TOPIC : PROGRESS TEST 2

Answer all of the following questions

1. Two errors have been found in Trim plc's accounts:

(1) It was agreed that the credit balance of £420 in Ahmed's payables ledger should be offset
against his account in the receivables ledger, but no entries have been made in trade receivables
or trade payables to reflect this.
(2) The balance of £510 owed by Thomas, a credit customer, is irrecoverable, however the
journal entry posted to write off the irrecoverable debt was made for £150 in error.
Required : The journal that corrects both these errors is:
a. Debit Trade payables £420, Debit Irrecoverable debts expense £360, Credit Trade
receivables £780
b. Debit Trade receivables £780, Credit Irrecoverable debts expense £360, Credit Trade
payables £420
c. Debit Trade payables £780, Credit Irrecoverable debts expense £360, Credit Trade
receivables £420
d. Debit Trade receivables £420, Debit Irrecoverable debts expense £360, Credit Trade
payables £780

2. A bakery business, which is registered for VAT, issued the following invoice to one of its
customers:
Invoice: 1005
Date: 8 May 20X8
Cakes: 150 @ £12 1,800
Less 5% trade discount (90)
1,710

Requirement
Assuming the VAT rate is 20% and that the invoice amounts are exclusive of VAT, what amount of
VAT should have been charged on the invoice?
A £360
B £300
C £285
D £342

3. As at 31 December 20X1 the transaction report downloaded from a company's electronic banking
system shows an overdraft of £1,500. The transaction report includes bank charges of £30 which
have not yet been recorded in the company's cash at bank account. On 29 December 20X1 the
company had made a payment of £500 to a supplier and received cash of £200 from a credit
customer; neither of these items appear in the bank statement.

Requirement

The overdraft on the bank balance in the company's statement of financial position at 31
December 20X1 should be:
 a. £1,800
b. £1,830
c. £1,200
d. £1,230

4. A review of the receivables ledger reveals that debts totalling £985 are considered
irrecoverable and are to be written off. The allowance for receivables is to be increased by
£100.
Requirement
What is the journal entry required to adjust the allowance for receivables and to write off the
irrecoverable debts?

a. DEBIT Allowance for receivables £100, DEBIT Irrecoverable debts expense £985, CREDIT
Trade receivables £1,085
b. DEBIT Allowance for receivables £100, DEBIT Trade receivables £985, CREDIT Irrecoverable
debts expense £1,085
c. DEBIT Irrecoverable debts expense £1,085, CREDIT Trade receivables £1,085
d. DEBIT Irrecoverable debts expense £1,085, CREDIT Allowance for receivables £100, CREDIT
Trade receivables £985

5. Violet has a machine which cost £68,000 on 1 September 20X5. It is being depreciated on the
straight-line basis over 10 years to its residual value of £8,000. On 31 August 20X7, Violet carried
out an impairment review and has assessed that the machine had a fair value less disposal
costs of £51,000 and a value in use of £49,000.
Required:
What is the total amount charged to profit and loss in respect of the machine in the year ended
31 August 20x7 ?
a. £6,000
b. £6,800
c. £11,000
d. £13,000

6. Mc Clown has the following information in its financial statements relating to fixtures and
fittings as at 31 December
20x9 20x8
Cash 600,000 480,000
Accumulated depreciation 180,000 218,000
Carrying amount 420,000 262,000

During the year to 31 December 20x9, the following transactions occurred in relation to fixtures
and fittings
1) Additions 248,000
 2) Sales proceeds from disposal 178,800
3) Depreciation charge 66,400

Required : What is the profit or loss on disposal of fixtures and fittings in the year 31 December
20x9?
a. 119,200 loss
b. 119,200 profit
c. 196,800 profit
d. 196,800 loss

7. At 1 January 20X5 Tandem plc had an allowance for receivables in its ledger accounts totalling
£2,375. On 30 June 20X5 Basnet plc's liquidator informed Tandem plc that it would not make any
further payments and therefore Basnet plc's outstanding debt of £200 should be written off. At
31 December 20X5 Ost plc paid £500 of an amount written off as irrecoverable in the previous
year. Tandem plc's allowance for receivables needs to be increased by f800 at 31 December
20X5.
Requirement
What amount for irrecoverable debts expense should be included in Tandem plc's statement of
profit or loss for the year ended 31 December 20X5?
a. £500 debit
b. £500 credit
c. £1,275 debit
d. £1,275 credit

8. Epsilon's cash at bank account at 31 December 20X3 shows a balance of £565 overdrawn. On
comparing this with the transaction report downloaded from the electronic banking system, the
accountant discovers the following:
(1) A cheque for £57 drawn by Epsilon on 29 December 20X3 has not yet been presented for
payment.
(2) A cheque for £92 from a customer, which was paid into the bank on 24 December 20X3, has
been dishonoured on 31 December 20X3.

Requirement
The correct balance in Epsilon's cash at bank account as at 31 December 20X3 is:

a. £473 debit
b. £714 credit
c. £657 credit
d. £473 credit
9. The following trade payables account contains some errors. All goods are purchased on credit

Required:

What would be the closing trade payables balances when the erros have been corrected?

a. 325,200
b. 350,400
c. 336,600
d. 410,400

10. Pammy maintains a payables ledger. At the end of the year the balance on a payables ledger
account exceeded the balance on the supplier statement by £1,000. Which of the following
errors, taken in isolation, would NOT explain this difference?
a. The bookkeeper had accidentally paid an invoice for £1,000 twice
b. A purchase invoice, which actually totaled £35,600, was posted as £36,600
c. A credit note of £1,000 was not recorded in the accounts
d. Settlement discount unexpectedly received of £500 was posted to the credit of the trade
payables account

11. The bookkeeper at Piper & Co extracted a trial balance which included a suspense account
which had been automatically opened by the computerised accounting system. The
bookkeeper identified that the balance in the suspense account was due to the following
unmatched transactions:
1) A payment to a credit supplier for £270 related to an invoice for £240. The business missed
the deadline to take the early settlement discount it had expected to take.
2) Interest received in the business bank account of £140
3) A receipt of £180 from a credit customer who had unexpectedly (but appropriately) taken
an early settlement discount of £20.
What is the balance on the suspense account?
a. Debit 50
b. Credit 50
c. Debit 65
d. Credit 65
12. Biggles has a reporting year ended 31 December 20X7. At that date the balance on one of the
Payables ledger accounts was £57,200, but this did not agree with the relevant supplier
statement at the same date.
1. It was discovered that Biggles had entered an invoice for £1,000 twice.
2. A credit note received for £100 had been entered as an invoice.
3. The statement included an invoice for £800 dated 31 December 20X7, however, Biggles had
not received the invoice or the goods by the year end.
The adjusted balance on the payables ledger account is
a. 55,900
b. 56,800
c. 56,000
d. 56,100

13. A company’s plant and machinery ledger account for the 12 month reporting period ended
30 Sept 20x7 was as follows:

The company’s policy is to charge depreciation monthly at 25% per year on the straight line
basis. What is the depreciation charge for the reporting period ended 30 September 20x7?
a. 42,475
b. 33,980
c. 31,180
d. 28,780

14. A company entered into a lease contract for some new low-carbon equipment and recognised
aright of use asset of £64,000. The lease contract was for eight years and the equipment had an
expected useful life of eight years. The equipment was depreciated monthly using the straight
line method for two years when the company decides to change the depreciation method to
reducing balance at 30%. The annual depreciation for the first year under the new method will
be:
a. 8,000
b. 14,400
c. 19,200
d. 9,408
15. A business produced initial trial balance as at 31 December 20X7.
Trial balance (extract) ££
Trade receivables account 281,200
Probability of non-payment allowance at 1
January 20X7 12,500
Irrecoverable debt expense

A balance of £10,600 is to be written off as irrecoverable and the probability of non-payment for
receivables is to increase to £13,530.

What journal entries should be made to account for the adjustments?

a. Dr Irrecoverable debt expense £24,130, Cr Trade receivables account £10,600, Cr
Allowance
for receivables £13,530
b. Dr Irrecoverable debt expense £11,630, Cr Trade receivables account £10,600, Cr
Allowance
for receivables £1,030
c. Dr Irrecoverable debt expense £14,560, Cr Trade receivables account £1,030, Cr Allowance
for receivables £13,530
d. Dr Allowance for receivables £11,630, Cr Trade receivables account £10,600, Cr
Irrecoverable debt expense £1,030

16. Adjustments need to be made to Gordon's accounting records for the year ended 31 December
20X6 in respect of the following matters.

(1) Gordon had taken goods from inventory with a sales value of £300. The correct entry has
been made in the drawings account and the other side of the entry recorded in the suspense
account. The business has a consistent mark-up of 25%.

(2) At 1 January 20X6 there had been an allowance for receivables of £1,000. Gordon wishes to
change this to £1,220 at 31 December 20X6.

What is the net effect of these adjustments on Gordon's profit for the year?

a. Increase of £5
b. Increase of £20
c. Increase of £80
d. Decrease of £220

17. The draft financial statements of Anira plc for the year ended 31 March 20X7 show a profit of
£236,662. The company's policy is to depreciate all non-current assets at 25% on cost. You
discover the following errors.
(1) A machine which cost £6,480 on 1 April 20X6 has been treated as repairs, whereas it should
have been capitalised.
(2) Electric cars bought on 1 April 20X6 for £56,160 have not been depreciated.

What is the company's adjusted profit for the year ended 31 March 20X7?
 A £214,522
B £227,482
C £229,102
D £245,842

18. The trial balance of Monkey Ltd as at 31 May 20X7 includes the following:

Debit (£) Credit(£)

Trade receivables 181,500

Allowance for receivables at 1 June 20X6 4,260

Subsequently a review of the receivables ledger reveals the following:

Debts totalling £6,300 are considered irrecoverable and are to be written off. The business
wishes to reduce the allowance for receivables to £2,400.
What is the irrecoverable debt charge or credit to be included in the statement of profit or loss
for the year ended 31 May 20X7?
a. £4,440 charge
b. £360 credit
c. £4,440 credit
d. £360 charge

19. On 1 January 20X4 a sole trader received news that a major customer had been declared
bankrupt and that its debt of £76,000 is irrecoverable. The bookkeeper has incorrectly recorded
the irrecoverable debts expense as £67,000 and credited trade receivables with the same
amount.
What journal entry is required to correct the error?

a. Dr Allowance for receivables, Cr Trade receivables

b. Dr Irrecoverable debts expense, Cr Trade receivables
c. Dr Irrecoverable debts expense, Cr Allowance for receivables
d. Dr Allowance for receivables, Cr Irrecoverable debts expense

20. Antonio's business bank statement showed an overdraft balance of £5,250 on 31 October
20X1. When this was reconciled to the cash at bank account, the following differences were
noted:
£
Uncleared payments 1,070
Uncredited lodgements 1,240
Standing order for insurance premium payable not entered in
the cashbook 890
Overdraft interest not recorded in the cash book 80
Credited in error to Antonio's account by the bank 300
 What was the original balance on Antonio's cash at bank account on 31 October 20X1?

A £4,450 credit
B £4,410 credit
C £2,940 credit
D £1,670 debit

21. As at 31 December 20X7 a company's bank statement shows a balance in hand of £2,000.
The statement includes bank charges of £50 which have not yet been recorded in the
company's cash at bank account. On 31 December 20X7 the company had paid a cheque
of £1,000 to a supplier and banked £600 received from a credit customer; neither of these
items appear in the bank statement.

The cash at bank balance on the company's statement of financial position at 31 December
20X7 should be:

a. £1,600
b. £3,600
c. £2,400
d. £400

22. Which of the following describes why depreciation is charged on non current assets?
a. To ensure that the statement of financial position value equates to market value
b. To sneure that there are enough funds available to replace the asset
c. To ensure that the asset has no value when it is disposed of
d. To spread the cost of the assets over its useful life

23. Rose has a machine which cost £90,000 and has a carrying amount of £62,000 on 1
September 20X7. It is being depreciated at 25% per annum on the reducing balance basis. On
31 August 20X8, Rose performed an impairment review and concluded that the value in use of
the machine was £35,000 and its fair value less disposal costs was £33,000.

What is the impairment loss in respect of the machine at 31 August 20X8?

Select one:

a. £27,000
b. £11,500
c. £4,500
d. £32,500
24. What is the reasoning behind charging depreciation in historical cost accounting?

a. To ensure funds are available for the eventual replacement of the asset
b. To comply with the consistency concept
c. To ensure the asset is included in the statement of financial position at the lower of cost
and net realisable value
d. To match the cost of the non-current asset with the revenue that the asset generates

25. The bookkeeper of Sequence plc has entered an invoice for a new computer bought or credit
for £1,010 into the accounting records as £1,100, debiting computer consumable. Which two
of the following error types have occurred?

a. Error of commission
b. Transposition error
c. Compensating error
d. Error of principle
e. Error of omission