 ) 2 Pang ( 1 ) 6 $ 26,700 Sales ($31,410 + $4,220 + $2,300) 86 Sale of van 2,100 Paintings taken over 2,200 600 1,090 $ 37,930 1,700 6,200
4,351 6,527 2,176
13,054 45,830
45,830
Rens books Rent Paintings General expenses Share of profit to profit and loss Balance b/d Hos books Van Paintings Share of profit to profit and loss Balance b/d Pangs books Use of van Lighting Paintings General expenses Share of profit to profit and loss Balance c/d Cash paid to Ren Cash paid to Ho
Joint Venture with Ho and Pang $ 2,100 Sale of van 17,000 Balance c/d 545 4,351 23,996 22,296 Cash received from Pang Joint Venture with Ren and Pang $ 2,200 Sales 8,000 Paintings taken over 6,527 Balance c/d 16,727 6,307 Cash received from Pang Joint Venture with Ren and Ho $ 600 Sales 86 Sales 1,700 545 2,176 28,603 33,710 22,296 Balance b/d 6,307 28,603 $ 31,410 2,300 $ 4,220 6,200 6,307 16,727 6,307 $ 1,700 22,296
23,996 22,296
33,710 28,603 28,603
0
Question 39-2A
Chan, Kwok and Lam Profit and Loss Appropriation Account for the year ended 31 December 20X5 $ Net Profit Add Interest on drawings: Chan Kwok Lam Less Salaries: Kwok Lam Interest on capital: Chan Kwok Lam Balance of profit shared: Chan (55%) Kwok (25%) Lam (20%) 22,000 28,000 3,600 2,700 2,100 $ 1,200 900 500 $ 184,800
2,600 187,400
50,000
8,400
(58,400) 129,000 70,950 32,250 25,800 129,000
Capital: Chan Kwok Lam
Balance Sheet (extract) as at 31 December 20X5 $ 60,000 45,000 35,000 140,000 Chan $ 18,000 3,600 70,950 92,550 (27,000) (1,200) 64,350 Kwok $ 8,000 22,000 2,700 32,250 64,950 (23,000) (900) 41,050 Lam $ 6,000 28,000 2,100 25,800 61,900 (17,000) (500) 44,400
Current accounts Balances at 1.1.20X5 Add Salaries Interest on capital Share of profit Less Drawings Interest on drawings
149,800
06
Question 39-5A
So and Ho Trading and Profit and Loss Account for the year ended 31 March 20X9 $ Sales Less Cost of goods sold: Opening inventory Add Purchases Less Closing inventory Gross profit Less Expenses: Salaries Office expenses ($2,130 + $240) Discounts allowed Depreciation: Motor vehicles ($21,400 25%) Office equipment ($9,200 20%) Net profit Add Interest on drawings: So Ho Less Interest on capital: So ($50,000 5%) Ho ($20,000 5%) Balance of profit shared: So (70%) Ho (30%) $ $ 180,400
38,410 136,680 175,090 (41,312)
(133,778) 46,622
27,400 2,370 312 5,350 1,840 7,190 300 200 2,500 1,000 (37,272) 9,350 500 9,850 (3,500) 6,350 4,445 1,905 6,350
Balance Sheet as at 31 March 20X9 $ $ Accumulated depreciation 5,440 18,150 23,590 41,312 41,940 2,118 317 85,687 32,216 240 $ Net book value 3,760 3,250 7,010
Fixed assets Office equipment Motor vehicles Current assets Inventory Debtors Bank Cash Less Current liabilities Creditors Expenses owing Capital: So Ho
Cost 9,200 21,400 30,600
(32,456) 50,000 20,000
53,231 60,241 70,000 0
So Current accounts Balance 1.4.20X8 Add Interest on capital Share of profit Less Drawings Interest on drawings $ $ 7,382 2,500 4,445 14,327 (17,800) (3,473) $
Ho $ 7,009 1,000 1,905 9,914 (16,200) (6,286) $
17,500 300
16,000 200
(9,759) 60,241
Question 39-7A
But, Ho and Wong Trading and Profit and Loss Account for the year ended 30 April 20X4 $ Sales Less Returns inwards Less Cost of goods sold: Opening inventory Add Purchases Carriage inwards Less Closing inventory Gross profit Less Expenses: Salaries and wages Discounts allowed Rates ($2,900 $200) Postage ($845 $68) Bad debts Provision for doubtful debts ($1,400 $950) General expenses Depreciation: Computers Office equipment Net profit Add Interest on drawings: But Ho Wong Less Salaries: Ho Wong Interest on capital: But ($60,000 8%) Ho ($10,000 8%) Wong ($30,000 8%) Balance of profit shared: But ( 1 ) 2 Ho ( 1 ) 8 Wong ( 3 ) 8 0
$ 334,618 (10,200) 324,418
68,127 196,239 3,100 199,339 267,466 (74,223)
(193,243) 131,175
54,117 190 2,700 777 1,620 450 1,017 2,800 1,100 3,900 300 200 240 18,000 14,000 4,800 800 2,400 (64,771) 66,404
740 67,144
32,000
8,000
(40,000) 27,144 13,572 3,393 10,179 27,144
Balance Sheet as at 30 April 20X4 $ $ Accumulated depreciation 4,000 6,400 10,400 74,223 51,320 (1,400) 49,920 268 5,214 129,625 (36,480) 93,145 96,845 60,000 10,000 30,000 But $ 5,940 4,800 13,572 24,312 (39,000) (300) (14,988) Ho $ (2,117) 18,000 800 3,393 20,076 (16,000) (200) 3,876 Wong $ 9,618 14,000 2,400 10,179 36,197 (28,000) (240) 7,957 $ Net book value 1,700 2,000 3,700
Fixed assets Office equipment Computers Current assets Inventory Debtors Less Provision for doubtful debts Prepayments ($200 + $68) Bank Less Current liabilities Creditors Net current assets Financed by: Capital accounts: But Ho Wong
Cost 5,700 8,400 14,100
100,000
Current accounts Balances at 1.5.20X3 Add Salaries Interest on capital Share of profit Less Drawings Interest on drawings
(3,155) 96,845
Question 39-9A
(a) (i) A partnership is the relationship which exists between persons carrying on a business in common with a view to making a profit. (ii) A partnership deed is drawn up to define the rights and obligations of the partners.
0
(b)
Mr Ma and Mr Ng Trading, Profit and Loss and Appropriation Account for the year ended 31 December 20X4 $000 $000 $000 30,077 (63) 30,014
Sales Less Sales returns Less Cost of goods sold: Opening stock Add Purchases Less Purchase returns Less Closing stock Gross profit Less Expenses: Administration expenses ($2,388,000 + $67,000) Salaries and wages ($704,000 $208,000) Rent ($715,000 $55,000) Provision for bad debts Depreciation office equipment ($4,715,000 20%) Net profit Appropriation: Interest on drawings: Mr Ma ($880,000 10%) Mr Ng ($620,000 10%) Interest on capital: Mr Ma ($2,200,000 5%) Mr Ng ($2,200,000 5%) Partners salary: Mr Ma Share of profit: Mr Ma ($3,170,000 4 ) 5 Mr Ng ($3,170,000 1 ) 5
4,395 21,167 (49) 21,118 25,513 (3,693)
(21,820) 8,194
2,455 496 660 192 943
(4,746) 3,448
88 62 110 110 220 208
150 3,598
(428) 3,170 2,536 634 3,170
(c) 20X4 Dec " " "
Partners Current Accounts Mr Ma $000 880 88 2,040 3,008 Mr Ng $000 20X4 330 Dec 31 620 " 31 62 " 31 " 31 1,012 Mr Ma $000 362 110 2,536 3,008 Mr Ng $000 110 634 268 1,012
31 31 31 31
Balance b/f Drawings Interest on drawings Balance c/d
Balance b/f Interest on capital Share of profit Balance c/d
0
(d) Fixed assets Office equipment, at cost Less Provision for depreciation Current assets Stock Trade debtors Less Provision for bad debts Prepayment Less Current liabilities Trade creditors Accruals Bank overdraft Net current assets Financed by: Capital accounts Mr Ma Mr Ng Current accounts Mr Ma Mr Ng
Balance Sheet as at 31 December 20X4 $000 $000 $000 4,715 (2,418) 2,297 3,693 3,689 (420) 3,269 55 7,017
2,864 67 211
(3,142) 3,875 6,172
2,200 2,200 4,400 2,040 (268)
1,772 6,172
Question 39-10A
(a) Mr Ma and Mr Ng Trading, Profit and Loss and Appropriation Account for the year ended 31 December 20X0 $ Sales Less Sales returns Less Cost of goods sold: Opening stock Add Purchases Add Carriage inwards Less Purchases returns Less Closing stock Gross profit $ $ 384,975 (720) 384,255
49,940 263,260 4,280 267,540 (560)
266,980 316,920 (51,000)
(265,920) 118,335

$ Less Operating expenses: Depreciation: Office equipment ($53,000 20%) Motor vehicles ($38,400 20%) Carriage outwards ($10,240 $4,280) Salaries and wages ($8,000 + $700) Rent ($7,500 $200) Provision for bad debts Net profit Appropriation: Interest on capital: Mr Ma ($25,000 10%) Mr Ng ($25,000 10%) Mr Mas salaries Share of balance: Mr Ma ($61,050 3 ) 5 Mr Ng ($61,050 2 ) 5 (b) Mr Ma and Mr Ng Balance Sheet as at 31 December 20X0 $ Fixed assets Office equipment, at cost Less Provision for depreciation ($15,900 + $10,600) Motor vehicles Less Provision for depreciation ($7,680 + $7,680) Current assets Stock Debtors Less Provision for bad debts ($320 + $45) Prepayment Cash at bank and in hand Less Current liabilities Creditors Accruals Net current assets $ 53,000 (26,500) 38,400 (15,360) 10,600 7,680 5,960 8,700 7,300 45
(40,285) 78,050
2,500 2,500
(5,000) (12,000) 61,050 36,630 24,420 61,050
26,500 23,040 49,540
51,000 41,920 (365) 41,555 200 2,400 95,155
32,550 700
(33,250) 61,905 111,445
Financed by: Capital account
Mr Ma $ 25,000
Mr Ng $ 25,000
50,000
2
$ Current account Balance as at 1 January 20X0 Add Salaries Interest on capital Share of balance Less Drawings 4,137 12,000 2,500 36,630 55,267 (10,000) 45,267
$ (3,742) 2,500 24,420 23,178 (7,000) 16,178
61,445 111,445
Question 40-2A
(a) Goodwill Other assets Capital: Ma ($30,000 + $7,200) But ($70,000 + $28,800) Fong ($35,000 + $14,400) To ($45,000 + $21,600) Balance Sheet as at 1 October 20X2 $ 72,000 180,000 252,000 37,200 98,800 49,400 66,600 252,000
(b) Ma But Fong To
Before
1 10 2 5 1 5 3 10
After $ 7,200 28,800 14,400 21,600 72,000

1 5 3 10 2 5 1 10
Gain or loss Gain Loss Gain Loss $ 7,200 7,200 14,400 14,400 Dr Cr Dr Cr
Action needed Mas capital Buts capital Fongs capital Tos capital $ 7,200 7,200 14,400 14,400
$ 14,400 21,600 28,800 7,200 72,000
Net assets Capital: Ma ($30,000 $7,200) But ($70,000 + $7,200) Fong ($35,000 $14,400) To ($45,000 + $14,400)
Balance Sheet as at 1 October 20X2 $ 180,000 22,800 77,200 20,600 59,400 180,000

Question 40-4A
(a) Wong Ho Au Chow Share of old goodwill
1 6 1 2 1 3
Share of new goodwill

1 3 5 12 1 6 1 12
Action needed Dr Cr Cr Dr Wongs capital Hos capital Aus capital Chows capital $ 10,000 5,000 10,000 5,000
$ 10,000 30,000 20,000 60,000
$ 20,000 25,000 10,000 5,000 60,000 Capital Accounts
Wong $ Adjustments for goodwill Balances c/d 10,000 4,000 14,000 (b) Other assets Cash ($1,200 + $24,000) Creditors Capital: Wong Ho Au Chow Ho $ 29,400 29,400 Au $ 30,400 30,400
Chow $ Balances b/d 5,000 Adjustments 19,000 for goodwill Cash 24,000 Balance Sheet
Wong $ 14,000 14,000
Ho $ 24,400 5,000 29,400
Au $ 20,400 10,000 30,400
Chow $ 24,000 24,000
$ 66,000 25,200 91,200 (8,400) 82,800 4,000 29,400 30,400 19,000 82,800
Question 40-7A
(a) Profit and Loss Account for the year ended 31 December 20X5 $ Consultancy fees Less Expenses: Administrative expenses Staff salaries Electricity Bad debts Travelling expenses Interest on Bais loan ($33,800 6% 1 ) 2 $ $ 407,498
46,600 73,611 11,375 4,700 8,690 1,014

Depreciation: Land and buildings ($276,000 2%) Motor vehicles [($122,000 $50,375) 25%] Fixtures and fittings ($260,000 10%) Net profit (b)
$ 5,520 17,906 26,000
49,426
(195,416) 212,082
Appropriation Account for the six months ended 30 June 20X5 $ $ 106,548
Profit before interest ($212,082 + $1,014*) 2 Appropriations: Interest on capital: Bai ($113,000 5% 1 ) 2 Chiu ($130,000 5% 1 ) 2 Poon ($113,750 5% 1 ) 2 Balance of profit shared: Bai ($97,629 1 ) 3 Chiu ($97,629 1 ) 3 Poon ($97,629 1 ) 3 * Interest on Bais loan from 1 July 20X5 to 31 December 20X5 (c)
2,825 3,250 2,844
(8,919) 97,629 32,543 32,543 32,543 97,629
Appropriation Account for the six months ended 31 December 20X5 $ $ 106,548 (7,014) 99,534 16,589 49,767 33,178 99,534
Profit before interest and salary Less Interest on loan Salary: Pak ($12,000 1 ) 2 Appropriation: Balance of profit shared: Chiu ($99,534 1 ) 6 Poon ($99,534 1 ) 2 Pak ($99,534 1 ) 3 Note: No interest is payable on partners capital under the new partnership agreement. (d) Calculation of the Amount Due to Bai in January 20X6
1,014 6,000
Share of profit for the 6 months to 30 June 20X5 Interest on capital Interest on loan Less Drawings
$ 32,543 2,825 1,014 36,382 (15,600) 20,782

Question 40-10A
(a) Patrick, Lawrence and Victor Trading and Profit and Loss Account for the year ended 31 December 20X0 $ Sales Less Cost of goods sold Gross profit Less Administrative expenses Selling and distribution expenses Financial expenses Depreciation plant and equipment (W1) motor vehicles (W2) Net profit Appropriations: Patrick $ First 6 months Salary Share of profit Next 6 months Salary Share of profit 50,000 127,500 Lawrence $ 30,000 42,500 Victor $ 80,000 170,000 250,000 110,000 140,000 250,000 500,000 $ 4,000,000 (1,955,000) 2,045,000
800,000 600,000 10,000 95,000 40,000
(1,545,000) 500,000
50,000 84,000 311,500
30,000 28,000 130,500
30,000 28,000 58,000
(Transferred to partners current accounts) Note: The profit accrued evenly throughout the year and has been split between the old and new partnership on a time-apportioned basis. (b) Calculation of goodwill adjustments: Share of goodwill $200,000 in old ratio in new ratio
3 4 1 4
Partner Patrick Lawrence Victor
Gain / (loss) $ (30,000) (10,000) 40,000 Cr Cr Dr
Adjustment required C/A of Patrick by C/A of Lawrence by C/A of Victor by $ $30,000 $10,000 $40,000
$ 150,000 50,000 200,000
3 5 1 5 1 5
$ 120,000 40,000 40,000 200,000
(c)
Balance Sheet as at 31 December 20X0 $ $ Provision for depreciation 345,000 90,000 435,000 $ Net book value 605,000 160,000 765,000
Fixed assets Plant and equipment Motor vehicles
Cost 950,000 250,000 1,200,000
6
$ Current assets Inventories Debtors Bank Less Current liabilities Creditors Net current assets Financed by: Capital Patrick Lawrence Victor Current accounts Patrick (W3) Lawrence (W4) Victor (W5) Workings: (W1) $950,000 10% (W2) ($250,000 $50,000) 20% (W3) $311,500 + $30,000 $30,000 (W4) $130,500 + $10,000 $15,000 (W5) $58,000 $40,000 500,000 500,000 140,000 1,140,000 (300,000)
840,000 1,605,000 690,000 230,000 230,000 311,500 125,500 18,000
1,150,000
455,000 1,605,000
Question 41-2A
(a) (i) Balance b/d (ii) Goodwill Inventory ($6,420 $6,100) Goodwill $ 12,400 Revaluation Revaluation $ $ 12,400 Plant and machinery ($16,800 $16,320) 320 Loss on revaluation: Fong ( 5 ) 7,650 8 Wong ( 3 ) 4,590 8 12,720 Capital Fong $ 7,650 11,811 19,461 Wong $ 4,590 9,887 14,477 Ho $ Balances b/d 12,000 Bank 12,000 Fong $ 19,461 19,461 Wong $ 14,477 14,477 Ho $ 12,000 12,000 $ 480 12,240 12,720 $ 12,400
(iii)
Loss on revaluation Balances c/d

(b) Fixed assets Plant and machinery at valuation Current assets Inventory Debtors Bank ($626 + $12,000) Less Current liabilities Creditors Net current assets Capital Fong Wong Ho
Balance Sheet $ $ 16,800 6,100 4,100 12,626 22,826 (5,928) 16,898 33,698 11,811 9,887 12,000 33,698
Question 41-3A
(a) Plant and machinery Motor vehicles Inventories Accounts receivable Profit on revaluation: Capital Daniel Capital Elaine Capital Fiona Revaluation Account $000 80 Land and buildings 20 15 5 90 60 30 300 Goodwill Account $000 60 Capital Daniel 40 Capital Elaine 20 Capital Fiona 120 $000 30 60 30 120 $000 300
300
(b) Capital Daniel Capital Elaine Capital Fiona
Note: Alternative treatment for goodwill may also be accepted. (c) Daniel $000 30 1,046 1,076 Elaine $000 60 1,240 1,300 Capital Account Fiona $000 30 Balance b/d 620 Profit on revaluation Goodwill 650 Daniel $000 926 90 60 1,076 Elaine $000 1,200 60 40 1,300 Fiona $000 600 30 20 650
Goodwill Balance c/d
Daniel $000 187 187 Elaine $000 51 57 108
Current Account Fiona $000 Balance b/d 67 Profit for the year 67 Daniel $000 25 162 187 Elaine $000 108 108 Fiona $000 13 54 67
Balance b/d Balance c/d
(d) Fixed assets Land and buildings Plant and machinery Motor vehicles Current assets Inventories Accounts receivable Cash Less Current liabilities Accounts payable Net current assets Long-term liabilities Bank loan Capital Daniel Elaine Fiona Current Daniel Elaine Fiona
Balance Sheet as at 1 January 20X4 $000 $000 2,800 270 160 3,230 105 67 35 207 (120) 87 3,317 (100) 3,217 1,046 1,240 620 187 57 67
2,906
311 3,217

Question 41-5A
(a) (i) Plant and equipment ($6,800,000 20%) Inventories ($8,480,000 $8,240,000) Provision for doubtful debts 2 Capital accounts: Audrey ( 10 ) 3 Bill ( 10 ) 5 Carmen ( 10 ) Goodwill Motor vehicles Revaluation Account $000 1,360 Goodwill 240 Motor vehicles ($550,000 $500,000) 20 86 129 215 2,050 2,000 Plant and equipment 50 Capital accounts: Audrey ( 3 ) 6 Bill ( 2 ) 6 Carmen ( 1 ) 6 2,050 Partners Capital Accounts Audrey $000 345 1,741 2,086 Bill Carmen $000 $000 230 115 Balance b/d 3,399 6,100 Revaluation (old ratio) 3,629 6,215 Audrey $000 2,000 86 2,086 Bill Carmen $000 $000 3,500 6,000 129 215 3,629 6,215 $000 2,000 50
2,050 1,360 345 230 115 2,050
(ii)
Revaluation (new ratio) Balance c/d
(b) Goodwill is the difference between the value of business as a whole and the aggregate of the fair values of its separable net assets. The major problems in valuing goodwill are that the value of goodwill is highly subjective and there is no universally accepted method with which to calculate goodwill. It may be a matter of negotiation between buyer (newly admitted partner) and seller (existing partners). Moreover, goodwill may have different values at different times.
Question 42-2A
Gain and Main Profit and Loss Appropriation Account for the year ended 31 March 20X8 $ Net profit b/d Less Salary: Main Interest on capital: Gain ($10,000 10%) Main ($5,000 10%) Balance of profit shared: Gain ( 3 ) 5 Main ( 2 ) 5 $ 9,750 1,000 500 1,500 (11,250) 15,000 9,000 6,000 15,000 $ 26,250
20
Gain $ 1,000 24,000
Current Main $ 2,000 Balance b/d Capital transferred 16,000 Profit and loss appropriation: 4,170 Salary Interest Share of profit Realisation profit shared Bank: to settle 22,170 Realisation $ $ 2,000 30,000 4,500 3,000 2,000 2,300 43,800 Bank $ 1,550 Main: to settle 2,620 4,170 Plain Ltd $ 40,000 Gain Main 40,000 $ 24,000 16,000 40,000 $ 4,170 4,170 Creditors Depreciation: Fixtures and fittings Motor vehicles Gain: Car taken over Plant Ltd: Purchase price $ 500 1,000 1,300 1,000 40,000 Gain $ 1,000 10,000 1,000 9,000 1,380 2,620 25,000 Main $ 5,000 9,750 500 6,000 920 22,170
Balance b/d Realisation: Car taken over Plain Ltd: Shares Bank: to settle
25,000 Fixtures and fittings Land and buildings Motor vehicles Stock Debtors Profit on realisation: Gain ( 3 ) 5 Main ( 2 ) 5
1,380 920
43,800
Balance b/d Gain: to settle
Realisation
2
Question 42-3A
(a) 20X2 Dec " " " " " " 31 31 31 31 31 31 31 Goodwill Motor vehicles Fixtures and fittings Stock Debtors Dissolution expenses Profit on realisation: Capital: Mr Lo Mr Mung Mr Chan Realisation $ 20X2 80,000 Dec 31 274,000 483,000 211,000 260,000 " 31 8,000 " 31 8,800 8,800 4,400 1,338,000 Capital Lo $ Realisation: Motor vehicles taken over Bank: Bank interest Bank Chan $ 20X2 Dec 31 " 31 86,000 102,000 Mung $ Lo Mung Chan $ $ $ 352,600 453,700 404,700 8,800 8,800 4,400 $ Motor vehicles taken over: Capital: Mr Lo Mr Mung Mr Chan Bank: Sundry assets Debtors Discount received 91,000 86,000 102,000 808,000 250,000 1,000
1,338,000
(b) 20X2 Dec 31
91,000
Balance b/f Profit on realisation
" "
31 31
800 800 400 269,600 375,700 306,700 361,400 462,500 409,100 Bank
361,400 462,500 409,100
(c) 20X2 Dec 31 " 31 Realisation: Sundry assets Realisation: Debtors
$ 20X2 808,000 Dec 31 250,000 " 31 " 31 " 31
Balance b/f Creditors Capital: Bank interest Capital: Mr Lo Mr Mung Mr Chan
1,058,000
$ 87,000 17,000 2,000 269,600 375,700 306,700 1,058,000
22
Question 42-5A
(a) $000 Furniture: Decrease ($12,000 $5,000) Motor vehicles: Decrease [$20,000 ($10,000 + $4,000)] Stock written off Bad debt written off Bad debt provision: Increase [($42,000 $2,000) 5% $1,000] Office expenses accrued Dissolution costs Capital: Proudie ( 3 ) 5 Slope ( 1 ) 5 Thorne ( 1 ) 5 Revaluation $000 Land and buildings: Increase 7 ($200,000 $160,000) 6 5 2 1 3 1 9 3 3 $000 40
15 40 Capital
40
(b) Proudie $000 4 8 219 231
Motor vehicle Goodwill written off (W1) Cash Loan account: Transfer Balances c/d
Slope Thorne $000 $000 Balances b/d 45 45 Current accounts Revaluation Loan 28 6 Goodwill share (W1) 73 51
Proudie $000 100 24 9 8 90 231
Slope Thorne $000 $000 60 40 10 8 3 3 73 51
Working: $ (W1) Goodwill: Profits ($130,000 + $150,000 + $181,000) Less Stock reduction Bad debt written off Increase in bad debt provision Office expenses accrued Average profit $450,000 3 = $150,000; Proudies share = $150,000 Goodwill write-off is split equally between Slope and Thorne.
3 5
$ 461
5 2 1 3 = $90,000
(11) 450
2
(c) Fixed assets Land and buildings Furniture Motor vehicles Current assets Stock Debtors Less Provision for bad debts Prepayments Cash
Slope and Thorne Balance Sheet as at 1 June 20X9 $000 $000 200 5 10 18 40 (2) 38 2 2 60 $000
215
Less Current liabilities Creditors Accruals ($3,000 + $1,000 + $3,000) Working capital Financed by: Capital: Slope Thorne Loan: Proudie
15 7
(22) 38 253 28 6 34 219 253
Question 43-5A
(a) Fixed assets Cost Less Accumulated depreciation Current assets Inventory Debtors Less Current liabilities Creditors Bank overdraft Working capital Shareholders funds Share capital Profit and loss Budgie Ltd Balance Sheet as at $000 $000 160 (50) 40 47 87 45 30 $000
110
(75) 12 122 100 22 122
2
(b) Inventory represents almost half the current assets the acid test ratio is 0.63:1 compared with the current ratio of 1.16:1 and, in the absence of any information on industry norms, this level of inventory appears to be too high. If the bank demanded payment of the overdraft, the company would face severe liquidity problems. It should probably try to reduce the level of inventory held and reduce the bank overdraft.
Question 43-7A
TCC Ltd Trading and Profit and Loss Account for the year ended 31 December 20X5 $ Sales Less Cost of goods sold: Opening inventory Add Purchases Less Closing inventory Gross profit Less Expenses: Wages and salaries Motor expenses ($4,300 + $280) Repairs to machinery Sundry expenses Depreciation: Land and buildings ($265,000 5%) Machinery ($109,100 20%) Motor vehicles ($34,700 20%) Directors remuneration Net loss Add Retained profits brought forward from last year Less Appropriation: General reserve Retained profits carried forward to next year Balance Sheet as at 31 December 20X5 $ Fixed assets Land and buildings Machinery Motor vehicles Current assets Inventory Receivables Bank Cost 265,000 109,100 34,700 408,800 $ Accumulated depreciation 73,250 63,220 25,140 161,610 102,400 169,600 17,900 289,900 $ Net book value 191,750 45,880 9,560 247,190 $ $ 975,600
81,300 623,800 705,100 (102,400)
(602,700) 372,900
241,500 4,580 3,600 2,900 13,250 21,820 6,940
42,010 82,600
(377,190) (4,290) 31,200 26,910 (7,500) 19,410
2
$ Creditors: Amounts falling due within one year Payables Motor expenses owing Net current assets Total assets less current liabilities Capital and reserves Issued share capital General reserve ($60,000 + $7,500) Profit and loss account 74,900 280
(75,180) 214,720 461,910 375,000 67,500 19,410 86,910 461,910
Question 43-8A
(a) (Narratives omitted) The Journal Dr $ 10,000 1,000 1,000 4,000 4,000 2,000 2,000 1,000 1,000 1,000 1,000 1,140 1,140 1,000 1,000 2,000 2,000 3,000 3,000 Cr $ 10,000
(1)
(2)
(3)
(4)
(5)
Creditors Debtors Operating profit Debtors Operating profit Suspense Bank Debtors Operating profit Bank Operating profit Debtors Provision for doubtful debts (Note 1) Operating profit Profit and loss brought forward Operating profit Stock Operating profit Suspense (Note 2) Operating profit
Notes: 1 Debtors $200,000 (1) $10,000 (1) $1,000 (2) $2,000 (3) $1,000 = $186,000 New provision 1% $186,000 = $1,860 Reduction in provision $3,000 $1,860 = $1,140 2 See Note (5) of the question. Credit balance on suspense account treated as sales.
26
(b)
Fiddles PLC Profit and Loss Account for the year ended $ 80,140 (7,200) 72,940 199,000 271,940 (10,000) 261,940
Operating profit (Note 1) Debenture interest (Note 2) Net profit for the year Add Retained profits brought forward from last year ($200,000 $1,000) Less Proposed divided ($100,000 10%) Retained profits carried forward to next year Fixed assets Land Buildings Plant and machinery Less Accumulated depreciation Current assets Stock ($190,000 + $2,000) Debtors Less Provision for doubtful debts Bank ($12,000 + $2,000 $1,000) Creditors: Amounts falling due within one year Creditors ($110,000 $10,000) Debenture interest accrued Proposed dividend Net current assets Total assets less current liabilities Creditors: Amounts falling due after more than one year 16% debentures Capital and reserves Called-up share capital Profit and loss account Balance Sheet as at $ $
$ 100,000 120,000
170,000 (120,000)
50,000 270,000
192,000 186,000 (1,860) 184,140 13,000 389,140
100,000 7,200 10,000
(117,200) 271,940 541,940
(180,000) 361,940 100,000 261,940 361,940
Notes: 1 $80,000 + (3) $1,140 + (4) $1,000 + (4) $2,000 + (5) $3,000 (1) $1,000 (1) $4,000 (2) $1,000 (3) $1,000 = $80,140 2 $180,000 16% p.a. 3 months = $7,200
2
Question 43-12A
(a) Minica Ltd Income Statement for the year ended 31 December 20X3 $ Sales ($3,845,000 $15,000) Less Cost of goods sold: Opening inventory Add Purchases ($2,184,000 $60,000) Carriage inwards Less Closing inventory Gross profit Add Profit on disposal of office equipment (W1) Less Expenses: Carriage outwards Depreciation (W2) Allowance for doubtful debts (W3) Sundry administrative expenses (W4) Bad debts Net profit $ 3,830,000
360,000 2,124,000 119,000 2,603,000 (450,000)
(2,153,000) 1,677,000 9,000 1,686,000
227,000 94,000 11,000 430,300 15,000
(777,300) 908,700
(b) The proposed dividend of $240,000 (4,000,000 $0.06) should be disclosed by way of a note in the published income statement of Minica Ltd. Workings: (W1) $15,000 ($20,000 $14,000) = $9,000 (W2) ($460,000 $20,000) 20% + ($60,000 20% 1 ) = $94,000 2 (W3) ($620,000 5%) $20,000 = $11,000 (W4) $416,000 + $28,700 $14,400 = $430,300
Question 43-13A
(a) General Journal Dr $ 120,000 Cr $ 120,000
(1)
(2)
Taxation profit and loss Taxation payable balance sheet Being profits tax charge provided for the year ended 31 March 20X3. Proposed final dividend profit and loss Proposed final dividend balance sheet Being final dividend for the year ended 31 March 20X3 proposed by the board of directors on 7 April 20X3 ($500,000 $0.5 $0.03).
30,000 30,000
2
(b)
Dragon Master Limited Profit and Loss Appropriation account for the year ended 31 March 20X3 $ $ 580,000 (120,000) 460,000 (50,000) 410,000 731,000 1,141,000
Net profit for the year Taxation Profit after tax Appropriation: Interim dividend Proposed final dividend Retained profits for the year Retained profits brought forward Retained profits carried forward (c) Fixed assets Plant and machinery, at cost Less Provision for depreciation Motor vehicles, at cost Less Provision for depreciation Current assets Inventories Accounts receivable Short-term investments Prepayments Cash at bank and in hand Less Current liabilities Accounts payable Taxation payable ($120,000 75%) Accruals Net current assets Total assets less current liabilities Long-term liabilities 7% debenture Taxation payable ($120,000 25%) Capital and reserves Ordinary share capital Share premium General reserve Retained profits Proposed final dividend Dragon Master Limited Balance Sheet as at 31 March 20X3
20,000 30,000
$ 2,020,000 (320,000) 365,000 (69,350)
1,700,000 295,650 1,995,650
145,000 76,000 122,540 2,580 6,400 352,520 54,000 90,000 3,170 147,170 205,350 2,201,000 300,000 30,000
(330,000) 1,871,000 500,000 80,000 120,000 1,141,000 30,000 1,871,000
2
Question 44-4A
(a) (i) Grant and Herd Profit and Loss Appropriation Account for the year ended 31.12.20X8 $000 Net profit for the year Add Interest on drawings: Grand ($40,000 10% 1 ) 2 Herd ($40,000 10% 3 ) 4 Less Salary: Herd Interest on capital: Grant ($300,000 5%) Herd ($100,000 5%) Balance of profit shared: Grant ( 3 ) 5 Herd ( 2 ) 5 15 5 $000 $000 60
2 3 20 20
5 65
(40) 25 15 10 25
(ii) Grant $000 40 2 10 300 65 417
Capital Herd $000 10 40 3 200 253 Grant $000 300 15 15 87 417 Herd $000 100 20 5 10 58 60 253
Salary paid Drawings Interest on drawings Car taken over Shares in Valley Ltd Bank
Balances b/d Salary Interest on capital Share of profit Realisation Bank
(iii) Fixed assets Stocks Debtors and prepayments Trade debtors Profit on realisation to capital: Grant ( 3 ) 5 Herd ( 2 ) 5
Realisation $000 300 90 18 223 87 58 776 Depreciation Trade creditors Creditors and accruals Grant: Car taken over Valley Ltd: Consideration (400,000 $1.25) $000 100 141 25 10 500 776
0
(b)
Valley Ltd Balance Sheet as at 1 January 20X9 $000 $000 $000 145 190 335 90 223 18 331 141 25
Fixed assets at cost Intangible asset: Goodwill Tangible assets ($300,000 $100,000 $10,000) Current assets Stocks Trade debtors Debtors and prepayments Less Current liabilities Trade creditors Creditors and accruals Capital and reserves Called-up share capital Share premium
(166)
165 500 400 100 500
Question 44-6A
(a) 20X4 Mar 31 " 31 Debtors Balances to the new firm Capital Account Mr Mak $ 20X4 40,000 Mar 31 1,811,700 " 31 1,851,700 Balance b/f Goodwill $ 1,751,700 100,000 1,851,700
(b) 20X4 Mar 31 " " 31 31 Revaluation of machine ($110,000 $75,000) Stock [$40,000 $(38,000 $5,000)] Balances to the new firm
Capital Account Mr Pau $ 20X4 Mar 31 35,000 " 31 7,000 1,456,200 1,498,200 Balance b/f Goodwill $ 1,418,200 80,000
1,498,200

(c)
Mr Mak and Mr Pau Balance Sheet as at 1 April 20X4 $ $ 1,225,000
Fixed assets ($720,000 + $540,000 $35,000) Current assets Stock ($1,050,000 + $660,000 $7,000) Trade debtors ($430,000 + $370,000 $40,000) Cash at bank ($178,200 $38,300) Less Current liabilities Trade creditors ($410,000 + $330,000) Net current assets Capital accounts: Mr Mak ($1,811,700 $108,000) Mr Pau ($1,456,200 $72,000) (d) (i) achieve better operating results (ii) eliminate competition (iii) avoid hostile takeover bids (Any two points) 1,703,000 760,000 139,900 2,602,900 (740,000)
1,862,900 3,087,900 1,703,700 1,384,200 3,087,900
Question 44-8A
(a) Land and buildings Plant and equipment Office equipment Motor vehicles Inventories Debtors Bank: Dissolution expenses Creditors Share of profit (Note): Capital Jane Capital May Jane and May Realisation Account $ 500,000 120,000 40,000 80,000 60,000 80,000 20,000 36,000 87,000 87,000 1,110,000 Creditors Motor vehicles taken over: Capital Jane Capital May Bank: Inventories Debtors Purchases consideration: Karen Co Ltd Cash 200,000 ordinary shares $ 40,000 24,000 36,000 50,000 60,000
500,000 400,000 1,110,000
Note: Since the profit or loss sharing ratio of the partnership has not been mentioned in the question, we shall assume that the partners share profit or loss equally.
2
(b)
Capital Accounts Jane May $ $ 101,000 Balance b/d 24,000 36,000 Current account Profit on realisation 250,000 150,000 300,000 180,000 574,000 467,000 Jane May $ $ 300,000 380,000 187,000 87,000 87,000
Current account Motor vehicles Realisation: Ordinary shares (W) Bank
574,000 467,000
(Working) Share of ordinary shares of Karen Co Ltd between partners: Jane $ 300,000 187,000 87,000 (24,000) 550,000 5 $250,000 (125,000 shares) : May $ 380,000 (101,000) 87,000 (36,000) 330,000 3 $150,000 (75,000 shares)
Capital account Current account Share of realisation profit Motor vehicles taken Balance on capital account after realisation Ratio Share of 200,000 ordinary shares with value of $400,000
(c) Realisation: Karen Co Ltd Inventories Debtors
Bank Account $ 500,000 Balance b/d 50,000 Realisation: Creditors 60,000 Dissolution Capital account: Jane May 610,000 $ 74,000 36,000 20,000 300,000 180,000 610,000
Question 44-9A
(a) (i) Plant and machinery Fixtures and fittings Motor vehicles Inventories Debtors Bank dissolution costs creditors Share of profit: Capital Lee Capital Wong John Lee and Daniel Wong Realisation Account $000 392 Creditors 308 Motor vehicles taken over: 170 Capital Lee 108 Capital Wong 270 Sea Urchin Limited: Purchase consideration 3 290 423 282 2,246 $000 306 80 60 1,800
2,246

(ii) Lee $000 80 720 158 958
Capital Accounts Wong $000 39 Balance b/d 60 Current account 480 Profit on realisation 43 622 Bank Account $000 600 Balance b/d Creditors Dissolution costs Loan from John Lee Capital Lee Capital Wong 600 $000 $000 6 290 3 100 158 43 600 $000 1,800 Lee $000 510 25 423 958 Wong $000 340 282 622
Current account Motor vehicle taken over Sea Urchin Ltd: Ordinary shares Bank
(iii) Sea Urchin Ltd
(b) Purchase consideration Less Fair value of assets acquired: Plant and machinery Fixtures and fittings Inventories Debtors Goodwill
600 420 96 250
(1,366) 434
Question 44-11A
(a) Plant and machinery Capital: Chan Tai Revaluation Account $ 24,600 Land and buildings 183,600 91,800 300,000 Capital Accounts Chan Tai Man $ $ $ 247,500 123,750 123,750 Balance b/d 864,650 497,575 237,775 Revaluation Goodwill Net profit ($143,100 $6,600) Gain on realisation 1,112,150 621,325 361,525 Chan Tai Man $ $ $ 505,500 318,000 315,000 183,600 91,800 330,000 165,000 68,250 34,125 34,125 24,800 12,400 12,400 1,112,150 621,325 361,525 $ 300,000
300,000
Goodwill written off Shares in CTM Ltd

Calculation of goodwill: Average profits for last three years = $(150,000 + 262,500 + 330,000) 3 = $247,500 Goodwill = Average profits 2 = $247,500 2 = $495,000 Assets transferred: Land and buildings Plant and machinery Inventories Debtors ($66,000 $6,600) Bank Gain on realisation: Capital: Chan Tai Man (b) Dr $ 1,125,000 120,000 45,000 66,000 254,100 100,000 Cr $ Realisation Account $ Liabilities transferred: Creditors 1,200,000 Receivable from CTM Ltd 110,400 30,000 59,400 254,100 24,800 12,400 12,400 1,703,500 $ 103,500 1,600,000
1,703,500
Land and buildings Plant and machinery Inventories Debtors Bank Goodwill Provision for doubtful debts Creditors Payable to Chan, Tai and Man To record the acquisition of net assets from Chan, Tai and Man. Payable to Chan, Tai, and man Share capital Share premium To record the issuance of 30,000 shares of $1 par, valued at $5 each, to Chan, Tai and Man.
6,600 103,500 1,600,000 1,600,000 320,000 1,280,000

Question 45-2A
(a) (i) Gross profit as a percentage of sales
$430,000 $2,500,000 $166,000 $2,500,000 $264,000 $2,500,000
Spreadlight Ltd
100 1 100 1 100 1
Easylawn Ltd
$430,000 $1,600,000 $170,000 $1,600,000 $260,000 $1,600,000
= 17.2% = 6.6% = 10.6% = 10.1 times
100 1 100 1 100 1
= 26.9% = 10.6% = 16.3% = 8.7 times
(ii) Net profit as a percentage of sales (iii) Expenses as a percentage of sales (iv) Inventory turnover (v) ROCE (vi) Current ratio (vii) Acid test ratio (viii) Debtors/sales ratio (ix) Creditors/purchases ratio
$2,070,000 ($190,000 + $220,000) 2 $166,000 $368,000 $399,000 $189,000 $179,000 $189,000 $104,000 $2,500,000 $189,000 $2,100,000
$1,170,000 ($110,000 + $160,000) 2 $170,000 $223,000 $199,000 $38,000 $39,000 $38,000 $29,000 $1,600,000 $38,000 $1,220,000
100 1
= 45.1%
100 1
= 76.2%
= 2.1 = 0.95 12 = 0.5 months 12 = 1.08 months
= 5.2 = 1.03 12 = 0.2 months 12 = 0.37 months
(b) Easylawn Ltd is the more efficient company. It has made $170,000 profit as compared with the $166,000 profit made by Spreadlight Ltd. It has achieved a return on capital employed of 76.2%, almost 70% higher than the 45.1% return achieved by Spreadlight Ltd. Reasons: These are conjecture you really have to know more about the business before you can be definite. (i) Easylawn Ltd has managed to achieve a far greater percentage of gross profit, whilst maintaining a reasonable level of sales. (ii) Because expenses are lower, but gross profit is the same as that of Spreadlight Ltd, a higher figure of net profit is achieved by Easylawn Ltd. (iii) Easylawn Ltd has kept inventory down to figures lower than that of Spreadlight Ltd, although Spreadlight Ltd has managed to get a higher inventory turnover. (iv) Easylawn Ltd has a 69% higher rate of return on capital employed, helped by lower inventory, better debtors/sales ratio and relatively lower levels of creditors. (v) The acid test ratio for Easylawn Ltd appears to be healthier than that of Spreadlight Ltd.
Question 45-3A
(a) 1 2 3 4 Current ratio Acid test ratio Net profit as a percentage of sales Gross profit as a percentage of sales Table of Accounting Ratios A
$180,000 = 1.1 $160,000 $100,000 = 0.6 $160,000 $30,000 = 3% $1,000,000 $600,000 = 60% $1,000,000
B
$200,000 = 1.7 $120,000 $100,000 = 0.8 $120,000 $100,000 = 3.3% $3,000,000 $1,000,000 = 33% $3,000,000
6
5 6 7 8
Debtors/sales (months) Creditors/cost of sales (months) Return on owners equity Gearing
$100,000 12 = $1,000,000 $110,000 12 = $400,000 $30,000 = 30% $100,000 $100,000 = 50% $200,000
1.2 3.3
$90,000 $3,000,000 $120,000 $2,000,000 $100,000 = $520,000 $130,000 = $650,000
12 = 0.4 12 = 0.7 19.2% 20%
(b) Should be in report fashion. Main points, briefly: (i) Both have a similar net profit percentage: A 3%; B 3.3%. However, the result was obtained very differently as A has a high gross profit percentage and every high expenses, whereas B has a lower gross profit percentage and relatively lower expenses. (ii) The higher gearing of A leads to a higher return on owners equity. The extra debts of A could lead to problems when profits fall. (iii) As high creditors/cost of sales ratio is very worrying, as is the low current ratio. (iv) The figures are considerably distorted by Bs land revaluation. This leads to Bs ROOE being understated, whilst that of A by comparison is overstated.
Question 45-6A
(a) (i) Acid test ratio: Eastwood Limited Westland Limited (ii) Asset turnover ratio: Eastwood Limited Westland Limited (iii) Creditors repayment period (in days) Eastwood Limited Westland Limited (iv) Current ratio: Eastwood Limited Westland Limited (v) Debtors collection period (in days) Eastwood Limited Westland Limited (vi) Gearing ratio: Eastwood Limited Westland Limited (vii) Gross profit margin: Eastwood Limited Westland Limited (viii) Interest cover: Eastwood Limited Westland Limited (ix) Net profit (after tax) margin: Eastwood Limited Westland Limited (Current assets Inventories) Current liabilities $(600,000 250,000) $790,000 = 0.4 $(630,000 155,000) $350,000 = 1.4 Sales Net assets employed $1,825,000 $580,000 = 3.1 $1,428,000 $880,000 = 1.6 Creditors Purchases (or cost of sales) 365 days $270,000 $1,095,000 365 days = 90.0 days $170,000 $683,000 365 days = 90.8 days Current assets Current liabilities $600,000 $790,000 = 0.8 $630,000 $350,000 = 1.8 Debtors Sales 365 days $150,000 $1,825,000 365 days = 30.0 days $175,000 $1,428,000 365 days = 44.7 days Long-term liabilities Owners equity 100%* $110,000 $580,000 100% = 19.0% $100,000 $880,000 100% = 11.4% Gross profit Sales 100% $730,000 $1,825,000 100% = 40% $745,000 $1,428,000 100% = 52.2% Profit from operations Interest $248,000 $88,000 = 2.8 times $340,000 $80,000 = 4.3 times Profit after tax Sales 100% $50,000 $1,825,000 100% = 2.7% $110,000 $1,428,000 100% = 7.7%

(x) Return on capital employed (before interest and tax): Eastwood Limited Westland Limited * Other formulae may also be acceptable.
Profit from operations Capital employed 100% $248,000 $690,000 100% $340,000 $980,000 100% = 35.9% = 34.7%
(b) Profitability Although Eastwood Limited had a higher amount of sales, Westland Limited achieved a higher amount of gross profit and a higher gross profit margin of 52.2% as compared with the 40% ratio that Eastwood Limited achieved. This is possibly due to Eastwood Limiteds deliberate lower pricing policy in order to boost sales and / or Eastwood Limited was inefficient in its purchasing function. Coupled with a lower gross profit margin, Eastwood Limited achieved a net profit margin of 2.7%, compared with the ratio of 7.7% that Westland Limited achieved, mainly because of weaker cost control as reflected by the comparatively higher operating expenses and a higher interest cost incurred. However, the asset turnover ratio of Eastwood Limited was 3.1, which was significantly higher than 1.6 ratio of Westland Limited. This indicates that Eastwood Limited was more efficient in managing its assets to generate sales. Consequently, Eastwood Limited was running at a return on capital employed of 35.9%, which was slightly more than the ratio of 34.7% of Westland Limited. Eastwood Limited performed better in terms of profitability from the shareholders point of view. Short-term liquidity Both companies had a similar creditors repayment period of approximately 90 days. Regarding the debtors collection period, Eastwood Limited had better credit control in that it achieved a ratio of 30.0 days as compared with 44.7 days achieved by Westland Limited. Despite better credit control, both the current and acid test ratios of 0.8 and 0.4 respectively together with the net current liabilities appeared in the balance sheet indicate that Eastwood Limited had a poor liquidity situation. The company might not be able to pay the short-term debts when due and action may need to be taken. In contrast, Westland Limiteds corresponding ratios of 1.8 and 1.4 reveal that it had ample liquid assets to meet its current liabilities.
Question 45-8A
(a) (all in $000) (i) Current ratio: Dahlia Limited Poppies Limited (ii) Quick asset ratio: Dahlia Limited Poppies Limited (iii) Asset turnover ratio: Dahlia Limited Poppies Limited (iv) Gross profit margin: Dahlia Limited Poppies Limited (v) Net profit margin: Dahlia Limited Poppies Limited Current assets Current liabilities 510 724 380 238 (Current assets Inventories) Current liabilities (510 310) 724 (380 140) 238 Sales Capital employed 1,200 5,186 800 3,242 Gross profit Sales 100% 420 1,200 100% 200 800 100% Profit before interest and tax Sales 100% 270 1,200 100% 80 800 100%
= 0.70 = 1.60 = 0.28 = 1.01 = 0.23 = 0.25 = 35% = 25% = 22.5% = 10%
(vi) Return on capital employed: Dahlia Limited Poppies Limited (vii) Gearing ratio: Dahlia Limited Poppies Limited (viii) Interest cover: Dahlia Limited Poppies Limited
Profit before interest and tax Capital employed 100% 270 5,186 100% 80 3,242 100% Long-term liabilities Capital employed 100% 2,750 5,186 100% 800 3,242 100% Profit before interest and tax Interest 270 180 80 24
= 5.21% = 2.47% = 53.03% = 24.68% = 1.5 times = 3.33 times
(b) Profitability Dahlia Limited achieved a higher gross profit margin of 35% as compared with the 25% achieved by Poppies Limited. Coupled with its comparatively low operating expenses, Dahlia Limited generated a net profit margin of 22.5%, as compared with the 10% ratio that Poppies achieved. The asset turnover ratio of Poppies Limited was 0.25, which was marginally higher than the ratio of 0.23 of Dahlia Limited. The breakdown of return on capital employed (ROCE) into net profit margin and asset turnover ratio indicates that although Dahlia Limited was making slightly less efficient use of its assets than Poppies Limited, Dahlia Limited achieved a much higher ROCE of 5.21%, which was more than double the 2.47% ratio achieved by Poppies Limited. In conclusion, Dahlia was generating a better return for its shareholders and providers of long-term finance. Short-term liquidity Both the current and acid test ratios of 1.60 and 1.01 respectively indicate that Poppies Limited had good liquidity. Dahlia Limiteds corresponding ratios of 0.70 and 0.28 were far from satisfactory and reveal that it was short of liquid funds to meet short-term liabilities when due despite its better performance in terms of profitability. Dahlia Limited needs to pay greater attention to the management of its working capital. Long-term solvency Dahlia Limited had a higher gearing ratio of 53.03% and a lower interest cover of 1.5 times, which imply that it had higher financial risk. On the other hand, the gearing ratio of 24.68% and interest cover of 3.33 times of Poppies Limited were quite acceptable and better than those of Dahlia Limited.
Question 45-10A
(a) Ratio analysis calculations (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) 20X1 Return on shareholders capital = Profit before tax Share capital and reserve 100% 24.6% Net assets turnover = Turnover Net assets 2.9 Total assets turnover = Turnover Total assets 2.2 Inventory turnover period = Average inventories Cost of goods sold 365 days 181.7 days Receivable collection period = Average trade receivables Annual credit sales 365 days 55.6 days Debt ratio = Total liabilities Total assets 100% 23.8% Equity ratio = Total owners equity Total assets 100% 76.2% Interest cover = Profit before interest and tax Net finance costs 2.3 Dividend cover = Earnings per ordinary share Dividend per ordinary share 1.0 P/E ratio = Current market price per share Earnings per share 3.0 Dividend yield = Dividend per share Current market price per share 33.3% Earnings yield = Earnings per share Current market price per share 33.3%

(b) Report to Board of Directors (as a demonstrated example only) To : Directors Gotech Company Limited From : XYZ (name written down by the candidate) Date : X-X 20X2 Subject : Financial situation of the company in 20X1 The following comments are based on a financial ratio analysis of the financial statements of Gotech Company Limited for the two-year period 20X0 to 20X1. The relevant ratios for analysis are contained in the appendix to this report. 1 Liquidity These ratios are important indicators of the short-term viability of the company. A company may go into insolvency because of liquidity problems rather than poor profitability. Compared with 20X0, both the current ratio and quick ratio in 20X1 decreased. This may initially be considered as a sign of the deterioration in liquidity, and less liquid or near liquid assets in terms of its ability to meet its current liabilities. Management should investigate the reasons for the decline and try to keep current assets at an acceptable level. Otherwise the company may have difficulty in financing continuing operations. 2 Profitability Gross profit and trading profit were levelling off in 20X1. The gross profit margin dropped while the trading profit margin remained relatively stable. This may have been caused by effective internal cost controls of the company in terms of salaries and other expenses. Management should investigate method(s) to further control costs, and look into the factors causing the surge in costs of sales. Returns on total assets and returns on shareholders capital increased. This shows that the company is better utilising its assets. However, the company should look into the impact of the change in the components of its assets, as it current assets dropped but fixed assets rose in 20X1. The drop in current assets may worsen liquidity and the working capital of the company. The rise in fixed assets may have come to an end. The fixed assets turnover ratio may have been pushed down. Detailed analyses should be conducted. 3 Management efficiency Net assets turnover and total assets turnover rose slightly. If we also compute the fixed assets turnover ratio, we see that the ratio dropped significantly in 20X1 (from 9.62 times to 6.45 times) as the result of a surge in fixed assets. The growth in fixed assets and total assets is justified by the potential growth in sales. Concerning the working capital cycle, inventory levels had dropped since 20X0. The company may have tight inventory controls or management should keep and establish a safe inventory level system if necessary. Receivable collection period was high in 20X0 and decreased in 20X1. Management should consider offering discounts or other alternatives in order to keep the receivable collection period as short as possible. The industry average can be taken as a benchmark. 4 Debt and equity ratios These ratios will be of interest to stakeholders in the company such as creditors and shareholders. These ratios may be referred to as gearing ratios to reflect the relative amount of company funds provided by equity or liabilities. The higher gearing ratio may imply the use of cheaper long-term finance, or the higher financial risk of the company, which may suffer, especially during periods of volatile profitability. Little change occurred in the debt and equity ratios in 20X0 and 20X1. This reflects stability of the companys capital structure.
0
5 Interest and dividend covers Interest cover represents the coverage of trading profit to interest payment. The ratio rose slightly from 2.2 to 2.3 in 20X1. This may be in line with the drop in the average debt level. It reflects a larger coverage of trading profit to interest expenses. Dividend cover indicates the coverage of earnings per share to dividend per share. The smaller the ratio, the higher the portion of the dividend paid out from the earnings in each share, and the less retained funds kept by the company for further growth. 6 Investment ratios The P/E represents the ratio of the market price of the companys ordinary shares to earnings per share (alternatively, market capitalisation of the company to total earnings for the year). The surge in the ratio may be due to growing market demand for its ordinary shares. The P/E rose in 20X1. This may be caused by the companys business nature (IT). The result was an increase in stock price. Management should investigate the increase to check for any abnormal transactions that may have caused the boost in the stock price. Dividend yield increased but the earnings yield decreased in 20X1. The earnings yield represents the return received by investors with respect to the share price. The lower the ratio, the longer the time investors must wait for returns to be paid. The rise in dividend yield may benefit the company if long-term funds are to be requested from equity investors. However, management may consider adopting a more conservative dividend policy in line with earnings and the forecast of the companys development. This will deteriorate shareholder confidence if the companys future revenues are not promising. 7 Conclusion With regard to the ratios discussed above, management should consider the companys ratios in view of the industry average, or the ratios of similar organisations. The company is gradually growing in terms of its sales volume. Management may consider the diversification of business in order to eliminate the external economic environment risk.
Question 45-11A
(a) (i) Apillon Year ended 31 March 20X2 Current ratio: $990,000 $430,000 $1,420,000 $860,000 (ii) Quick ratio: $450,000 $430,000 $700,000 $860,000 (iii) Inventory age $540,000 $1,900,000 365 days $720,000 $2,400,000 365 days (iv) Average period of credit allowed to customers $450,000 $2,800,000 365 days $700,000 $3,700,000 365 days (v) Average period of credit taken from suppliers $410,000 $2,080,000 365 days $690,000 $2,580,000 365 days 2.30 1.65 1.05 0.81 103.7 days 109.5 days 58.7 days 69.1 days 71.9 days 97.6 days 20X3
(b)
Comments (i) The growth in sales has caused a shortage of working capital, as shown by significant increases in the debtors collection period (69.1 days in 20X3 vs. 58.7 days in 20X2) and the creditors repayment period (97.6 days vs. 71.9 days). (ii) Inventory levels have increased considerably, rising from $540,000 at 31 March 20X2 to $720,000 at 31 March 20X3. Inventory turnover deteriorated slightly from 103.7 days to 109.5 days, probably due to less stringent inventory control. (iii) Both the current and quick ratios have worsened significantly. For the current ratio, it fell from 2.30 to 1.65, while the quick ratio fell from 1.05 to 0.81. This could be a sign of liquidity problems in the future. (iv) Cash sales have fallen dramatically, with the cash sales/sales ratio dropping from 9.7% of sales in 20X2 to only 2.6% in 20X3. The working capital position could be significantly improved by increasing the level of cash sales, which would reduce the use of bank overdraft.
2

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Question 1-2A

(5) Old Ltd (15) Cash (30) Bank

Office Fixtures $ 900 120 480 Capital (1) Bank $ 16,000

Old Ltd (5) Office fixtures $ 900

(15) Bank (24) Cash (5) Clearcount Ltd

(1) (8) (3) (17) Bank Cash Capital Bank

F Chung (31) Printer $ 200

(22) Fun Ltd (5) Bank

Fixtures $ 820 Van $ 4,920 Loan: F Ho (24) Bank $ 1,500

H Chan $ 394 (25) Returns inwards A Choi (31) Machinery $ 419 $ 18

Capital (1) Bank $ 18,000

(2) (3) (8) B Hon G Sze G Sze

(23) P Sin (25) H Chan

Returns Inwards $ 160 18 Returns Outwards (6) B Hon (28) G Sze $ 82 47

(31) A Choi (21) Bank

Machinery $ 419 Printer $ 620

(2) (2) (2) (3) J Leung D Ma P Lo Cash

Returns Outwards (10) D Ma $ 195

(13) B Ho (28) Bank (10) Returns outwards (28) Bank

(28) Bank (6) (6) Sales Sales

B Bo $ 6,100 (20) Van D To $ 370 B Ho $ 290 (13) Returns inwards $ 35  $ 6,100

(6) (15) Sales (15) Sales (15) Sales Sales

(1) (8) Sales Sales

(15) Returns outwards (28) Bank

(31) Balance c/d

(28) Bank (31) Balance c/d

354 Balance b/d 215

Sales Bank Sales

Sales Sales Sales

Sales Sales Returns inwards Bank M Lok

Sales Returns inwards Bank T So

Balance $ 309 Dr 227 Dr 0

Balance $ 190 Cr 175 Cr 0

20X7 May " " " "

$ 290 1,070 1,360

(30) Balance c/d

(30) Balance c/d

(20) J Fan (20) T Pok (1) Balance b/d

Returns Inwards $ 6 (30) Balance c/d 14 20 20 $ 20 20

(23) Bank (23) Bank (30) Balance c/d

(18) Returns outwards (30) Balance c/d

(30) Balance c/d

F Jia $ 165 (19) Purchases (1) Balance b/d $ 165 165

(11) Sales (1) (30) Balance c/d Balance b/d

(30) Balance c/d

Trial Balance as at 30 November 20X7 Dr $ 7,536 1,070 3,225 Cr $

39,560 2,400 910 305 1,240

48,580 940 1,804 1,990 2,350 624

70,000 119,000 (12,000) 107,000 177,000 1,500 178,500 (80,000)

15,000 2,000 6,000 2,500 3,000 4,000 1,000 4,500

52,800 141,300 (2,408) 138,892 1,350 193,042 (58,440)

63,400 5,840 3,800 714 1,930 1,830 208

39,600 2,850 1,490 8,200 680 745 392 216

Bank Balance c/d

$ 300 600 900

1,400 3,800 9,700 14,900

Trading and Profit and Loss Account for July $ $ 3,800

5,000 3,900 8,900 (6,200)

(2,700) 1,100 (500) 600

Capital Add Net profit

(1) (2) (3) (4) (9) (11) (13) (16) (20)

150 430 1,500

310 94 150 81 35 1,970 2,685 320 3,968 4,923

Frank Wood's Business Accounting HK Edition (3rd Edition) Solution

Frank Wood's Business Accounting HK Edition (3rd Edition) Solution

B Bo $ 6,100 (20) Van D To $ 370 B Ho $ 290 (13) Returns inwards $ 35 $ 6,100