1

PRINCILPES OF ACCOUNTS

1 a) Name two sources that can cause the owner’s Equity to increase.

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b) What are two causes that will result in a decrease in Owner’s equity?

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c) Below are the transaction between Kim and Yang.

Dec 4 Kim bought goods on credit from yang.
6 Kim return a quarter of these goods to yang.
20 Kim paid yang.

Name the document used by both Kim and yang each of the above transaction in their
respective books.

Source of document used by Kim Source of document used by Yang

(1) Dec 4 ---------------------------------------------------------------------------------------------------

(2) 6 ---------------------------------------------------------------------------------------------------

(3) 20 -----------------------------------------------------------------------------------------------[3]

d) Explain the difference between Debit note and a Credit note.

Debit note -----------------------------------------------------------------------------------------------------------------

Credit note -------------------------------------------------------------------------------------------------------------[2]

(f) Identify THREE situations in which the total of the debit balances in a trial balance is
the same as the total of the credit balances, but the trial balance contains errors.
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Total [12]
 2
PRINCILPES OF ACCOUNTS
2 Falcan , a successful business , agreed to take over Sparrow. Their summarized balance sheet
at 30April 2008 were as follows

Balance Sheet at 30April 2007

Falcan Sparrow Falcan Sparrow
£ £ £ £
Fixed assets 75,000 12,000 Capital 100,000 15,000
Stock 14,500 2,500 Creditor 19,000 1,500
Debtors 9,500 1,500
Bank 20,000 500
Total 119,000 16,500 Total 119,000 16,500

It was agreed that Falcon would pay £18,000From the business bank account to take
over all the assets and liabilities of Sparrow. The assets of Sparrow would be revalued
as follow:

Fixed assets 12,500

Stock 2,400
Debtors 1,300
Required:

a) Calculate the goodwill paid by Falcon on the takeover of Sparrow

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 3
PRINCILPES OF ACCOUNTS

b) Prepare the balance sheet of Falcon after the take over of Sparrow.

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c) State two benefits Falcon gains from using Information and Communications
Technology (ICT) in book-keeping.
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 4
PRINCILPES OF ACCOUNTS

d) Complete the following Petty Cash Book Company use impreast system (Totaling & Balancing )

Expenses £
Receipts Date Detail Voucher Total
2008 # Payment Postage Stationar Cleaning Travel
30.00 Aug 3 Bal b/d y

70.00 3 Bank

7 Stamp 0010 20.00 20.00

8 Petrol 0011 13.00 13.00

11 Postage 0012 15.00 15.00

12 Bus fare 0013 2.00 2.00

15 Taxi 0014 5.00 5.00

19 Pails 0015 5.00 5.00

20 Cleaning 0016 10.00 10.00

25 Stationary 0017 5.00 5.00

Total

Bal b/d

100.00 100.00

Sept1 Bal b/f

Bank

[8]

Total[22]
 5
PRINCILPES OF ACCOUNTS

3 a) A Bains is a manufacturer and the following balances were taken from his book on 31 dec 2007

Stocks on 1-jan-07 Stock on31- Dec-07

Raw material at cost 5,900 6,000

Finished goods 8,500 14,500
Manufacturing Wages 40,000
Factory overhead 10,000
Sales commission 7,500
Depreciation of factory Machine 1,200
Purchase Raw Materials 30,000
Carriage outward 8,000
Carriage Inward 1,000

Use the above information as is required, prepare the Manufacture Account for the
year end 31-Dec-07

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 6
PRINCILPES OF ACCOUNTS

(b) If capital expenditure is incorrectly treated as revenue expenditure what is

the effect on:

(i) Profit and Net assets in the year in which the error is made;

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(c) Harry has a basic working week of 40 hours, paid at the rate of £4 per hour. For
hours worked in excess of this he is paid 11/2 time basic rate. In the week to 12 March
2008 he worked 45 hours. The first £80 per week is free of income tax, on the next £50
he pays at the 20% rate and above that he pays at the 25% rate. Normal insurance
amounted to £17.
Required:
Prepare a journal entry to record the entries for wages and statutory deduction, Narration
not required. Clearly show your calculation.
Journal

Dr Cr

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Working

Total[14]
 7
PRINCILPES OF ACCOUNTS

4 Jean balance her Purchase Ledger Control Account on 31 May 2008 and it show a
credit balances of £19,950. She then listed the individual supplier balance in the
Purchase Ledger and same total came to 18,960at the same date.
When examine d the records the following errors were found, and correct :
i) Goods costing £850 had been bought from North on credit , but no entries had been passed in
any of the books.
ii) West had allowed cash discount £20 to Jean . This had been entered on the wrong side of west
‘s account but entered correctly in the cash book.
iii) The purchase Return day Book showed that a credit note for £60had been received from East
but it had not been posted on East Account.
iv) The Purchases Day book had been overcast by £ 1,000.
v) South’s credit balance of £ 90 had been omitted when the Purchase Ledger Balance had been
listed.

Required
a) An adjusted Purchase Ledger Control Account.

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b) A statement suitable headed, showing the reconciliation of the original total of the
Purchase Ledger balances with the new Purchase Ledger Control Account balance.

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Total[10]
 8
PRINCILPES OF ACCOUNTS

Head Of Account Debit Credit

Beg. Stock 65,000
General Expenses 10,000
Salaries Exp 35,000
Carriage on Sales 5,000
Sales 400,000
Purchases 150,000
Capital ------Harry's 80,000
Peter's 70,000
Current a/c Harry 11,200
Peter 300
Return inward 1,500
Return outward 500
Advertisement Expense 4,000
Equipment 160,000
Provision for Depreciation
(Equipment) 60,000
Debtors / Creditors 23,000 27,800
cash 5,750

Cash at bank 50

Drawing Harry 20,200

Peter 26,000
Rent / Insurance 40,000
Furniture & Fixture 25,200
Land & Building 78,500
Total 649,500 649,500

Additional Data
1. Closing Stock £50,000
2. The bank had paid a standing order for an insurance premium for £500.
3. Bank charges for the period to 31 December amounted to £100.
4. Rent amounting to $4,800 had been paid in advance for the year 2008
5. Accrued Salaries £5,000
6. Provision for Depreciation at the rate of 10% Declining balance method on Equipment
7. Written Off Doubt full Debtors Account £200.
8. Purchase Return £45 entered to the debit of Purchases Account.
9. £50 cash paid to I. Williams has been Debited in error to I. Williamson.
10. Allocate 2% Provision for Bad debt on adjusted Debtors balance
11. 2.5% Interest on Drawing
12. Interest to be allowed on their fixed Capitals at the rate of 10% per annum.
13. Both partners are received salaries of £2,000 per month in addition to a bonus of
20% of the Trading Profit after partner interest has been deducted.
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PRINCILPES OF ACCOUNTS
14. Any remaining profit /loss are to be shared in the proportions Harry & Peter 2:3

a. Prepare Trading Profit Loss Account

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b. Prepare Columnar Current Account

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PRINCILPES OF ACCOUNTS
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 11
PRINCILPES OF ACCOUNTS
c. Prepare Balance Sheet

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Total[42]