Cambridge IGCSE and O Level Accounting
Workbook answers
Section 3 (Chapters 8–13 of the Coursebook)
Multiple choice questions
1
A
10 D
2
D
11 B
3
A
12 D
4
C
13 B
5
D
14 C
6
D
15 C
7
C
16 A
8
D
17 B
9
D
18 C
Structured questions
1
a
Jane
Sales account
Date
Details
Fo.
$
20–7
Date
Details
Fo.
$
20–7
89 000
Dec 31 Income statement
Dec 31 Total for year
89 000
89 000
89 000
Wages and salaries account
Date
Details
Fo.
$
20–7
Date
Details
Fo.
$
20–7
20 500
Dec 31 Total paid
Dec 31 Income statement
20 500
20 500
20 500
Rent receivable account
Date
Details
Fo.
$
20–7
Date
Details
Fo.
$
20–7
5 200
Dec 31 Income statement
Dec 31 Total received
5 200
5 200
5 200
Purchases returns account
Date
Details
Fo.
$
20–7
Dec 31 Income statement
Details
Fo.
$
20–7
490
490
© Cambridge University Press 2018
Date
Dec 31 Total for year
490
490
1
Cambridge IGCSE and O Level Accounting
Inventory account
Date
Details
Fo.
$
20–7
Date
Details
Fo.
$
20–7
Jan 1
Balance
b/d
4 400
Dec 31 Income statement
4 400
4 400
4 400
20–8
5 300
Dec 31 Income statement
Dec 31 Balance
c/d
5 300
5 300
5 300
20–8
Jan 1
Balance
b/d
5 300
Drawings account
Date
Details
Fo.
$
20–7
Date
Details
Fo.
$
20–7
8 000
Dec 31 Total for year
Dec 31 Capital
8 000
8 000
8 000
Capital account
Date
Details
Fo.
$
20–7
Date
Details
Fo.
$
Balance
b/d
40 000
20–7
8 000
Dec 31 Drawings
Balance
c/d
38 000
Jan 1
Dec 31 Profit
6 000
46 000
46 000
20–8
Jan 1
2
Balance
b/d
38 000
b The balance decreased because the drawings during the year were greater than the profit
earned in the year. This could have been avoided by taking less drawings or earning a greater
profit (for example the expenses could have possibly been reduced).
a
Mustafa
Income statement for the year ended 30 June 20–4
$
$
$
84 000
Commission receivable
Interest receivable
2 300
86 300
Less Rent and rates
Office expenses
Salary of assistant
Postages and telephone expenses
Profit for the year
© Cambridge University Press 2018
12 000
8 050
25 000
4 950
50 000
36 300
2
Cambridge IGCSE and O Level Accounting
b Gross profit is the profit earned on goods sold without taking account of the expenses of
running the business. It is calculated by deducting the cost of sales from the sales.
Profit for the year is the final profit after taking account of running expenses and other
income. It is found by adding other income to the gross profit and deducting the expenses.
c It was not possible to calculate a gross profit for Mustafa as he is not operating a trading
business, i.e. he is not buying and selling goods. He is providing a service instead.
3
a
Haleema
Income statement for the year ended 31 August 20–3
$
$
$
80 000
Revenue
Less sales returns
2 000
78 000
Less Cost of sales
10 000
Opening inventory
Purchases
35 000
Carriage inwards
7 500
42 500
52 500
Less Closing inventory
16 000
Gross profit
36 500
41 500
Add Discount received
230
41 730
Less Carriage outwards
Discount allowed
5 000
450
Operating expenses
18 000
Wages
24 000
Loss for the year
b Purchases: debit income statement, credit purchases account
Sales returns: debit income statement, credit sales returns account
Operating expenses: debit income statement, credit operating expenses account
Discount received: debit discount received account, credit income statement
Opening inventory: debit income statement, credit inventory account
© Cambridge University Press 2018
3
47 450
5 720
Cambridge IGCSE and O Level Accounting
4
a
Kelly
Income statement for the year ended 31 March 20–7
$
$
$
39 100
Gross profit
Add Rent receivable
3 000
42 100
Less Wages
18 650
Office expenses
4 470
Motor expenses
1 570
Discount allowed
950
Rent and rates
9 600
Insurance
2 400
Carriage outwards
1 160
Advertising costs
3 110
41 910
Profit from operations
190
Less Loan interest
250
60
Loss for the year
b
Kelly
Capital account
Date
Details
Fo.
$
20–7
Ma 31
Date
Details
Fo.
$
Balance
b/d
50 000
20–6
2 340
Drawings
Loss
Balance
Apl 1
60
c/d
47 600
50 000
50 000
20–7
Apl 1
5
a Machinery – non-current assets
Trade payables – current liability
Drawings – capital
Bank overdraft – current liability
Loss for the year – capital
Balance
b/d
47 600
Inventory – current asset
Trade receivables – current asset
Petty cash – current assets
Five–year bank loan – non-current liability
b Non-current assets are usually arranged in increasing order of liquidity with the most
permanent assets coming first, e.g. premises, machinery, fixtures and motor vehicles.
c Current assets are usually arranged in increasing order of liquidity with the furthest away
from cash coming first, e.g. inventory, trade receivables, bank and cash.
d Non-current liabilities are amounts owed which are not due for repayment in less than
one year.
© Cambridge University Press 2018
4
Cambridge IGCSE and O Level Accounting
6
Samira
Statement of financial positon at 31 March 20–1
$
$
$
Assets
Non-current assets
Premises
80 000
Fixtures and equipment
30 000
Motor vehicles
15 000
125 000
Current assets
Inventory
12 000
Trade receivables
Cash
9 000
200
21 200
Total assets
146 200
Capital and liabilities
Capital
140 000
Opening balance
Less Loss for the year
11 500
128 500
Less Drawings
9 000
119 500
Non-current liabilities
10 000
Loan – AB Loans
Current liabilities
Trade payables
12 000
Bank overdraft
4 700
16 700
Total capital and liabilities
7
146 200
Vijay
Income statement for the year ended 31 May 20–6
$
$
$
136 000
Fees from clients
Add Rent receivable
10 000
146 000
Less Salaries
72 500
Motor vehicle expenses
1 480
Discount allowed
2 100
Office expenses
Rates and insurance
Profit for the year
© Cambridge University Press 2018
13 570
6 750
96 400
49 600
5
Cambridge IGCSE and O Level Accounting
Vijay
Statement of financial positon at 31 May 20–6
$
$
$
Assets
Non-current assets
Premises
50 000
Office equipment
10 400
Motor vehicles
9 300
69 700
Current assets
Trade receivables
12 500
Bank
13 900
Petty cash
100
26 500
Total assets
96 200
Capital and liabilities
Capital
Opening balance
80 000
Plus Profit for the year
49 600
129 600
Less Drawings
35 000
94 600
Current liabilities
Trade payables
Total capital and liabilities
© Cambridge University Press 2018
1 600
96 200
6
Cambridge IGCSE and O Level Accounting
8
a
Bethany
Income statement for the year ended 31 July 20–9
$
Revenue
Less sales returns
Less Cost of sales
Opening inventory
Purchases
Less purchases returns
36 000
3 000
Carriage inwards
33 000
7 500
$
62 000
2 000
$
60 000
7 000
40 500
47 500
6 100
Less Closing inventory
41 400
Gross profit
Add Commission receivable
18 600
4 000
Less Bank charges
Lighting and heating
Rates and insurance
Repairs and maintenance
Operating expenses
Carriage outwards
22 600
300
2 500
5 100
3 080
2 070
2 950
16 000
Profit for the year
6 600
7
Bethany
Statement of financial positon at 31 July 20–9
$
Assets
Non-current assets
Premises
Fixtures and fittings
Office equipment
Current assets
Inventory
Trade receivables
Bank
$
$
50 000
10 600
4 900
65 500
6 100
2 230
1 330
9 660
Total assets
Capital and liabilities
Capital
Opening balance
Plus Profit for the year
Less Drawings
Current liabilities
Trade payables
Total capital and liabilities
© Cambridge University Press 2018
75 160
70 000
6 600
76 600
4 100
72 500
2 660
75 160
Cambridge IGCSE and O Level Accounting
b Advantage
•
better working conditions.
Disadvantages
•
no increase in operating profit
•
cost is $30 000
•
is Bethany able increase her capital?
•
can a loan be obtained (will have to pay annual interest and may need security and will
decrease the profit for the year)?
Plus any other suitable comments.
Recommendation – disadvantages outweigh the advantages so recommend do not
proceed.
9
a iThe business is treated separately from the owner of the business. Only those
transactions affecting the business are recorded in the accounting records of that
business. For example, the purchase of motor vehicle by the business for business use
would be recorded, but the purchase of a motor vehicle by the owner for personal use
would not be recorded.
ii
The accounting records of a business are maintained on the basis of assumed continuity.
It is assumed that the business will continue to operate for an indefinite period of time
and that there is no intention to close down the business or reduce the size of the
business significantly. For example, the non-current assets of a business will appear in
the statement of financial position at their book value: if it was intended to close the
business these should be included at their expected sale values.
iii Every transaction has two aspects – a giving and a receiving. Both these aspects must
be recorded in the books of a business. The term double entry is used to describe how
these two aspects of a transaction are recorded in the accounting records. For example,
the purchase of machinery by bank transfer will be debited to the machinery account to
show the ‘receiving’ and credited to the bank account to show the ‘giving’.
iv All the assets and expenses of a business are recorded at their actual cost. This is a
fact and can be easily verified. Inflation can make comparisons difficult when assets
are purchased at different times. This principle is linked to the money measurement
principle. For example, if premises are valued at $80 000 but the business managed to
purchase them for $75 000, it is the latter figure which will be recorded in the accounting
records.
b Understandability
c Information in accounting records can be useful if it can be compared with similar
information about the same business for another accounting period or at another point in
time. It is also useful to be able to make comparisons with similar information about another
business. In order to make meaningful comparisons it is essential that each set of financial
statements are prepared on a comparable basis. Alternatively, it is necessary to be aware
of any different policies which may have been used and the effects of those policies on the
accounting statements being reviewed.
d Two from:
•
free from significant errors
•
free from bias
•
prepared with suitable caution being applied to judgements and estimates
•
capable of being depended upon by users as being a true representation of the
underlying transactions and events being represented.
© Cambridge University Press 2018
8
Cambridge IGCSE and O Level Accounting
10 a iCapital expenditure is money spent on purchasing non-current assets, or improving
and expanding existing non-current assets. These costs will appear in the statement of
financial position under non-current assets.
ii
Revenue expenditure is money spent on running a business on a day-to-day basis. These
costs will appear in the income statement where they are matched against the revenue
for the period.
iii Capital receipts occur when money is received other than from normal trading activities.
This includes the receipt of capital from the owner, the receipt of loans and the proceeds
of sale of a non-current asset. A capital receipt is not entered in the income statement
(apart from a profit or loss on sale of a non-current asset).
iv Revenue receipts occur when money is received from normal trading activities. These
include revenue from the sale of goods, fees from clients and other income such as rent
received, commission received, discount received and so on. These are entered in the
income statement.
b i
capital expenditure
iv revenue expenditure
ii
capital expenditure
v
capital expenditure
iii revenue expenditure
c Profit for the year will be overstated by $100, non-current assets will be overstated by $100.
11 a
Ali
Income statement for the year ended 31 January 20–7
$
$
$
36 000
Revenue
Less Cost of sales
Purchases
Less Closing inventory
18 000
1 500
Gross profit
Less General expenses
Rent and rates
Insurance
Profit for the year
9
16 500
19 500
5 220
8 100
450
13 770
5 730
b Two from:
•
proceeds of sale of equipment as this is a capital receipt and should not be included in
the income statement
•
purchase of equipment as this is capital expenditure and should not be included in the
income statement
•
drawings as these do not affect the calculation of the profit as they represent money
taken by the owner and are not a business expense.
c The purchase of new equipment was included as an expense so the value of the non-current
assets would be understated. The proceeds of sale of one quarter of the equipment was
included as income so the value of the non-current assets would be overstated by the book
value of the equipment at the date of sale..
12 a
The cost of inventory is the actual purchase price of the goods plus any additional costs
incurred in bringing the goods to their present position and condition.
b The net realisable value of inventory is the estimated receipts from selling the goods less any
costs of completing the goods or costs of selling.
© Cambridge University Press 2018
Cambridge IGCSE and O Level Accounting
c Applying the principle of prudence to the valuation of inventory ensures that the profit is not
overstated and the value of the inventory is not overstated.
410 units × $18
7 380
LS15
290 units × ($15 + $2)
4 930
SH49
300 units × $25
7 500
d DZ22
e Inventory DZ22 was valued at selling price as this was lower than the cost price.
Inventory LS15 was valued at the total cost price (the cost of the product plus the cost of
bringing the goods to the premises) as this was lower than the selling price.
Inventory SH49 was valued at the cost price as this was lower than the selling price.
f
Profit for the year ended 30 June 20–7 overstated
Current assets at 30 June 20–7 overstated
Martha’s Capital at 1 July 20–7 overstated
Gross profit for the year ending 30 June 20–8 understated
Current assets at 30 June 20–8 no effect
13
Yee
Wages account
Date
Details
Fo.
$
Date
68 000
20–8
1 550
Jan 1
Details
Fo.
$
Balance
b/d
1 300
20–8
Dec 31 Bank/cash
Balance
c/d
69 550
Dec 31 Income statement
68 250
69 550
20–9
Jan 1
Balance
b/d
1 550
Fo.
$
Insurance account
Date
Details
Fo.
$
20–8
Jan 1
Details
20–8
Balance
b/d
Dec 31 Bank/cash
1 140
2 400
3 540
20–9
Jan 1
Date
Balance
© Cambridge University Press 2018
b/d
1 200
Dec 31 Income statement
Balance
2 340
c/d
1 200
3 540
10
Cambridge IGCSE and O Level Accounting
14 a
Zeema
Rent receivable account
Date
Details
Fo.
$
Date
20–3
Oct 1
Details
Fo.
$
20–4
Balance
b/d
550
Sep 30 Bank/cash
8 250
20–4
6 600
Sep 30 Income statement
Balance
c/d
1 100
8 250
8 250
20–4
Oct 1
b
Balance
1 100
b/d
Zeema
Extract from Income statement for the year ended 30 September 20–4
Income
$
6 600
Rent receivable
15 a
Mandeep
Rent receivable account
Date
Details
Fo.
$
20–4
Date
Details
Fo.
$
20–4
Jun 30 Income statement
Balance
c/d
1 300
Jan 1
Bank
650
650
Apl 1
Bank
650
Jun 30 Bank
650
1 950
1 950
20–4
Jul 1
b
Balance
b/d
650
Fo.
$
Mandeep
Commission receivable account
Date
Details
Fo.
$
20–3
Jul 1
Date
Details
20–3
Balance
b/d
Jun 30 Income statement
520
Jul 2
Bank
520
1 860
Oct 3
Bank
410
Jan 3
Bank
630
Mar 2
Bank
340
20–4
Jun 30 Balance
2 380
20–4
Jul 1
Balance
© Cambridge University Press 2018
b/d
480
c/d
480
2 380
11
Cambridge IGCSE and O Level Accounting
c Only revenue related to the particular time period covered by the income statement should
be included, irrespective of the actual amount received. The items have been adjusted for
the amounts prepaid or accrued so that they represent the revenue for the year.
16 a
Jenny
Income statement for the year ended 31 December 20–6
$
$
$
350 000
Revenue
Less Cost of sales
20 000
Opening inventory
Purchases
280 000
Less purchases returns
10 000
270 000
5 000
Carriage inwards
275 000
295 000
Less Closing inventory
24 000
Gross profit
271 000
79 000
Add Rent receivable (5 500 + 500)
6 000
Discount received
4 100
89 100
Less Operating expenses
12 200
Rates and insurance (5 490 − 400)
5 090
Repairs and maintenance
3 870
Salaries (41 000 + 3 500)
44 500
Motor vehicle expenses
2 940
Bank charges
790
Profit for the year
12
69 390
19 710
Jenny
Statement of financial positon at 31 December 20–6
$
$
$
Assets
Non-current assets
Premises
80 000
Fixtures and fittings
14 000
Motor vehicles
9 500
103 500
Current assets
Inventory
24 000
Trade receivables
29 100
Other receivables (400 + 500)
900
54 000
Total assets
© Cambridge University Press 2018
157 500
Cambridge IGCSE and O Level Accounting
Capital and liabilities
Capital
110 000
Opening balance
Plus Profit for the year
19 710
129 710
Less Drawings
17 000
112 710
Current liabilities
Trade payables
23 300
Other payables
3 500
Bank overdraft (17 200 + 790)
17 990
44 790
Total capital and liabilities
157 500
b Advantages
•
not due for repayment for three years
•
lower percentage rate of interest
•
definite date set for repayment (unlike overdraft when can be called in at short notice)
Disadvantages
•
will need to provide security
•
will need to enough funds are available to repay the loan when due
•
total interest may be higher as is charged on full amount of loan (overdraft interest
•
charged only on actual amount outstanding)
Plus any other suitable comments
Recommendation–may depend on whether the overdraft is regarded as temporary finance
or whether it is thought that long-term finance is required. If it is only required in the short
term the business should continue with the overdraft. If long-term finance is required, the
loan may be the better option.
17 a
Leo
Income statement for the year ended 31 October 20–7
$
$
Gross profit
34 500
Less Stationery (380 − 95)
285
Wages (19 800 + 790)
20 590
Rent and rates (2 600 − 220)
2 380
Office expenses
3 100
Heating and lighting
2 200
Bank charges
Profit from operations
$
200
28 755
5 745
Less Loan interest
250
Profit for the year
5 495
© Cambridge University Press 2018
13
Cambridge IGCSE and O Level Accounting
b
Leo
Statement of financial positon at 31 October 20–7
$
$
$
Assets
Non-current assets
Equipment
32 000
Fixtures and fittings
13 600
45 600
Current assets
6 500
Inventory
Inventory of stationery
95
Trade receivables
3 740
Other receivables
220
10 555
Total assets
56 155
Capital and liabilities
Capital
44 000
Opening balance
Plus Profit for the year
5 495
49 495
Less Drawings
5 000
44 495
Non-current liabilities
5 000
Loan – FS Limited
Current liabilities
Trade payables
3 500
Other payables (790 + 250)
1 040
Bank overdraft
2 120
6 660
Total capital and liabilities
56 155
18 a
Depreciation is an estimate of the loss in value of a non-current asset over its expected
working life.
b Two from: physical deterioration, economic reasons, passage of time and depletion.
c Depreciation is charged to avoid overstating the value of non-current assets as most lose
value over a period of time. It also ensures that the cost of the non-current assets is spread
over the years which benefit from the use of those assets. This also means that the profit is
not overstated.
d Principles of prudence and matching.
e i
ii
Straight line method of depreciation = $3 600 per annum
Reducing balance method of depreciation
Year ended 31 July 20–2 − 40% × $20 000
$8 000
Year ended 31 July 20–3 − 40% × ($20 000 − $8 000)
$4 800
Year ended 31 July 20–4 − 40% × ($20 000 − $12 800)
$2 880
© Cambridge University Press 2018
14
Cambridge IGCSE and O Level Accounting
19 a
Gugu
Equipment account
Date
Details
Fo.
$
Date
20–1
May 1
Details
Fo.
$
c/d
30 000
20–2
Superquip
b/d
30 000
Apl 30 Balance
30 000
20–2
30 000
20–3
May 1
Balance
Nov 2
Bank
b/d
30 000
Apl 30 Balance
c/d
40 000
10 000
40 000
40 000
20–3
May 1
Balance
b/d
40 000
Provision for depreciation of equipment account
Date
Details
Fo.
$
Date
20–2
Details
Fo.
$
20–2
Apl 30 Balance
c/d
6 000
Apl 30 Income statement
6 000
6 000
6 000
20–2
20–3
May 1
Apl 30 Balance
c/d
13 000
Balance
6 000
b/d
20–3
Apl 30 Income statement
(6 000 + 1 000)
7 000
13 000
13 000
20–3
May 1
b
Balance
13 000
b/d
Gugu
Extract from income statement for the year ended 30 April 20–3
Expenses
$
7 000
Depreciation – equipment
c
Gugu
Extract from statement of financial position at 30 April 20–3
$
$
$
Cost
Accumulated
deprecation
Net book
value
40 000
13 000
27 000
Non-current assets
Equipment
© Cambridge University Press 2018
15
Cambridge IGCSE and O Level Accounting
d Depreciation actually charged 20% × (40 000 − 13 000) = 5 400
Depreciation which should have been charged 20% × 40 000 = 8 000
Both the profit for the year and the value of the equipment will be overstated by 2 600.
20 a–b
Dinesh
Machinery account
Date
Details
Fo.
$
20–6
Date
Details
Fo.
$
20–6
Jan 1
Balance
b/d
Jul 1
Western Ltd
18 000
Jun 30 Disposal
12 000
Dec 31 Balance
9 000
c/d
30 000
21 000
30 000
20–7
Jan 1
Balance
b/d
21 000
Provision for depreciation of machinery account
Date
Details
Fo.
$
20–6
Date
Details
Fo.
$
Balance
b/d
10 800
20–6
Jun 30 Disposal
Dec 31 Balance
c/d
5 400
Jan 1
9 600
Dec 31 Income statement
(1 800 + 2 400)
4 200
15 000
15 000
20–7
May 1
Balance
b/d
9 600
Fo.
$
Disposal of machinery account
Date
Details
Fo.
$
20–6
Jun 30 Machinery
Date
Details
20–6
9 000
Jun 30 Provision for
depreciation
Cash
Dec 31 Income statement
9 000
5 400
2 800
800
9 000
21 a
Depreciation is an application of the principle of matching because it spreads the cost of
the non-current asset over the years which benefit from the use of that asset. Depreciation
is an application of the principle of prudence as it ensures that the non-current assets are
recorded as more realistic values and are not overstated.
b The same method of depreciation should be used each year for the same type of asset in
order to apply the principle of consistency.
© Cambridge University Press 2018
16
Cambridge IGCSE and O Level Accounting
c
Melody
Equipment account
Date
Details
Fo.
$
20–4
Oct 1
Date
Details
Fo.
$
c/d
10 000
20–5
Superquip
10 000
Sep 30 Balance
10 000
20–5
Oct 1
10 000
20–6
Balance
b/d
Bank
10 000
Sep 30 Balance
c/d
4 000
14 000
20–6
Oct 1
14 000
14 000
20–7
Balance
b/d
14 000
Mar 31 Disposal
Sep 30 Balance
5 000
c/d
14 000
9 000
14 000
20–7
Oct 1
Balance
b/d
9 000
Provision for depreciation of equipment account
Date
Details
Fo.
$
20–5
Sep 30 Balance
Date
Details
Fo.
20–5
c/d
2 000
Sep 30 Income statement
2 000
2 000
20–6
Sep 30 Balance
$
2 000
20–5
c/d
4 800
Oct 1
Balance
b/d
2 000
20–6
Sep 30 Income statement
(2 000 + 800)
2 800
4 800
20–7
20–6
Mar 31 Disposal
(1 000 + 1 000)
Sep 30 Balance
4 800
c/d
2 000
Oct 1
4 600
20–7
Balance
b/d
4 800
Sep 30 Income statement
(1 000 + 800)
1 800
6 600
6 600
20–7
Oct 1
© Cambridge University Press 2018
Balance
b/d
4 600
17
Cambridge IGCSE and O Level Accounting
Disposal of equipment account
Date
Details
Fo.
$
20–7
Date
Details
Fo.
$
20–7
May 31 Equipment
5 000
May 31 Provision for depreciation
2 000
Cash
1 800
Sep 30 Income statement
1 200
5 000
d
5 000
Melody
Extract from income statement for the year ended 30 September 20–7
Expenses
$
Loss on disposal
1 200
Depreciation – equipment
1 800
e
Melody
Extract from statement of financial position at 30 September 20–7
$
$
$
Cost
Accumulated
deprecation
Net book
value
9 000
4 600
4 400
Non-current assets
Equipment
22 a
Dave
Income statement for the year ended 31 July 20–9
$
$
Fees
102 000
Less Office expenses
11 550
Rates and insurance (11 400 − 320)
11 080
Wages and salaries
42 500
Motor expenses
3 650
Bank charges
140
Depreciation fixtures and fittings
950
Depreciation motor vehicle
Profit from operations
Less Loan interest (300 + 300)
Profit for the year
© Cambridge University Press 2018
$
4 480
74 350
27 650
600
27 050
18
Cambridge IGCSE and O Level Accounting
b
Dave
Statement of financial positon at 31 July 20–9
$
$
$
Cost
Accumulated
depreciation
Net book
value
Assets
Non-current assets
Premises
Fixtures and fittings
Motor vehicles
55 000
55 000
9 500
1 900
7 600
28 000
10 080
17 920
92 500
11 980
80 520
Current assets
Trade receivables
7 800
Other receivables
320
8 120
Total assets
88 640
Capital and liabilities
Capital
Opening balance
68 000
Plus Profit for the year
27 050
95 050
Less Drawings
18 600
76 450
Non-current liabilities
Loan – QT Limited
10 000
Current liabilities
Trade payables
590
Other payables
300
Bank overdraft (1 160 + 140)
1 300
2 190
Total capital and liabilities
© Cambridge University Press 2018
88 640
19
Cambridge IGCSE and O Level Accounting
23 a
Varsha
Income statement for the year ended 31 December 20–0
$
$
Revenue
$
190 000
Less Cost of sales
7 000
Opening inventory
Purchases
120 000
Less Goods for own use
940
119 060
126 060
Less Closing inventory
8 500
Gross profit
117 560
72 440
Add Commission receivable (4 000 + 200)
4 200
Discount received
1 950
78 590
Less Operating expenses
21 200
Wages (31 750 + 2 140)
33 890
Rates and insurance (9 200 − 960)
8 240
Depreciation equipment
1 900
Depreciation motor vehicles
1 536
Profit from operations
66 766
11 824
Less Loan interest (90 + 90)
180
Profit for the year
11 644
b
Varsha
Statement of financial positon at 31 December 20–0
$
$
$
Cost
Accumulated
depreciation
Net book
value
Assets
Non-current assets
Premises
40 000
40 000
Equipment
19 000
7 600
11 400
Motor vehicles
12 000
5 856
6 144
71 000
13 456
57 544
Current assets
Inventory
Trade receivables
8 500
14 400
Other receivables (200 + 960)
1 160
Bank
5 790
29 850
Total assets
© Cambridge University Press 2018
87 394
20
Cambridge IGCSE and O Level Accounting
Capital and liabilities
Capital
Opening balance
68 000
Plus Profit for the year
11 644
79 644
Less Drawings (8 480 + 940)
9 420
70 224
Non-current liabilities
6 000
Loan – A1 Finance
Current liabilities
Trade payables
8 940
Other payables (2 140 + 90)
2 230
11 170
Total capital and liabilities
87 394
24 a iIrrecoverable debts are amounts owing to a business which will not be paid by the credit
customers.
ii
Debts written off recovered occur when credit customers pay all or some of the amount
owed after the amounts were written off.
iii A provision for doubtful debts is an estimate of the amount which a business will lose in
a financial hear because of irrecoverable debts.
b
21
Waqas
Provision for doubtful debts account
Date
Details
Fo.
$
20–2
Date
Details
Fo.
$
20–2
Aug 31 Balance
c/d
165
165
Aug 31 Income statement
165
20–3
165
20–2
Aug 31 Balance
c/d
186
Sep 1
Balance
b/d
165
20–3
21
Aug 31 Income statement
186
20–4
186
20–3
39
Aug 31 Income statement
Balance
c/d
Sep 1
Balance
b/d
186
147
186
186
20–4
Sep 1
© Cambridge University Press 2018
Balance
b/d
147
Cambridge IGCSE and O Level Accounting
c
Waqas
Extract from statement of financial position at 31 August 20–2
$
$
$
Current assets
Trade receivables
5 500
Less Provision for doubtful debts
165
5 335
Extract from statement of financial position at 31 August 20–3
$
$
$
Current assets
Trade receivables
6 200
186
Less Provision for doubtful debts
6 014
Extract from statement of financial position at 31 August 20–4
$
$
$
Current assets
Trade receivables
4 900
Less Provision for doubtful debts
4 753
147
25 a
22
Hiba
J Mavuso account
Date
Details
Fo.
$
20–7
Date
Details
Fo.
$
20–7
Oct 30 Balance
b/d
480
Oct 30 Bank
450
Irrecoverable debts
30
480
480
K Ngwenga account
Date
Details
Fo.
$
20–7
Date
Details
Fo.
$
20–3
Oct 30 Balance
b/d
1 520
Oct 30 Bank
1064
Irrecoverable debts
456
1 520
1 520
L Makamba account
Date
Details
Fo.
$
20–7
Oct 30 Balance
Details
Fo.
$
20–3
b/d
250
250
© Cambridge University Press 2018
Date
Oct 30 Irrecoverable debts
250
250
Cambridge IGCSE and O Level Accounting
Irrecoverable debts account
Date
Details
Fo.
$
20–7
Date
Details
Fo.
$
20–3
Oct 30 J Mavuso
30
K Ngwenga
456
L Makamba
250
Oct 31 Income statement
736
736
736
Provision for doubtful debts account
Date
Details
Fo.
$
20–7
Oct 31 Balance
Date
Details
Fo.
$
20–7
c/d
800
Oct 31 Income statement
800
800
800
20–7
Nov 1
Balance
b/d
800
b Not following the principles of:
•
consistency – once an accounting policy has been decided it should be applied in
successive years unless good reason not to do so
•
prudence – not anticipating possible losses
•
matching – not matching the sales for which are not likely to be paid against the year in
which those sales were made.
Although there has been no significant decrease in trade receivables it is still likely that some
of these will be irrecoverable debts.
Recommendation – reduce provision not remove it.
26 Irrecoverable debts account:
PK Stores – a debt owed by PK Stores was written off as irrecoverable
Double entry – credit PK Stores account
Sellfast & Co – a debt owed by Sellfast & Co was written off as irrecoverable
Double entry – credit Sellfast & Co account
Income statement – the total of the irrecoverable debts for the year was transferred to the
income statement
Double entry – debit income statement
Provision for doubtful debts account:
Balance b/d – the total provision for doubtful debts at the start of the year
Double entry – debit provision for doubtful debts account for the previous financial year
Income statement – the difference between the existing provision and the amount which is
required at the end of the current financial year which represents the surplus amount of the
provision (which is transferred to the income statement as income)
Double entry – credit income statement
Balance – the provision for doubtful debts at the end of the year which is carried down to start
the following financial year
Double entry – debit the provision for doubtful debts account for the current financial year and
credit the provision for doubtful debts account for the next financial year
© Cambridge University Press 2018
23
Cambridge IGCSE and O Level Accounting
27 a
Alice
Safat Stores account
Date
Details
Fo.
$
Date
20–4
Details
Fo.
$
20–4
Nov 1 Balance
b/d
590
Nov 27 Bank
490
Irrecoverable debts
100
590
590
El Nil Traders account
Date
Details
Fo.
$
Date
20–4
Nov 1
Details
Fo.
$
20–4
Balance
b/d
1 400
Nov 14 Sales
Nov 5
420
Bank
1 372
Discount
1820
Nov 30 Balance
28
c/d
1 820
1 420
1 820
20–4
Dec 1
Balance
b/d
420
Irrecoverable debts account
Date
Details
Fo.
$
Date
20–4
Details
Fo.
$
20–4
Nov 27 Safat Stores
100
Nov 30 Income statement
100
100
100
Provision for doubtful debts account
Date
Details
Fo.
$
Date
20–4
Details
Fo.
$
Balance
b/d
500
20–3
Nov 30 Balance
c/d
540
Dec 1
20–4
40
Nov 30 Income statement
540
540
20–4
Dec 1
Balance
b/d
540
Fo.
$
Debts recovered account
Date
Details
Fo.
$
20–4
Nov 30 Income statement
Details
20–4
50
50
© Cambridge University Press 2018
Date
Nov 25 Bank (Ramsis Road
Traders)
50
50
24
Cambridge IGCSE and O Level Accounting
b
Alice
Extract from income statement for the year ended 30 November 20–4
$
Income
Debts recovered
50
Expenses
100
Irrecoverable debts
Provision for doubtful debts
c
40
Alice
Extract from statement of financial position at 30 November 20–4
$
$
$
Current assets
13 500
Trade receivables
Less Provision for doubtful debts
540
12 960
d One from:
•
principle of prudence – ensures that the profit for the year is not overstated and that the
trade receivables are shown at a realistic value in the statement of financial position
•
principle of matching – the amount of sales for which Alice is unlikely to be paid is
regarded as an expense of the year in which those sales are made.
28
25
Thabo
Income statement for the year ended 28 February 20–7
$
$
$
Income from customers
42 000
Add Commission receivable
2 420
44 420
Less Motor expenses (2 850 − 62)
2 788
Insurance
1 970
Repairs and maintenance
2 590
Wages
Irrecoverable debts
26 100
150
Provision for doubtful debts
((5% × 4 300) − 200)
Operating expenses (310 + 43)
15
353
Depreciation equipment
(10 860 − 10 120)
740
Depreciation motor vehicles
(16 000 − 13 850)
Profit for the year
© Cambridge University Press 2018
2 150
36 856
7 564
Cambridge IGCSE and O Level Accounting
Thabo
Statement of financial positon at 28 February 20-7
$
$
$
Assets
Non-current assets at valuation
Equipment
10 120
Motor vehicles
13 850
23 970
Current assets
Trade receivables
Less Provision for doubtful debts
Other receivables
Bank
4 300
215
4 085
62
1 040
5 187
Total assets
29 157
Capital and liabilities
Capital
Opening balance
Plus Profit for the year
30 000
7 564
37 564
Less Drawings
9 200
28 364
Current liabilities
Trade payables
750
Other payables
43
793
Total capital and liabilities
© Cambridge University Press 2018
29 157
26
Cambridge IGCSE and O Level Accounting
29 a
Kala
Income statement for the year ended 31 May 20–9
$
$
$
140 000
Gross profit
Add Discount received
3 200
Reduction in provision for doubtful
debts (850 − (3% × (24 300–100))
124
143 324
Less Rent
Rates and insurance
Wages
13 100
8 100
79 500
Office expenses (2 100 − 122)
1 978
Operating expenses (6 300 + 80)
6 380
Irrecoverable debt
100
Depreciation fixtures and fittings
(10% × (39 000 − 7 410)
3 159
Depreciation motor vehicles
(20% × (18 000 − 6 480)
Profit for the year
2 304
114 621
28 703
27
© Cambridge University Press 2018
Cambridge IGCSE and O Level Accounting
b
Kala
Statement of financial positon at 31 May 20–9
$
$
$
Cost
Accumulated
depreciation
Net book
value
Fixtures and fittings
39 000
10 569
28 431
Motor vehicles
18 000
8 784
9 216
57 000
19 353
37 647
Assets
Non-current assets
Current assets
39 050
Inventory
Inventory of stationery
122
Trade receivables (24 300 − 100)
24 200
Less Provision for doubtful debts
726
Bank
23 474
12 190
74 836
Total assets
112 483
Capital and liabilities
Capital
Opening balance
70 000
Plus Profit for the year
28 703
98 703
Less Drawings
17 800
80 903
Current liabilities
Trade payables
31 500
Other payables
80
31 580
Total capital and liabilities
© Cambridge University Press 2018
112 483
28
Cambridge IGCSE and O Level Accounting
30 a
Tahir
Income statement for the year ended 31 May 20–4
$
$
$
42 000
Gross profit
Add Commission receivable (2 800 + 160)
2 960
Reduction in provision for doubtful
debts (420 − (4% × 9 900))
24
44 984
Less Administration expenses
4 950
Motor expenses
3 260
Irrecoverable debts
Wages
Rates and insurance (4 300 − 600)
270
22 400
3 700
Depreciation fixtures and equipment
(15% × 22 000)
3 300
Depreciation motor vehicles
(20% × (18 000 − 6 480)
Profit from operations
Less Loan interest (300 + 300)
Profit for the year
2 304
40 184
4 800
600
4 200
29
© Cambridge University Press 2018
Cambridge IGCSE and O Level Accounting
b
Tahir
Statement of financial positon at 31 May 20–4
$
$
$
Cost
Accumulated
depreciation
Net book
value
Assets
Non-current assets
Premises
60 000
60 000
Fixtures and equipment
22 000
9 900
12 100
Motor vehicles
18 000
8 784
9 216
100 000
18 684
81 316
Current assets
8 200
Inventory
Trade receivables
Less Provision for doubtful debts
Other receivables (160 + 600)
Bank
9 900
396
9 504
760
3 200
21 664
Total assets
102 980
Capital and liabilities
Capital
Opening balance
Plus Profit for the year
30
86 500
4 200
90 700
Less Drawings
5 500
85 200
Non-current liabilities
6% loan
10 000
Current liabilities
Trade payables
7 480
Other payables
300
7 780
Total capital and liabilities
© Cambridge University Press 2018
102 980