CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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ORGANISING THE BOOKKEEPING SYSTEM
SOLUTIONS TO REVISION QUESTIONS C2
270
1.5
$
Stationery 14.10
Travel 25.50
Refreshments 12.90
Sundry payables ($24 1.175) 28.20
80.70
1.6 The fi rst issues (twelve units) would use up the opening inventory of ten units and
two units of the purchases at $3 each, leaving 28 units at $3 each. The next issues
would be of $3 units, leaving twenty units at $3 each, that is $60.
1.7 Answer: (B)
The closing inventories fi gure reduces the cost of goods sold fi gure, which in turn
increases the gross profi t.
Therefore, a higher closing inventories fi gure means a lower cost of goods sold fi gure,
and hence a higher gross profi t. In times of rising prices, the FIFO cost formula will
produce higher closing inventories values, and therefore a higher gross profi t fi gure.
1.8
Qty
Value ($)
1 October (60 $12) 60 720
8 October (40 $15) 100 1,320
14 October (50 $18) 150 2,220 (i.e. average cost $14.80)
21 October (75 $14.80) 75 1,110
1.9 Summarised inventories card
Qty
$
6 $15 6 90
10 $19.80 10 198
16 288 ($18 each)
10 $18 10 (180)
6 108
20 $24.50 20 490
26 598 ($23 each)
5 $23 (5) (115)
21 483
Note: Issues are shown in brackers.
ORGANISING THE BOOKKEEPING SYSTEM
271
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Trading account
$ $
Sales (15 $30) 450
Less : Opening inventories 90
Purchases 688
778
Less: Closing inventories (483)
(295)
Profi t 155
1.10 The sale of 400 units on the 14th will take up 400 of those purchased on the 10th,
leaving 400 of those (4,000) and the opening inventory of 200 (1,600). Value of
inventory remaining at that point is 5,600. The sale of 600 units on the 23rd will
take up 600 of those purchased on the 21st, leaving 200 of those (2,500), plus the
previous balance of 5,600: total 8,100.
1.11
Cost ( ) Net realisable value ( ) Lower of cost & NRV ( ) Units Cost ( )
Basic 6 8 6 200 1,200
Super 8 8 250 2,000
Luxury 18 10 10 150 1,500
4,700
1.12 There are 60 units in inventory at 28 February. These are deemed to comprise the
50 units purchased on 21 February at cost 50 per unit 2,500, and ten units from
the units purchased on 7 February at 45 per unit 450, which is 2,950 in total.
1.13 Answer: (D)
1.14 Answer: (C)
ORGANISING THE BOOKKEEPING SYSTEM
SOLUTIONS TO REVISION QUESTIONS C2
272
Solution 2
●
Part (b) is a straightforward double-entry question involving daybooks and ledger
accounts.
(a) Answer: (C)
(b)
ANG
$
7 Feb. SDB 5,405
25 Feb. SDB 1,410
Sales
$
28 Feb. SDB 9,600
John’s Stores
$
10 Feb. SDB 3,290
ML Ltd
$ $
14 Feb. SDB 1,175 16 Feb. SDB 705
Sales tax
$
28 Feb. SDB 1,575
Solution 3
●
This is another test of knowledge of books of prime entry and of the double-entry prin-
ciples, but using a table rather than asking for the accounts to be drawn up.
●
Remember to deduct trade discount before calculating sales tax.
●
Remember that it is the total invoice price that is entered in the personal accounts, but
the net amount in the purchases account.
●
In Transaction 5, make clear that there are liabilities outstanding in respect of wages.
ORGANISING THE BOOKKEEPING SYSTEM
273
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Item
Book of
Prime entry
Debit entries
Account name $
Credit entries
Account name $
1. Purchase day book Purchases 2,250.00 J Smith 2,643.75
Sales tax 393.75
2. Cash book L Taylor 2,400.00 Bank 2,280.00
Discount received 120.00
3. Journal K Green (receivable) 300.00 K Green (receivable) 300.00
4. Journal Motor vehicles 2,000.00 S Long 2,000.00
5. Journal Wages expense 3,000.00 Income tax payable 450.00
SS expense 130.00 Wages payable 2,430.00
SS payable 250.00
Solution 4
●
This question covers basic double-entry bookkeeping and at this stage in your studies
should pose no particular problems.
●
The only diffi cult area concerns the sales to R on approval, which requires you to con-
sider the realisation convention – the sale should not be recognised in the fi nancial state-
ments until it is certain – and in this example only one-third is certain by the end of the
period. Therefore, only one-third of the total sales ($45) should be included with sales,
with the remainder in inventories, valued at $40.
Cash book
Item Disc ($) Cash ($) Bank ($) Item Disc ($) Cash ($) Bank ($)
(1) 50 100 (4) 100
(2) 500 (5) 200
(5) 200 (7) 25 225
(8) 10 190 (10) 100
(13) 4 96 (12) 30
Balance 55 Balance 536
14 836 355 25 836 355
Note: The remaining ‘sale or return’ goods are taken out of sales (at selling price); their
cost, $20, must be debited to ‘inventories on sale or return’ account when preparing the
trading account, and accounted for as current assets in preparing the statement of fi nancial
position.
ORGANISING THE BOOKKEEPING SYSTEM
SOLUTIONS TO REVISION QUESTIONS C2
274
Trial balance
Debit ($) Credit ($)
Capital 150
Cash 536
Bank 55
Discounts 14 25
Sales 890
Purchases 400
Payables 150
Wages 200
Receivables 45
Bank charges 30
Sales returns 45
1, 270 1, 270
Solution 5
●
Notice that it is the ‘ book of prime entry ’ that is asked for, not the ledger.
●
For the debit and credit entries, be sure to state the name of the ledger accounts.
●
In Part (b), a single rent and local business tax account is required.
(a)
Book of
Prime entry
Debit entries
Account name $
Credit entries
Account name $
(i) Purchases daybook Purchases 18,000 Pandya 21,150
Sales tax 3,150
(ii) Cash book P Barton 14,000 Bank 13,720
Discount received 280
(iii) Journal Offi ce equipment 2,500 Arif 2,500
(iv) Journal Bad debts 500 A Scholes 500
(v) Returns inwards
daybook
Returns inwards 400 J Lockley 470
Salex tax 70
(vi) Journal Vehicle at cost 1,325 A Jackson 1,400
Motor expenses 75
ORGANISING THE BOOKKEEPING SYSTEM
275
FUNDAMENTALS OF FINANCIAL ACCOUNTING
(b)
Rent and local business tax
19 X 8$19 X 8$
1 May Balance b/f
1
1,650 1 May Balance b/f
2
300
1 May Bank 300
1 Aug. Bank 300
1 Nov. Bank 300
19 X 919 X 9
1 Feb. Bank 300 30 Apr. Income statement 3,130
1 Apr. Bank 2,160 30 Apr. Balance c/f 1,980
30 Apr. Balance c/f 400
5,410 5,410
1 May Balance b/f 1,980 1 May Balance b/f 400
Notes:
1. Rates prepaid
11
12
of $1,800 $1,650
2. Rent accrued
1
4
of $1,200 $300
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9
Controlling the
Bookkeeping System
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279
9
LEARNING OUTCOMES
When you have completed this chapter, you should be able to:
䉴 explain the need for fi nancial controls;
䉴 explain the nature of fraud and basic methods of fraud prevention;
䉴 prepare bank reconciliation statements;
䉴 prepare accounts for sales and purchases, including personal accounts and control
accounts;
䉴 prepare journal entries;
䉴 explain the nature of errors and be able to make accounting entries for them;
䉴 explain the necessity for fi nancial accounting codes and construct a simple coding
system.
9.1 Introduction
No bookkeeping system can be guaranteed to be entirely free of errors. Human beings are
fallible, and even automated and computerised systems are less than perfect. For example,
a computer cannot possibly know that a supplier has sent you an invoice that never arrived.
In this chapter we look at a number of ways in which the bookkeeping system can be
checked for accuracy, and ways in which errors and omissions can be rectifi ed.
Specifi c topics which are covered include:
●
bank reconciliations
●
control accounts
●
suspense accounts.
9.2 Preventing errors
There are a number of ways in which errors can be prevented, or at least limited in their
number and effect. Many of these also prevent deliberate fraud.
Controlling the
Bookkeeping System