THIRD WEEK QUESTIONS FOR F3

1. Redruth commenced trading on 1 April 2011. The carrying amount of plant and equipment in
Redruth’s financial statements as at 31 March 2013 was $399,960. The cost of these assets was
$614,500. On 31 March 2014 an asset costing $11,500 was acquired. Depreciation is charged on
plant and equipment monthly at an annual rate of 25% straight line. There are no residual values.

What is the carrying amount of Redruth’s plant and equipment in its statement of
financial position at 31 March 2014?

A $254,960
B $257,835
C $299,970
D $308,595 (2 marks)

2.A car was purchased for $12,000 on 1 April 2011 and has been depreciated at 20% each year on a
straight line basis assuming no residual value. The company’s financial year end is 31 December
and its policy is to charge a full year’s depreciation in the year of purchase and no depreciation in
the year of sale. The car was traded-in for a replacement vehicle on 1 August in 2014 for an agreed
figure of $5,000.

What was the profit or loss on the disposal of the vehicle in the year ended 31 December
2014?

A Loss $1,144
B Profit $200
C Profit $1,000
(2 mark
D Profit $2,600 s)

3.A company bought a machine on 1 October 2009 for $52,000. The machine had an expected life
of eight years and an estimated residual value of $4,000. On 31 March 2014 the machine was sold
for $35,000. The company’s year end is 31 December. The company’s policy is to depreciate assets
on a straight-line basis with a full year’s depreciation in the year of purchase and none in the year
of sale.

What is the gain or loss on disposal of the machine?

A Loss $13,000
B Gain $7,000
C Profit $10,000
D Gain $13,000 (2 marks)

4.SSG bought a machine for $40,000 in January 2011. The machine had an expected useful life of
six years and an expected residual value of $10,000. The machine was depreciated on the straight-
line basis where a full year’s charge in made in the year of purchase and none in the year of sale. In
December 2014, the machine was sold for $15,000. The company includes any profit or loss on
disposal of assets with depreciation expense in its financial statements. Its year end is 31 December.

What is the total amount charged to the statement of profit or loss over the life of
the machine?

A $15,000
B $20,000
 C $25,000
D $30,000 (2 marks)

5.A company purchased equipment for $80,000 on 1 July 2011. The company’s accounting year
end is 31 December and it has a policy to charge a full year’s depreciation in the year of purchase.
The company depreciates its equipment on the reducing balance basis at 25% per annum.

What is the carrying amount of the equipment at 31 December 2014?

A $18,984
B $25,312
C $29,531
D $33,750 (2 marks)

6.At 30 September 2013 a company’s allowance for trade receivables amounted to $38,000, which
was 5% of the receivables at that date.

At 30 September 2014 receivables totalled $868,500. It was decided to write off $28,500 of
debts as irrecoverable and to keep the allowance at 5%.

What should be the total expense in profit or loss for the year ended 30 September 2014
for irrecoverable debts?

1 $32,500
2 $33,925
3 $42,000
D $70,500 (2 marks)

7.At 1 July 2013 a company had an allowance for receivables of $83,000.

During the year ended 30 June 2014 debts totalling $146,000 were written off. At 30 June
2014 it was decided that $218,000 was required as a receivables allowance.

What is the total amount that should appear in profit or loss for the year ended 30 June
2014 for irrecoverable debts?

A $11,000
B $155,000
C $281,000
D $364,000
8.At 31 December 2014 a company’s trade receivables totalled $864,000 and the allowance for
receivables was $48,000.

It was decided that debts totalling $13,000 were to be written off, and the receivable
allowance adjusted to 5% of the receivables.

What figures should appear in the financial statements in respect of receivables (after
accounting for the allowance)?

Profit or loss Statement of financial position

$ $
A 8,200 807,800
B 7,550 808,450
C 18,450 808,450
D 55,550 808,450 (2 marks)
9..Alpha buys goods from Beta. At 30 June Beta’s account in Alpha’s records showed $5,700
owing to Beta. Beta submitted a statement to Alpha as at the same date showing a balance due of
$5,200.

Which of the following could account fully for the difference?

A Alpha has sent a cheque to Beta for $500 which has not yet been received by Beta B The
credit side of Beta’s account in Alpha’s records has been undercast by $500
C An invoice for $250 from Beta has been treated in Alpha’s records as if it had been a credit
note
D Beta has issued a credit note for $500 to Alpha which Alpha has not yet received
(2 mark
s)

10. At 30 June 2013 a company’s allowance for receivables was $39,000. At 30 June 2014 trade
receivables totalled $517,000. It was decided to write off debts totalling $37,000 and to adjust the
allowance for receivables to the equivalent of 5% of the trade receivables based on past events.

What figure should appear in profit or loss for these items?

A $22,000
B $23,850
C $24,000
D $61,000 (2 marks)

11.Ordan received a statement from one of its suppliers, Alta, showing a balance due of $3,980.
The amount due according to the payables ledger account of Alta in Ordan’s records was only
$3,110. Comparison of the statement and the ledger account revealed the following differences:

(1) A payment sent by Ordan for $270 has not been allowed for in Alta’s statement.
(2) Alta has not allowed for goods returned by Ordan $180.
(3) Ordan made a contra entry, reducing the amount due to Alta by $320, for a balance
due from Alta in Ordan’s receivables ledger. No such entry has been made in Alta’s
records.

What difference remains between the two companies’ records after adjusting for these
items?

A $100
B $460
C $640
D $740 (2 marks)

12.At 1 January 2014 a company had an allowance for receivables of $18,000. At 31 December
2014 the company’s trade receivables were $458,000. It was decided:

(1) To write off debts totalling $28,000 as irrecoverable;

(2) To adjust the allowance for receivables to the equivalent of 5% of the remaining
receivables based on past experience.

What figure should appear in the company’s profit or loss for the total of debts written
 off as irrecoverable and the movement in the allowance for receivables for the year
ended 31 December 2014?

A $31,500
B $32,900
C $49,500
D $50,900 (2 marks)

13.A company purchases all goods on credit. The following payables ledger control account
contains some errors:

Payables ledger control account

$ $
Purchases 963,200 Opening balance 384,600
Cash paid to suppliers 988,400
Discounts received 12,600 Purchases returns 17,400
Contras with amounts
receivable in receivables ledger 4,200
Closing balance 410,400
–––––––– ––––––––
1,390,400 1,390,400
———— ————

What should the closing balance be when the errors have been corrected?

A $325,200
B $350,400
C $358,800
D $376,800 (2 marks)

14.Moon’s draft trial balance as at 31 October 2014 includes the following:

Trial balance
$ $
Allowance for receivables as at 1 November 2013 6,546
Trade receivables 251,760

As at 31 October 2014 Grundle’s balance to Moon of $1,860 is irrecoverable. Blenheim owes

$12,650, but Moon believes an allowance of 40% of this amount is necessary.

What is the total debit required to Moon’s irrecoverable debts expense account?

A $374
B $1,860
C $3,346
D $6,920 (2 marks)

15.At its year end of 31 July 2014 Hussar has trade receivables of $578,645, an allowance for
receivables in respect of Cusack as at 1 August 2013 of $1,200 and a charge for irrecoverable debts
expense of $3,290. The following have still to be accounted for:

(1) Cusack’s account was settled in full in the year;

(2) An allowance of $250 is required against the account of Dancer;
(3) $89 was received at 31 July 2014 in respect of an amount written off two years ago,
but only the cash book has been updated for this.

What amounts should be shown in the financial statements as at 31 July 2014?

Statement of Statement of
 profit or loss financial position
A $2,251 $578,395
B $2,340 $577,606
C $2,340 $578,395
(2 mark
D $3,451 $578,395 s)

16.Quince’s trial balance extracted as at 31 May 2014 includes the $456,875 for inventory as at 1
June 2013.

Inventory was physically counted on 31 May 2014 and its cost has been established at
$572,904. Of this, inventory costing $27,485 is damaged and is estimated to have a net
realisable value of only $15,000.

What is the amount of the double entry that should be made as at 31 May 2014 in
respect of closing inventory?

A $456,875
B $545,419
C $560,419
D $572,904 (2 marks)

17.Samantha, a sole trader, does not keep a receivables control account or a sales day book and is
not registered for sales tax. The bookkeeper has discovered the following errors and omissions in
Samantha’s accounting records:

(1) A cheque for $180 from a customer has been returned unpaid by the bank. No
entries have been made in the accounting records for the return of the cheque.
(2) A credit note for $12 was sent to a customer but was mistaken for an invoice by
Samantha’s accounts clerk when recording it.

Which of the following journals will be entered in Samantha’s general ledger accounts
in order to correct these items?

A Dr Receivables $156, Dr Sales $24, Cr Cash $180

B Dr Cash $180, Cr Receivables $156, Cr Sales $24
C Dr Receivables $168, Dr Sales $12, Cr Cash $180
D Dr Irrecoverable debt expense $180, Dr Receivables $24, Cr Cash $180,
Cr Sales $24 (2 marks)

18.On 1 May, East owed a supplier $1,200. During the month of May, East:

(1) Purchased goods for $1,700 and the supplier offered a 5% discount for payment
within the month.

(2) Returned goods valued at $100 which had been purchased in April.

(3) Paid $1,615 for the goods delivered in May.

What is the balance on the supplier’s account at the end of May?

A $1,015
B $1,100
C $1,185
D $1,300 (2 marks)

19.The revenue of a company was $4 million and its receivables were 7.5% of revenue. The company
wishes to have an allowance of 3% of receivables, which would result in an increase of 25% of the
 current allowance.

What is the charge to profit or loss for irrecoverable debts?

A $1,800
B $2,250
C $9,000
D $12,000 (2 marks)

20.At 30 September 2014 the closing inventory of a company amounted to $386,400. The
following items were included in this total at cost:

(1) 1,000 items which had cost $18 each. These items were all sold in October 2014 for $15
each, with selling expenses of $800.

(2) Five items which had been in inventory since 2001, when they were purchased for $100
each, sold in October 2014 for $1,000 each, net of selling expenses.

What figure should appear in the company’s statement of financial position at 30 September
2014 for inventory?

A $382,600
B $384,200
C $387,100
D $400,600 (2 marks)

ANSWERS:

1. B The carrying amount is $626,000 – $368,165 = $257,835.

Cost

$ $
B/fwd 614,500
Additions 11,500 C/fwd 626,000
––––––– ––––––
626,000 626,000
––––––– ––––––

Accumulated depreciation

$ $
B/fwd (614,500 – 399,960) 214,540
C/fwd 368,165 Charge (614,500 × 25%) 153,625
––––––– –––––––
368,165 368,165
––––––– –––––––

Tutorial note: There is no depreciation charged in the year to 31 March 2014 for
the asset acquired at the year end.

2. B $
Cost 12,000
Accumulated depreciation ($12,000 × 20% × 3 years) 7,200
–––––
Carrying amount 4,800
Trade-in value = disposal proceeds 5,000
–––––
Profit on disposal 200
 –––––
Tutorial note: There is no depreciation in the year of sale according to the
company’s depreciation policy.

3. D Annual depreciation = ($52,000 – $4, 000) ÷ 8 = $6,000

Carrying amount after five years = $52,000 – (5 × $6,000) = $22,000
Gain on disposal = $35,000 – $22,000 = $13,000
Fall in carrying value of machine = $40,000 –
4. C $15,000 = $25,000

5. B 31 December
2011 80,000 × 75% = 60,000
2012 60,000 × 75% = 45,500
2013 45,000 × 75% = 33,750
2014 33,750 × 75% = 25,312

28,500 + ((5% × (868,500 – 28,500) – 38,000) =

6. A $32,500

7. C 146,000 + 218,000 – 83,000 = $281,000

(864,000 – 13,000) – 5% ×
8. B Statement of financial position: 851,000 = $808,450
Profit or loss: 13,000 – (48,000 – 42,550) = $7,550
3.5 The supplier (Beta) is owed $500 less than Alpha’s books show, in respect of the credit D
note.

10. A Allowance account

$ $
Profit or loss 15,000 B/f 39,000
C/f (5% × (517,000 – 37,000) 24,000
––––––– –––––––
39,000 39,000
––––––– –––––––
Charge for year: Write-off $37,000 less reduction in allowance $15,000 = $22,000

11. A 3,980 – 270 – 180 – 320 = 3,210 Therefore, difference is 100.

12. A (430,000 × 5%) – 18,000 + 28,000 = $31,500

13.
A

Payables ledger control account

$ $
Cash paid to suppliers 988,400 Opening balance 384,600
Discounts received 12,600 Purchases 963,200
Contras with amounts
receivable in receivables ledger 4,200
Purchases returns 17,400
Closing balance 325,200
–––––––– ––––––––
1,347,800 1,347,800
–––––––– ––––––––
14. A The allowance needs to be debited with $6,546 – $5,060 = $1,486 and $1,860 needs
to be credited to trade receivables. The net debit to the irrecoverable debts expense
account is therefore $1,860 – $1,486 = $374

Allowance for receivables

$ $
Irrecoverable debts expense 1,486 Balance b/fwd 6,546
Balance c/fwd ($12,650 × 0.4) 5,060
–––––– ––––––
6,546 6,546
–––––– ––––––

Irrecoverable debt expense

$ $
Write off 1,860 Allowance (decrease) 1,486
Profit or loss 374
–––––– ––––––
1,860 1,860
–––––– ––––––

15.A The expense is $2,251 (W2) and the figure for receivables is $578,645 – $250
= $578,395.

WORKINGS

(1) Allowance for receivables

$ $
Irrecoverable debts expense 950 B/fwd (Cusack) 1,200
C/fwd (Dancer) 250
–––––– ––––––
1,200 1,200
–––––– ––––––

(2) Irrecoverable debts expense

$ $
Expense before adjustments 3,290 Allowance 950
Recovered debt 89
Profit or loss 2,251
–––––– ––––––
3,290 3,290
–––––– ––––––

16.C The carrying amount of closing inventory is ($572,904 – $27,485 + $15,000) = $560,419.
 This must be debited and credited to the closing inventory account (the debit is for the
statement of financial position and the credit is for the statement of profit or loss).

17. A The correcting journals in full are:

$ $
Dr Receivables 180
Cr Cash 180

Dr Sales (2 × 12) 24
Cr Receivables 24

So the net correcting journal is: $ $

Dr Receivables 156
Dr Sales 24
Cr Cash 180
18. B $
Opening balance 1,200
Goods received 1,700
Good returned (100)
Payment (1,615)
Discount received ($1,700 – $1,615 or 5% × $1,700) (85)
–––––
Closing balance 1,100
–––––

19. A Receivables = 4,000,000 × 7.5% = $300,000

Closing allowance for irrecoverable debts = 3% × $300,000 = $9,000
Opening allowance = 9,000 ÷ 125% = $7,200
Increase in allowance = $9,000 – $7,200 = $1,800 charge to profit or loss.

20.. A 386,400 – 3,800 (loss on (1) = $382,600