Question 1

A) Prepare the General journal entries to account for the balance day adjustments. (Closing entries
not required) 30 marks
Date Particulars F Debit Credit
Bad Debts 450
Debtors 450
Additional Bad Debts
written off
Provision for Doubtful Debts 450
Bad Debts 450
Balance transferred
Doubtful Debts 87
Provision for Doubtful Debts 87
Doubtful Debts expense
Rent Expense 36000
Prepaid Rent 36000
Rent expense for the year
Unearned Sales 651300
Sales 651300
Sales income for the year
Stationery Expense 1400
Stationery Asset 1400
Stationery expense for the
year
Sales Wages 1300
Accrued Expenses 1300
Wages owing on balance day
Accrued Income 750
Commission Revenue 750
Income owing on balance
day
QUESTION 2 Marks
a) Calculate the depreciation charges for the first two years only of the
vehicles usage on the basis of :
(i) straight line depreciation ;
(ii) reducing balance depreciation at a rate of 28% per annum.
WORKINGS :
Straight line : (55000 15 000) = $10 000
4
Reducing balance : Year 1 55000 x 28% = $15 400
Year 2 (55 000 15 400) x 28% = $11 088
$
Straight line depreciation : Y/e 30/6/03 10 000 1
Y/e 30/6/04 10 000 1
Reducing balance depreciation : Y/e 30/6/03 15 400 2
Y/e 30/6/04 11 088 2
(6 marks)
b) Which method would you recommend ? Explain your answer.
Straight line deprecation, which writes off the same expense each year, is
suitable for assets which perform the same service throughout their life. 1
Reducing balance, which writes off more in earlier years and less in later ones,
is more suitable for assets, arguably like this one, whose performance, and
hence utility, decreases with age 1
(2 marks)
c) Show the general journal entries, including closing entry, necessary to
account for depreciation at 30/6/04 assuming the reducing balance
method is chosen.

GENERAL JOURNAL
30/6/04 Depreciation, Trucks 11 088 1
Accum.deprec. trucks 11 088 1
 (Annual depreciation @ 28% reducing)
Profit and Loss 11 088 1
Depreciation, trucks 11 088 1
(Closing entry)
(4 marks)

d)
Sale of Asset Account
Trucks 55000 Acc Depn 27818
Bank 15000
Loss on Sale 12182
$55000 $55000

** The bank figure for what it was sold for was not included Assume the figure is $15 000.

Question 3
Explain and give an example to illustrate the following accounting
assumptions or principles.
Accounting entity
This concept states that the owner and the business should be treated as
separate entities for the purpose of accounting, and transactions between 1
the two should be treated as such. For example, if the owner uses the firms
resources to pay personal expenses, these payments should be treated as a
withdrawal of the owners investment (drawings). 1
Matching Marks
The matching principle states that revenue should be matched with the expense
incurred in gaining that revenue in order to determine profit for a particular 1
period. To comply with this, balance day adjustments will be made at the end
of each period to bring into that period the revenue and expenses that relate to it 1
Accounting period
The continuous life of a business should be divided into equal time periods for the 1
purpose of determining and reporting profit. For example, most businesses would
produce a set of financial reports for a twelve month period at the same time each year. 1
Income recognition
An assumption must be made about the point in time at which revenue is recognised
as having been earned, at which time that revenue and the associated expenses will 1
be brought to account. For instance, under an accrual system, income will be
considered as having been earned when ownership of the goods sold has passed to
the purchaser, or when the service has been performed, and hence an obligation to 1
pay has arisen.
Question 4

DEADEYE ENTERPRISES
Profit and Loss Statement for year ended 30th June 2002
Sales 673 400 1
Less: Returns 2 300 1
671 100
Less: COGS
Inventory (opening) 21 300 1
Purchases 304 650 1
Less: returns 1 950 302 700 1
Freight inwards 21 000 1
345 000
Less: Inventory (closing) 23 400 321 600 1
Gross Profit 349 500
Add : Other operating profit Interest revenue 500 1
350 000
Less: Operating expenses
Selling and distribution
Advertising 11 500 1
Freight outwards 16 200 1
Wages sales 123 400 1
Sales commission 11 000 1
Deprec. delivery van 19200 181 300 1
General & administration
Wages office 85 000 1
General office expenses 74 100 1
Deprec.fixtures & fittings 1 900 161 000 1
Finance expenses
Interest expense 3 000 1
Doubtful debts 280 3 280 345 580 1
Net Profit 4 420
(18 marks)
b) DEADEYE ENTERPRISES
Balance Sheet as at 30th June 2002
Current assets $ $
Cash at bank 4 500 1
Accounts receivable 31 500 1
Less : Provision for doubtful debts 680 30 820 1
Inventory 23 400 1
58 720
Non-current assets
Fixtures & fittings 19 000 1
Less: Accumulated depreciation 10 100 8 900 1
Delivery vans 82 000 1
Less: Accumulated depreciation 48 200 33 800 1
Government Bonds 10 000 1
52 700
Total assets 111 420
Current liabilities
Accounts payable 12 000 1
Non-current liabilities
Mortgage 30 000 1
Total liabilities 42 000
NET ASSETS 69 420
Proprietorship
Capital E.Cherell 90 000 1
Add : Profit 4 420 1
94 420
Less : Drawings 25 000 1
69 420
(14 points /2 = 7 marks)
c) Reasons for classification.
Profit & Loss Statement : Expenses should be classified on a functional basis to
enable departmental managers and employees to judge and be held accountable for 2
the financial performance of their departments. Problem areas can be more readily
identified and the problems addressed. 1
Balance sheet : Assets and liabilities are classified as current or non-current so
that current assets and liabilities can be compared to judge the financial stability 1
of the business i.e. its ability to pay its debts as they fall due. 1
(5 marks)
RATIO FORMULA CALCULATION
0.65%
Profit Profit x 100
Net Sales 1

57.02%
Gross Profit Gross Profit x 100
Net Sales 1

51.49%
Expense Expenses x 100
Net Sales 1

4.14%
Rate of Return on Profit x 100
Assets Average Assets 1

4.89:1
Working Capital Current Assets x 100
Current Liabilities 1

2.94:1
Quick Current Assets Prepayments Inventory
Current Liabilities Bank Overdraft

60.50%
Debt to Equity Total Liabilities
Total Equity
 Marks

QUESTION 5

This question will not make up part of your exam and was not aware of this when I put some questions
together. Do not do this question.

QUESTION 6

Date Purchase of Inventory Cost of Inventory Sold Closing Inventory

July 1 4 x 100 = $400 4 x 100 = $400
2 30 x 80 = $2400 4 x 100 = $400
30 x 80 = $2400
4 19 x 200 = $3800 15 x 80 = $1200
6 15 x 110 = $1650 15 x 80 = $1200
15 x 110 = $1650
9 8 x 200 = $1600 7 x 80 = $560
15 x 110 = $1650

QUESTION 7

1. Bolt the cash register down

2. Have 2 people sign the cheques
3. Install video cameras in the store
4. Bank cash daily
5. Clear the cash register regularly