Paper 1 :

a) Assets equals to liabilities less owner’s equity.

b) Arun’s capital at 1 March 2015 = 3,000 + 100 + 600 – 1,000 – 150 = $2,550

General journal

	Date	Particulars	Dr	Cr
			$	$
1	Apr 1	Office equipment	80
		Other payables		80
		Being purchase of office equipment on credit

2	Apr 1	Cash in hand	500
		Capital		500
		Being capital contribution of cash from owner

d) The accounting (business) entity states that the business and its owner(s) are treated as separate and different entities. Only transactions which affect the business are recorded in the business books.

Rent income account

Date	Particulars	Dr	Cr	Bal
2014		$	$	$
Jan 1	Cash at bank		1200	1200 Cr
Jul 1	Cash at bank		1200	2400 Cr
Dec 31	(transfer to*) Income summary	2400

	Income	Expenses
Cost of sales		✔️
Depreciation		✔️
Wages		✔️
Discount received	✔️

c) Matching theory states that expenses incurred must be matched against income earned in the same accounting period to find the accurate profit for the year.

di) Purchase journal

dii) Purchase returns/Return outwards journal

diii) Cash book

ai) Current assets: cash and other assets are to be paid to creditors within one year from the date of the balance sheet.

aii) Current liabilities: amounts to be paid to creditors within one year from the date of the balance sheet.

aiii) Working capital: working capital is the amount of capital (or the excess of current assets over current assets over current liabilities) that is available to meet the day-to-day expenses of running the business such as payment for purchase of goods, payment to trade creditors and payment of wages to employees, etc.

bi)

	$	Current assets	Current liabilities
Cash in hand	150	150
Inventory	42000	42000
Trade payables	40000		40000
Bank overdraft	5500		5500
Trade receivables	44500	44500
Total		86650	45500

bii) Working Capital = 86,650 – 45,500

= $41,150

c) The purchase of a motor vehicle by cheque will reduce the amount in the Cash at bank account, which is a current asset and therefore result in a drop of working capital.

Paper 2 :

Mei

Statement of financial performance for the year ended 30 June 2015

	$	$
Fees income (75000 – 3200)		72400

Less: Other Expenses
Rental expenses (3680 – 490)	3190
General expenses	27140
Loan interest expense	400
Insurance expense	750
Wages and salaries expense (19500 + 590)	20090
Impairment loss on trade receivables	275
Depreciation of fixtures and fitting (10% x 30500)	3050	53895

Profit for the period		17505

Mei

Statement of financial position as at 30 June 2015

Assets	$	$	$
Non-current asset	cost	Acc. dep.	N.B.V
Fixtures and fittings	30500	9150	21350

Current assets
Cash at bank		7520
Trade receivables		9525
Prepaid rent expense		490
Cash in Hand		200
			17735
Total assets			39085

Equity and liabilities
Owner’s Equity
Capital (13030 + 17505 – 7000)			23535

Non-current liabilities
Long term borrowings			8000

Current liabilities
Wages and salaries payable		590
Other payables		3760
Fees received in advance		3200
			7550
Total equity and liabilities			39085

a) Receipt, Bank Statement, Petty Cash Voucher, Payment Voucher (any two)

b) Any two from:

• To pay for small items of expenditure

• to reduce the number of entries in the Cash Book, thus prevent overcrowding

• the job of recording small payments can be assigned to a junior clerk

	$
Petty cash balance 1 Sept	100
Total payments in Sept	64
Bank reimbursement on 30 Sept	64
Petty cash balance 1 Oct	36

d) The payment should be classified as Drawings in the general journal.

e) Cash discount = 2% * $2,000 = $40

General journal

Particulars	Dr	Cr
	$	$
Trade payable – Anna	2000
Discount received		40
Cash at bank		1960

a) Straight line method is suitable for depreciating non-current assets which benefits the

business at a uniform rate. The benefits from using the motor vehicle is higher in its initial years

when it operates more efficiently. Hence it is more appropriate to charge more for depreciation

in the first few years and less in subsequent years.

b) i) profit for the year will be overstated

ii) non-current asset will be overstated

Accumulated depreciation

Date	Particulars	Dr	Cr	Bal
2013		$	$	$
Aug 31	Depreciation (20% x 20000)		4000	4000 Cr
Jul 1	Balance b/d			4000 Cr
2014
Dec 31	Depreciation (20% x (20000-4000))		3200	7200 Cr
Jul 1	Balance B/d			7200 Cr

d) Matching Concept. A portion of the cost of the non-current asset is matched against the

income earned from using the non-current asset in the same period to find the accurate profits

Prudence concept states profits and assets should not be overstated. Depreciation is charged

to Income Statement to avoid overstating profits, while accumulated depreciation is recorded in

the balance sheet to avoid overstating the value of non-current assets.

e) Materiality

(Explanation: whether an expenditure item is recorded in the balance sheet as capital

expenditure or as an expense in the income statement depends if it is significant and

materially impacts business decision making. Lamps and waste paper bins are

insignificant)

Error of Commission
Complete reversal of entries / Error of completed reversal
Error of original entry
Error of principle

General journal

	Date	Particulars	Dr	Cr
			$	$
1	31 Jul	Utilities / Electricity expenses	500
		Telephone expenses		500
2		Cash at bank	6500
		Sales revenue		6500
3		Cash at bank	360
		Machinery repairs		360
4		Motor vehicle repairs	250
		Motor vehicle		250

Inventory

Date	Particulars	Dr	Cr	Bal
2015		$	$	$
Jun 1	Balance b/d			700 Dr
12	Cost of sales		175	525 Dr
15	Trade payable – Joe	320		845 Dr
18	Trade payable – Joe (purchases returns)		240	605 Dr
19	Drawings		105	500 Dr
22	Cost of sales	70		570 Dr
26	Trade payable – Kate	180		750 Dr
Jul 1	Balance b/d			750 Dr