CIMA CO2 Official Learning System - Fundamentals of Financial Accounting

STUDY MATERIAL C2

380

INCOMPLETE RECORDS; INCOME AND EXPENDITURE STATEMENTS

Solution

(a) Accumulated fund on 1 January 20X1

$45,000  $7,000  $1,360  $190  $70  $60  $53,540

(b)

Subscriptions

20X1 $ 20X1 $

Balance b/f 190 Balance b/f 70

Income and expenditure a/c 9,070 Bank 9,260

Balance c/f 70

9,330 9,330

20X2

Balance b/f 70

(c) (i) Receipts and payments account for the year ended 31.12.20X1

20X1 $ 20X1 $

Balance b/f 1,360 General expenses 5,400

Subscriptions 9,260 Rent 360

Hire of courts 750 Furniture 2,500

Loan from club members 5,000 Loan repayment 1,500

Balance c/f 6,610

16,370 16,370

(ii) Income and expenditure statement for the year ended 31.12.20X1

$ $

Subscriptions 9,070

Hire of courts 750

9,820

General expenses 5,400

Rent 330

(5,730)

Surplus of income over expenditure 4,090

381

FUNDAMENTALS OF FINANCIAL ACCOUNTING

INCOMPLETE RECORDS; INCOME AND EXPENDITURE STATEMENTS

Statement of ﬁ nancial position as at 31.12.20X1

Assets $ $

Non-current assets (carrying amount)

Land and buildings 45,000

Equipment 12,000

57,000

Current assets

Rent paid in advance 90

Cash at bank

6,610

6,700

63,700

Accumulated fund and liabilities

Accumulated fund balance b/f 53,540

Surplus for the year 4,090

57,630

Long-term liability

Loans from club members 3,500

Current liabilities

Subscriptions paid in advance 70

Payables for furniture 2,500

2,570

63,700

11.4 Summary

In this chapter we have looked at the main techniques involved in preparing ﬁ nancial

statements:

●

from incomplete records;

●

for non-proﬁ t-making organisations.

Apart from the use of some new terminology in the ﬁ nancial statements of non-proﬁ t-

making organisations, this chapter builds on the knowledge and skills of previous chapters,

in particular:

●

the preparation of control accounts;

●

the distinction between capital and revenue transactions;

●

adjustments for accruals and prepayments;

●

the accounting equation:

Assets Liabilities Capital

.

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383

Question 1 Multiple choice

1.1 In a not-for-proﬁ t organisation, the accumulated fund is:

(A) long-term liabilities plus current liabilities plus current assets.

(B) non-current assets less current liabilities less long-term liabilities.

(C) the balance on the general reserves account.

(D) non-current assets plus net current assets less long-term liabilities.

1.2 An income and expenditure statement (or account) is:

(A) a summary of the cash and bank transactions for a period.

(B) another name for a receipts and payments account.

(C) similar to an income statement in reﬂ ecting revenue earned and expenses

incurred during an period.

(D) a statement of ﬁ nancial position as prepared for a non-proﬁ t-making

organisation.

1.3 A club received subscriptions during 20X5 totalling $12,500. Of these, $800 related

to 20X4 and $400 related to 20X6. There were subscriptions in arrears at the end

of 20X5 of $250. The subscriptions to be included in the income and expenditure

statement for 20X5 amount to:

$..................

1.4 Life membership fees payable to a club are usually dealt with by:

(A) crediting the total received to a life membership fees account and transferring a

proportion each year to the income and expenditure statement.

(B) crediting the total received to the income and expenditure statement in the year

in which these fees are received.

(C) debiting the total received to a life membership fees account and transferring a

proportion each year to the income and expenditure statement.

(D) debiting the total received to the income and expenditure statement in the year

in which these fees are received.

1.5 A club’s membership fees account shows a debit balance of $150 and a credit balance

of $90 at 1 June 20X7. During the year ending 31 May 20X8, subscriptions received

Revision Questions

11

INCOMPLETE RECORDS; INCOME AND EXPENDITURE STATEMENTS

REVISION QUESTIONS C2

384

amounted to $4,750. Subscriptions overdue from the year ended 31 May 20X7, of

$40, are to be written off. On 31 May 20X8, subscriptions paid in advance amount

to $75.

The amount to be transferred to the income and expenditure statement for the year

ending 31 May 20X8 is:

$..................

1.6 A receipts and payments account is similar to:

(A) an income and expenditure statement.

(B) an income statement.

(C) a trading account.

(D) a cash book summary.

1.7 The subscriptions receivable account of a club commenced the year with sub-

scriptions in arrears of $50 and subscriptions in advance of $75. During the year,

$12,450 was received in subscriptions, including all of the arrears and $120 for next

year’s subscriptions. The amount to be taken to the income and expenditure state-

ment for the year is:

$..................

1.8 The difference between an income statement and an income and expenditure state-

ment is that

(A) an income and expenditure account is an international term for an income

statement.

(B) an income statement is prepared for a business and an income and expenditure

statement is prepared for a non-proﬁ t-making organisation.

(C) an income statement is prepared on an accruals basis and an income and

expenditure statement is prepared on a cash ﬂ ow basis.

(D) an income statement is prepared for a manufacturing business and an income

and expenditure statement is prepared for a non-manufacturing business.

Question 2

Potter has always kept his accounts in proper double-entry form, but they were all

destroyed following a ﬁ re at his ofﬁ ces on 31 December 20X5. His accountants had the

following statement of ﬁ nancial position as at 31 December 20X4:

INCOMPLETE RECORDS; INCOME AND EXPENDITURE STATEMENTS

385

FUNDAMENTALS OF FINANCIAL ACCOUNTING

Assets $ $

Non-current assets (carrying amount)

Land and buildings 80,000

Motor vehicles 8,000

Fixtures

7,500

95,500

Current assets

Inventories 18,800

Receivables 16,200

Bank 9,600

44,600

140,100

Capital and liabilities

Capital 97,200

Long-term liabilities

10%loan 30,000

Current liabilities

Trade payables 11,000

Accrued expenses:

Loan interest 1,500

Local business tax 400

12,900

140,100

You obtain the following additional information:

(i) Cheques received from receivables during the year were $78,900; sales amounted to

$80,500 and cash discount was allowed to some receivables.

(ii) Purchases during the year were $45,250 and payables at 31 December 20X5 were

$9,550.

(iii) Payments made by cheque during the year included wages $9,600, motor expenses

$2,250, general expenses $2,550, loan interest $3,000, drawings $4,000 and local

business tax for the 18 months to 31 March 20X6 $2,400.

(iv) A bill of $500 for motor expenses was awaited at 31 December 20X5.

(v) At 31 December 20X5, inventories were $16,000 and receivables $17,300.

(vi) Depreciation is to be charged on the carrying amount at 25 per cent on motor vehi-

cles and at 20 per cent on ﬁ xtures.

Requirements

Prepare ﬁ nancial statements for 20X5 by inserting the missing ﬁ gures in the workings,

income statement and statement of ﬁ nancial position.

INCOMPLETE RECORDS; INCOME AND EXPENDITURE STATEMENTS

REVISION QUESTIONS C2

386

Workings

$

Purchases

Opening payables

Closing payables

Paid to payables

$

Sales

Opening receivables

Cheques received

Closing receivables

Cash discount

$

Local business tax

$

Bank summary

Opening balance

Receipts

Payments

$

Depreciation

INCOMPLETE RECORDS; INCOME AND EXPENDITURE STATEMENTS

387

FUNDAMENTALS OF FINANCIAL ACCOUNTING

Income statement of Potter for the year ended 31 December 20X5

$ $

Sales

Less : cost of sales

Opening inventories

Purchases

Less : closing inventories

Gross proﬁ t

Less : expenses

Discounts allowed

Wages and salaries

Local business tax

Motor expenses

General expenses

Loan interest

Depreciation

Net proﬁ t for the year

INCOMPLETE RECORDS; INCOME AND EXPENDITURE STATEMENTS

REVISION QUESTIONS C2

388

Statement of ﬁ nancial position of Potter as at 31 December 20X5

Assets Carrying Amount ($)

Non-current assets

Current assets

Capital and liabilities

Long-term liabilities

Current liabilities

INCOMPLETE RECORDS; INCOME AND EXPENDITURE STATEMENTS

389

FUNDAMENTALS OF FINANCIAL ACCOUNTING

Question 3

The following is the receipts and payments account of the Long Lane Social Club for the

year ended 31 December 20X5:

Receipts

$

Payments

$

Balance at 1 January 2,300 Bar licence fees 2,000

Bar takings 139,050 Cleaner’s wages 4,340

Sales of refreshments 5,400 Refreshments purchased 2,890

Sales of dance tickets 1,880 Secretary’s expenses 3,690

Sale of equipment 2,400 General expenses 2,090

Subscriptions 4,120 Payables for bar supplies 93,030

Invested in bank deposit a/c 16,000

Barperson’s wages 9,500

New equipment 8,000

Rent 3,620

Dance expenses 2,700

Balance at 31 December 7,290

155,150 155,150

Other assets and liabilities at 1 January and 31 December were as follows:

1 Jan. 31 Dec.

$ $

Premises at cost 105,000 105,000

Equipment at cost 5,400 ?

Payables for bar supplies 2,270 1,960

Subscriptions in advance 480 350

Subscriptions in arrears – 280

Inventories of bar supplies 9,500 8,350

Rent prepaid 1,000 1,100

You are also told that

(i) All the equipment owned at the start of the year was sold and replaced during the

year. Depreciation of 10 per cent per annum is to be provided on the new equipment.

It is assumed that the equipment will have no residual value.

(ii) The bank had credited $1,000 interest to the bank deposit account at 31 December

20X5.

Requirements

(a) Prepare a bar trading account for the year ended 31 December 20X5.

(b) Prepare an income and expenditure account for the year to 31 December 20X5.

(c) Prepare a statement of ﬁ nancial position at 31 December 20X5 by inserting the missing

ﬁ gures in the workings, income statement and statement of ﬁ nancial position.

CIMA CO2 Official Learning System - Fundamentals of Financial Accounting

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