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Grade 10 Accounts Workbook

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76 views53 pages

Grade 10 Accounts Workbook

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syedmuhammadabdulmoiz

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1

Capital and expenditure

 Distinguish between and account for capital expenditure and revenue expenditure
 Distinguish and account for capital receipts and revenue receipts
 Calculate and comment on the effect on profit of incorrect treatment
 Calculate and comment on the effect on asset valuations of incorrect treatment

Difference between capital and revenue (expenditure and receipts)

Capital expenditure is incurred when a business spends money either to:

• buy non-current assets; or
• add to the value of an existing non-current asset.
Included in such amounts should be spending on:
• acquiring non-current assets
• bringing them into the business
• legal costs of buying buildings
• carriage inwards on machinery bought
• any other cost needed to get a non-current asset ready for use.

Expenditure which is not spent on increasing the value of non-current assets, but is incurred in
running the business on a day-to-day basis, is known as revenue expenditure.

Capital receipts
Definition:
income obtained from investment and financing activities of the business
benefit will last for more than one accounting period
recorded as non-current liabilities or capital
Examples:
Issuance of shares
Capital contribution from owner

Loan from financial institutions/banks

Government grants
7.4 Revenue receipts
Definition:
income obtained through normal business operations
benefit last within one accounting period
recorded as income
Examples:
Sales of goods
Discount received
Interest income
Divid end income
2

Incorrect What happens? Effect on Profit Effect on asset

treatment for the year valuation

Capital Expenses will be shown more. So, the Profit for the year Non-current assets
Expenditure profit for the year will be incorrect in the will be nderstated will be understated
incorrectly treated Income statement.
as Revenue
Expenditure The Non-current asset will be shown
less. So, the Non-current asset value will
be incorrect in the Statement of
Financial Position.

Revenue Expenses will be shown less. So, the Profit for the year Non-current asset will
Expenditure Profit for the year will be incorrect in the will be overstated be overstated
incorrectly treated Income statement.
as Capital
Expenditure The Non-current asset will be shown
more. So, the Non-current asset value
will be incorrect in the Statement of
Financial Position.

Incorrect What happens? Effect on Profit Effect on Statement

treatment for the year of Financial Position

Capital Receipt Receipts will be shown more, so the Profit for the year Non-current asset will
incorrectly treated profit for the year will be incorrect in the will be overstated be overstated or Non-
as Revenue Receipt Income statement. current liability will be
understated.
The Non-current asset will be shown
more or Non-current liability will be
shown less. So, the value of Non-current
assets or the value of Non-current
liability will be incorrect in the
Statement of Financial Position.

Revenue receipts Receipts will be shown less, so the profit Profit for the year Non-current asset will
incorrectly treated for the year will be incorrect in the will be be understated or Non-
as Capital receipts Income statement. understated. current liability will be
overstated.
The Non-current asset will be shown
less or The Non-current liability will be
shown more. So the Non-current asset
value or Non-current liability value will
be incorrect in the Statement of
Financial Position.
3

Practice question
Q1.
(a) What is meant by 'capital expenditure' and by 'revenue expenditure'?
(b) Some of the following items should be treated as capital and some as revenue. For each of them
state which classification applies:
(/) The purchase of machinery for use in the business.
(//) Carriage paid to bring the machinery in (/) above to the works.
(Hi) Complete redecoration of the premises at a cost of £1,500.
(/V) A quarterly account for heating.
(v) The purchase of a soft drinks vending machine for the canteen with a stock of soft drinks.
(vi) Wages paid by a building contractor to his own workmen for the erection of an office in
the builder's stockyard.

__________________________________________________________________________________

Q2. Indicate which of the following would be revenue items and which would be capital items
in a wholesale bakery:
(a) Purchase of a new van.
(fa) Purchase of replacement engine for existing van.
(c) Cost of altering interior of new van to increase carrying capacity.
(d) Cost of motor tax for new van.
(e) Cost of motor tax for existing van.
(f) Cost of painting business's name on new van.
(g) Repair and maintenance of existing van.
24.3 State the type of expenditure, capital or revenue, incurred in the following transactions:
(a) Breakdown van purchased by a garage.
(fa) Repairs to a fruiterer's van.
(c) The cost of installing a new machine.
(d) Cost of hiring refrigeration plant in a butcher's shop.
(e) Twelve dozen sets of cutlery, purchased by a catering firm for a new dining-room.
(f) A motor vehicle bought for resale by a motor dealer.
(g) The cost of acquiring patent rights.

__________________________________________________________________________________

__________________________________________________________________________________
4

Q3 On what principles would you distinguish between capital and revenue expenditure?
Illustrate your answer by reference to the following:
(a) The cost of repairs and an extension to the premises.
(fa) Installation of a gas central heating boiler in place of an oil-fired central heating boiler.
(c) Small but expensive alterations to a cigarette manufacturing machine which increased the
machine's output by 20 per cent.
24.5 Explain clearly the difference between capital expenditure and revenue expenditure. State
which of the following you would classify as capital expenditure, giving your reasons:
(a) Cost of building extension to factory.
(fa) Purchase of extra filing cabinets for sales office.
(c) Cost of repairs to accounting machine.
(d) Cost of installing reconditioned engine in delivery van.
(e) Legal fees paid in connection with factory extension.

__________________________________________________________________________________

Q4. The data which follows was extracted from the books of account of H. Kirk, an engineer,
on 31 March 2016, his financial year end.
£
(a) Purchase of extra milling machine (includes £300 for repair of an old machine) 2,900
ib) Rent 750
(c) Electrical expenses (includes new wiring £600, part of premises improvement) 3,280
(d) Carriage inwards (includes £150 carriage on new cement mixer) 1,260
(e) Purchase of extra drilling machine 4,100
You are required to allocate each or part of the items above to either 'capital' or 'revenue'
expenditure.

__________________________________________________________________________________

__________________________________________________________________________________
5

Q5. For the business of J. Charles, wholesale chemist, classify the following between 'capital' and
'revenue' expenditure:
(a) Purchase of an extra van.
(b) Cost of rebuilding warehouse wall which had fallen down.
(c) Building extension to the warehouse.
(d) Painting extension to warehouse when it is first built.
(e) Repainting extension to warehouse three years later than that done in (d).
(f) Carriage costs on bricks for new warehouse extension.
(g) Carriage costs on purchases.
(h) Carriage costs on sales.
(/) Legal costs of collecting debts.
(j) Legal charges on acquiring new premises for office.
(k) Fire insurance premium.
(/) Costs of erecting new machine.

__________________________________________________________________________________

Q6. For the business of Fl. Ward, a food merchant, classify the following between 'capital' and
'revenue' expenditure:
(a) Repairs to meat slicer.
(b) New tyre for van.
(c) Additional shop counter.
(d) Renewing signwriting on shop.
(e) Fitting partitions in shop.
(f) Roof repairs.
(g) Installing thief detection equipment.
(h) Wages of shop assistant.
(/) Carriage on returns outwards.
(/) New cash register.
(k) Repairs to office safe.
(/) Installing extra toilet.

__________________________________________________________________________________

__________________________________________________________________________________
6

Q7.
(a) Distinguish between capital and revenue expenditure.

__________________________________________________________________________________

(b) Drake Ltd took delivery of a computer network on 1 July 2016, the beginning of its financial year.
The list price of the equipment was £9,999 but Drake Ltd was able to negotiate a price of £8,000 with
the supplier. Flowever, the supplier charged an additional £680 to install and test the equipment. The
supplier offered a 5% discount if Drake Ltd paid for the equipment and the additional installation costs
within seven days. Drake Ltd was able to take advantage of this additional discount. The installation of
special electrical wiring for the network cost £220. After initial testing certain modifications costing
£398 proved necessary. Staff were sent on special training courses to operate the network and this cost
£1,980. Napa Ltd insured the network against fire and theft at a cost of £49 per annum. A maintenance
agreement was entered into under this agreement Callus promised to provide 24-hour breakdown cover
for one year. The cost of the maintenance agreement was £700.

Required:
Calculate the acquisition cost of the PC to Drake Ltd.

__________________________________________________________________________________

(c) The following costs were also incurred by Drake Ltd during the financial year ended 30 June
2017:
a) Interest on loan to purchase network.
b) Cost of software for use with the network.
c) Cost of customising the software for use in Drake Ltd's business.
d) Cost of paper used by the printer.
e) Wages of network manager.
f) Cost of toner used by the printer.
g) Cost of adding extra memory to the network.
h) Cost of backup storgae during the year.
i) Costs of adding a manufacturer's upgrade to the network.
j) Cost of upgrading the electrical supply to the room where the network server was located.
Required:
Classify each of the above as capital expenditure or revenue expenditure.

__________________________________________________________________________________

__________________________________________________________________________________
7

Q8. Classify the following items as either revenue or capital expenditure:

(a) An extension to an office building costing £24,000.
(b) The cost of replacement valves on all the labelling machines in a canning factory.
(c) Repairs to the warehouse roof.
(d) Annual service costs for a courier firm's fleet of vans.
(e) Replacement of rubber tread on a printing press with a plastic one that has resulted in the useful
economic life of the printing press being extended by three years.
(f) A new bicycle purchased by a newsagent for use by the newspaper delivery boy.
(g) Repairs to a refrigeration system of a meat wholesaler.
(h) Repainting of the interior of a bar/restaurant which has greatly improved the potential for finding a
buyer for the bar/restaurant as a going concern.
(i) Wages paid to employees who worked on the construction of their company's new office building.

__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
Q9.A Bloggs, a building contractor, had a wooden store shed and a brick-built office which have
balances b/d in the books of £850 and £179,500 respectively. During the year, the wooden shed was
pulled down at a cost of £265, and replaced by a brick building. Some of the timber from the old store
shed was sold for £180 and the remainder, valued at £100, was used in making door frames, etc., for
the new store. The new brick-built store was constructed by the builder's own employees, the
expenditure thereon being materials (excluding timber from the old store shed) £4,750; wages
£3,510; and direct expenses of £85.
At about the same time, certain repairs and alterations were carried out to the office, again using the
builder's own materials, the cost of which was: wages £290 and materials £460. It was estimated that
£218 of this expenditure, being mainly that incurred on providing additional windows, represented
improvements, 50% of this being wages, 50% materials.
Required:
Prepare the following four ledger accounts as they would appear after giving effect to all the above
matters:
(a) Wooden store shed account
(b) Office buildings account
(c) New store account
(d) Office buildings repairs account

Q10. At the beginning of the financial year on 1 April 2017, a company had a balance on plant
account of £372,000 and on provision for depreciation of plant account of £205,400.
The company's policy is to provide depreciation using the reducing balance method applied to the
non-current assets held at the end of the financial year at the rate of 20% per annum.
On 1 September 2017 the company sold for £13,700 some plant which it had acquired on 31
October 2013 at a cost of £36,000. Additionally, installation costs totalled £4,000. During 2015 major
repairs costing £6,300 had been carried out on this plant and, in order to increase the capacity of the
plant, a new motor had been fitted in December 2015 at a cost of £4,400. A further overhaul costing
£2,700 had been carried out during 2016.
The company acquired new replacement plant on 30 November 2017 at a cost of £96,000, inclusive of
installation charges of £7,000.
Required:
Calculate;
(a) the balance of plant at cost at 31 March 2018
(fa) the provision for depreciation of plant at 31 March 2018
(c) the profit or loss on disposal of the plant.

__________________________________________________________________________________

__________________________________________________________________________________
9

Irrecoverable debts
 Understand the meaning of irrecoverable debts and recovery of debts written off
 Prepare ledger accounts and journal entries to record irrecoverable debts
 Prepare ledger accounts and journal entries to record recovery of debts written off
 Explain the reasons for maintaining a provision for doubtful debts
 Prepare ledger accounts and journal entries to record the creation or, and adjustments to, a
provision for doubtful debts

Irrecoverable Debts

An irrecoverable debt is an amount owing to a business which will not be paid by the credit customer.

Reason:
The debtor may be refusing to pay one of a number of invoices.
The debtor may be refusing to pay part of invoice.
Debtor business may have failed and will do pay a part of proportion of amount.
Debtor business may fail and have nothing left to pay.

Recovery of debts written off

A debt written off may be recovered if a credit customer pays some, or all,the amount owed, after the
amount was written off.

Provision for doubtful debts

A provision for doubtful debts is an estimate of the amount which a business will lose in a financial
year because of irrecoverable debts.

Definition:

Provision for debts that are deemed uncollectible based on reasonable estimation.
Contra-asset
Credit account

Reason:

Past experience
Specific knowledge about customer
The state of economy
Present market and industry condition
Consistency method
Prudence method
Age of debtor
Size of debt
Comparison with previous years
Press release about customer

Calculating Provision for doubtful debts:

Trade receivables at end of accounting period × Rate of provision for doubtful debts (%)
10

Double entry:

 Debit Income statement Expense

 Credit Provision for doubtful debts

 Adjusting an Increase in Provision for doubtful debts

 Debit Income statement Expense

 Credit Provision for doubtful debts

 Adjusting a Decrease in Provision for doubtful debts

 Debit Provision for doubtful debts Income

 Credit Income statement

Presentation in Income Statement:

Income Statement (extract)

$
Other Income:
Decrease in provision for doubtful debts

Expenses:

Increase in provision for doubtful debt

Presentation in Statement of Financial Position:

Statement of Financial Position (extract)

$
Current assets:
Trade receivables
Less Provision for doubtful debt
11

Practice questions
Q1. In a new business during the year ended 31 December 2017 the following debts are found to be
bad, and are written-off on the dates shown:
31 May T. Smith £ 700
30 September G. Lamb Ltd £1,100
30 November G. Percy £ 600
On 31 December 2017 the schedule of remaining accounts receivable totalling £25,000 is examined
and it is decided to make an allowance for doubtful debts of £250.
You are required to show:
(a) The Bad Debts Account, and the Allowance for Doubtful Debts Account.
(b) The charge to the Statement of Profit or Loss.
(c) The relevant extracts from the Statement of Financial Position as at 31 December 2017.

__________________________________________________________________________________

__________________________________________________________________________________
12

Q2. A business had always made an allowance for doubtful debts at the rate of 3 per cent of accounts
receivable. On 1 January 2015 the amount for this, brought forward from the previous year, was £400.
During the year to 31 December 2015 the bad debts written-off amounted to £1,200.
On 31 December 2011 the accounts receivable balance was £28,000 and the usual allowance for
doubtful debts is to be made.
You are to show:
(a) The Bad Debts Account for the year ended 31 December 2015.
(b) The Allowance for Doubtful Debts Account for the year.
(c) Extract from the Statement of Profit or Loss for the year.
(d) The relevant extract from the Statement of Financial Position as at 31 December 2015.

__________________________________________________________________________________

__________________________________________________________________________________
13

Q3. A business started trading on 1 January 2014. During the two years ended 31 December 2014 and
2015 the following debts were written off to the Bad Debts Account on the dates stated:
31 May 2014 S.Gill £500
31 October 2014 H. Black £400
31 January 2015 A.Tims £200
30 June F. Dale £900
31 October 2015 J. Park £100

On 31 December 2014 the total accounts receivable was £104,000. It was decided to make an
allowance for doubtful debts of £3,120.

On 31 December 2015 the total accounts receivable was £116,000. It was decided to make an
allowance for doubtful debts of £3,480.
You are required to show:
a) The Bad Debts Account and the Allowance for Doubtful Debts Account for each of the two
years.
b) The relevant extracts from the Statements of Financial Position as at 31 December 2014 and
2015.

__________________________________________________________________________________

__________________________________________________________________________________
14

Q4. A business, which started trading on 1 January 2014, adjusted its allowance for doubtful debt at
the end of each year on a percentage basis, but each year the percentage rate is adjusted in accordance
with the current 'economic climate'. The following details are available for the three years ended 31
December 2014, 2015 and 2016.

Bad debts written-off Accounts receivable at 31 Percentage allowance

year to 31 December December after bad debts for doubtful debts
written-off
2014 2,480 84,000 5
2015 5,216 154,000 4
2016 10,620 172,000 3

You are required to show:

(a) Bad Debts Accounts for each of the three years.
(fa) Allowance for Doubtful Debts Accounts for each of the three years.
(c) Statement of Financial Position extracts as at 31 December 2014, 2015 and 2016.

__________________________________________________________________________________

__________________________________________________________________________________
15

Q5. A business which prepares its financial statements annually to 31 December suffered bad debts
which were written-off:
2014 £ 810
2015 £ 630
2016 £1,070

The business had a balance of £790 on the Allowance for Doubtful Debts Account on 1 January 2014.
At the end of each year, the business considered which of its debtors appeared doubtful and carried
forward an allowance of;
2014 £ 900
2015 £1,100
2016 £ 700
Show each of the entries in the statements of profit or loss and prepare the Allowance for Doubtful
Debts Account for each of the three years.

__________________________________________________________________________________

__________________________________________________________________________________
16

Q6. The statement of financial position as at 31 May 2014 of Pondlake Limited included an allowance
for doubtful debts of £4,600. The company's accounts for the year ended 31 May 2015 are now being
prepared. The company's policy now is to relate the allowance for doubtful debts to the age of debts
outstanding. The debts outstanding at 31 May 2015 and the required allowances for doubtful debts are
as follows:
Debts outstanding Amount Allowance for
£ doubtful debts %
Upto l month 60,000 0.5
More than 1 month and up to 2 months 42,000 1
More than 2 months and up to 3 months 34,000 2
More than 3 months 20,000 3

Required:
Prepare the following accounts for the year ended 31 May 2015 in the books of Pondlake Limited to
record the above transactions:
(a) Allowance for doubtful debts;
(b) Provision for discounts to be allowed on debtors.

__________________________________________________________________________________

__________________________________________________________________________________
17
18
19

Depreciation
 Define depreciation
 Explain the reasons for accounting for depreciation
 Name and describe the straight-line, reducing balance and revaluation methods of
depreciation
 Prepare ledger accounts and journal entries for the provision of depreciation
 Prepare ledger accounts and journal entries to record the sale of non-current assets,
including the use of disposal accounts

Definition:
Depreciation is that part of the original cost of a non-current asset that is consumed during its period
of use by the business. It needs to be charged to the profit and loss account every year. The amount
charged in a year for depreciation is based upon an estimate of how much of the overall economic
usefulness of non-current assets has been used up in that accounting period.

Causes of depreciation

1) Wear and tear

2) Erosion,rust
3) Obsolesce
4) Inadequacy
5) Passage of time
6) Legal limit

Straight-line method of depreciation

Formula:

( Cost - Scrap value) OR Cost × Rate of depreciation (%)

Life of the year

Effect on Profit for the year:

Depreciation expenses remains constant over the asset's useful life

Effect on profit for the year is constant

Reducing-balance method of deprecia on

Formula:

( Cost - Accumulated depreciation ) × Rate of depreciation (%)

Effect on Profit for the year:

Depreciation expenses decreases over the asset's useful life

Profit for the year increases as depreciation expenses decreases

Revaluation method of depreciation

Formula:

Value of asset + Purchases - Disposal - Value of asset

at start of during the year during the year at end of
accounting year accounting year

Disposal of fixed assets

When a ﬁxed asset reaches the end of its useful life or when it is no longer needed by the business, it
will be sold. It is important that sales of fixed assets are not treated in the same way as sales of stock in
trade. When fixed assets are purchased this is known as capital expenditure and the asset is recorded
in a fixed asset account rather than the purchases account. When fixed assets are sold this is known as
a capital receipt and the transaction is recorded in a special account, a disposal of fixed asset account,
rather than the sales account.

When a fixed asset is sold it must be eliminated from the books of account. The cost of the asset and
the depreciation to date on the asset are transferred from the appropriate accounts to the disposal
account. The amount received for the ﬁxed asset is also entered in the account. Any difference on the
account is the profit or loss on sale - in other Words the under or over-provision of depreciation. It is
only when the asset is sold that the actual amount of depreciation is known; until this time the
depreciation is only an estimate. The disposal account will be closed by transferring the difference on
the account (the profit or loss on sale) to the Profit and Loss Account.

Similar entries are required when a fixed asset is disposed of but not actually sold. It may be that an
asset is handed to a supplier in part- exchange for another ﬁxed asset: it may be that the asset is scrapped
and has no value whatsoever.
21

Journal Entries
1. Double Entry for Depreciation
Income Statement (Dr)
Provision for Depreciation (Cr)

Ledgers relating to Depreciation

1. Assets Accounts

Date Details $ Date Details $

Opening balance Disposal
Bank Balance c/d
Balance b/d

2. Provision for accumulated depreciation machine / equipment / furniture

/ premises

Date Details $ Date Details $

Disposal Opening
balance
Balance c/d Income
statement
Balance b/d

1. Disposal Entries
Following are the entries of Disposal
 Disposal Account (Dr)
 Machine/Vehicle/Equipment (Cr)
 Provision for depreciation (dr)
 Disposal Account (cr)
 Cash (dr)
 Disposal Account (dr)
 Loss on sale (Dr)
 Disposal Acconut (cr)
 Disposal Account (dr)
 Gain on sale (cr)
22

Disposal Account
Date Details $ Date Details $

Machine/Vehicle Provision of
/Buildings Dep/Accumulated dep

Gain on Bank/Cash
sale/Income
statement

Loss on sale/income
statement
23

Practice question

Q1. D. Bell purchased a laptop for £480. It has an estimated life of three years and a scrap value of
£60.
She is not certain whether she should use the straight line or the reducing balance basis for the
purpose of calculating depreciation on the computer.
You are required to calculate the depreciation (to the nearest £) using both methods, showing clearly
the balance remaining in the computer account at the end of each of the four years under each method.
(Assume that 50 per cent per annum is to be used for the reducing balance method.)

__________________________________________________________________________________________

Q2. A machine costs £26,660. It will be kept for four years, and then sold for an estimated figure of
£6,400. Show the calculations of the figures for depreciation (to nearest £) for each of the five years
using (a) the straight line method, (b) the reducing balance method, for this method using a
depreciation rate of 30 per cent.

__________________________________________________________________________________________

Q3. A car costs £12,000. It will be kept for three years, and then sold for £3,000. Calculate the
depreciation for each year using (a) the reducing balance method, using a depreciation rate of 35 per
cent, (b) the straight line method.

__________________________________________________________________________________________

__________________________________________________________________________________________
24

Q4. A photocopier costs £23,000. It will be kept for four years, and then traded in for £4,000.
Show the calculations of the figures for depreciation for each year using (a) the straight line method,
(b) the reducing balance method, for this method using a depreciation rate of 35 per cent.

__________________________________________________________________________________________

Q5. A printer costs £800. It will be kept for five years and then scrapped. Show your calculations of
the amount of depreciation each year if (a) the reducing balance method at a rate of 60 per cent was
used, (b) the straight line method was used.

__________________________________________________________________________________________

Q6. A bus is bought for £56,000. It will be used for four years, and then sold back to the supplier for
£18,000. Show the depreciation calculations for each year using (a) the reducing balance method with
a rate of 25 per cent, (b) the straight line method.

__________________________________________________________________________________________

__________________________________________________________________________________________
25

Q7. A company which makes up its financial statements annually to 31 December, provides for
depreciation of its machinery at the rate of 12 per cent per annum using the reducing balance method.
On 31 December 2015, the machinery consisted of three items purchased as shown:
£
On 1 January 2013 Machine A Cost 4,000
On 1 September 2014 Machine B Cost 7,000
On 1 May 2015 Machine C Cost 2,000
Required:
Your calculations showing the depreciation provision for the year 2015.

__________________________________________________________________________________________

__________________________________________________________________________________________
26
27

A company starts in business on 1 January 2014, the financial year end being 31 December.
You are to show:
(a) The equipment account.
(b) The provision for depreciation account.
(c) The statement of financial position extracts for each of the years 2014, 2015, 2016, 2017.
The equipment bought was:
2014 1 January 1 machine costing £800
2015 1 July 2 machines costing £1,200 each
1 October 1 machine costing £600
2016 1 April 1 machine costing £1,400
Depreciation is over 10 years, using the straight line method, machines being depreciated for the
proportion of the year that they are owned.
__________________________________________________________________________________________

__________________________________________________________________________________________

__________________________________________________________________________________________
28

27.3A A company maintains its non-current assets at cost. A provision for depreciation account is
used for each type of asset. Machinery is to be depreciated at the rate of 15 per cent per annum, and
fixtures at the rate of 5 per cent per annum, using the reducing balance method. Depreciation is to be
calculated on assets in existence at the end of each year, giving a full year's depreciation even though
the asset was bought part of the way through the year. The following transactions in assets have taken
place;
2016 1 January Bought machinery £2,800, fixtures £290
1 July Bought fixtures £620
2017 1 October Bought machinery £3,500
1 December Bought fixtures £130
The financial year end of the business is 31 December.
You are to show:
(a) The machinery account.
(b) The fixtures account.
(c) The two separate provision for depreciation accounts.
(d) The non-current assets section of the statement of financial position at the end of each year, for the
years ended 31 December 2016 and 2017.

__________________________________________________________________________________________

__________________________________________________________________________________________
29

DRAWINGS
Sometimes the owners of a business will want to take cash out of it for their private use. This is known as
drawings. Drawings are never expenses of a business.
The possession withdrawn from the business, e.g., cash, is the Item exchanged. It has now decreased, so the
account for that item is a credit. The entry in the account for the Form of settlement must be a debit.
In the case of drawings, the Form of settlement is 'capital' but we use a 'drawings account' for the entry. The
reason for this is that if we made the entry in the capital account, it could become.
very full of lots of small drawings transactions. As a result, it is normal practice to maintain.
a separate account for drawings and to deduct the total of the drawings account from capital at the end of each
year.

Q1. Debit Credit

$ $
Sales & Purchases 115000 285000
Op. Stock 15000
Carriage 2400
Interest 4000 3600
Commission 3400 4200
Rent 6000 5600
Discount 3500 1750
Advertising 8400
Returns (goods) 2500 1900
Sundary 4200
Land & Buildings 80000
Equipment 30000
Motor vehicle 20000
Bank 18400
Trade receivables 65000
Trade payables 47500
Insurance 4000
Operating expenses 8000
10% bank loan 50000
Loan interest paid 3000
Carriage outwards 2400
Wages & Salaries 12600
Drawings 12000
Capital 20250
419800 419800

Adjustments:
(i) Cl. Stock $9600
(ii) Insurance prepaid $1650
(iii) Owner mistakenly included $1600 of drawings in wages & salaries.

Required:

(a) Prepare income statement for the year ended 2009

__________________________________________________________________________________

__________________________________________________________________________________
31

Q2. Debit Credit

$ $

Sales 220000
Purchases 95000
Purchase returns 2600
Sale returns 4000
Carriage inwards 2300
Import duties 3000
Air freight 4200
Rent receivable 4600
Discount 3000 1750
Advertising 8600
Wages & salaries 18400
Carriage outwards 3400
Trade payables 22000
Trade receivables 36000
Bank overdraft 2800
5% bank loan 50000
Land & buildings 100000
Machinery 35000
Furniture 20000
Insurance 6000
Machinery repairs 3700
Bad debts 4400
Drawings 22000
Op. stock 10200
Capital 75450
379200 379200

Adjustments:
(i) Cl. Stock $12600
(ii) Wages & Salaries prepaid $750
(iii) Loan Interest accrued.
(iv) goods withdrawn worth $2700.

Required:

(a) Prepare income statement for the year ended 2010

__________________________________________________________________________________

__________________________________________________________________________________
33

Other payables and other receivables

 Recognise the importance of matching costs and revenues

 Prepare ledger accounts and journal entries to record accrued and prepaid expenses
 Prepare ledger accounts and journal entries to record accrued and prepaid incomes.

Recording Accrued and Prepaid Expenses

Expense Accounts

Debit (+) Credit (-)

Balance b/d [Prepaid expense] Balance b/d [Accrued expense]

Cash/Bank/Other payable [Expense paid] Income statement [Expense incurred]

Balance c/d [Accrued expense] Balance c/d [Prepaid expense]

Recording in Statement of Financial Position:

Prepaid expense : Current asset > Other receivables

Accrued expense : Current liability > Other payables

Recording Accrued and Prepaid Income

Income Accounts

Debit (-) Credit (+)

Balance b/d [Accrued income] Balance b/d [Prepaid income]

Cash/Bank/Other receivable [Income

Income statement [Income earned] received]

Balance c/d [Prepaid expense] Balance c/d [Accrued income]

Recording in Statement of Financial Position:

Prepaid income: Current liability

Accrued income: Current asset
34

Q1 The financial year of S. Smith ended on 31 December 2013. Show the ledger accounts for the
following items including the balance transferred to the necessary part of the financial statements, also
the balances carried down to 2010:
(a) Motor expenses: Paid in 2013 £1,400; Owing at 31 December 2013 £200.
(b) Insurance: Paid in 2013 £1,700; Prepaid as at 31 December 2013 £130.
(c) Computer supplies: Paid during 2013 £900; Owing as at 31 December 2012 £300; Owing as at
31 December 2013 £400.
(d) Business rates: Paid during 2013 £5,600; Prepaid as at 31 December 2012 £580; Prepaid as at
31 December 2013 £560.
(e) Smith sublets part of the premises. He receives £3,800 during the year ended 31 December
2013. West, the tenant, owed Hussey £380 on 31 December 2012 and £420 on 31 December
2013.

Q2 W. Hope's year ended on 30 June 2015. Write up the ledger accounts, showing the transfers
to the financial statements and the balances carried down to the next year for the following:
(a) Stationery: Paid for the year to 30 June 2015 £240; Inventory of stationery at 30 June 2014 £60;
at 30 June 2015 £95.
(b) General expenses: Paid for the year to 30 June 2015 £470; Owing at 30 June 2014 £32; Owing at
30 June 2015 £60.
(c) Rent and business rates (combined account): Paid in the year to 30 June 2015 £5,410; Rent owing
at 30 June 2014 £220; Rent paid in advance at 30 June 2015 £370; Business rates owing 30 June
2014 £191; Business rates owing 30 June 2015 £393.
(d) Motor expenses: Paid in the year to 30 June 2015 £1,410; Owing as at 30 June 2014 £92; Owing
as at30 June 2015 £67.
(e) Hope earns commission from the sales of one item. Received for the year to 30 June 2015 £1,100;
Owing at 30 June 2014 £50; Owing at 30 June 2015 £82.

Q3 On 1 January 2015 the following balances, among others, stood in the books of A. Cook, a
sole proprietor:
(a) Business rates, £600 (Dr);
(b) Packing materials, £1,400 (Dr).
During the year ended 31 December 2015 the information related to these two accounts is as follows:
(c) Business rates of £6,200 were paid to cover the period 1 April 2015 to 31 March 2016;
(d) £4,000 was paid for packing materials bought;
(e) £900 was owing on 31 December 2015 in respect of packing materials bought on credit;
(f) Old materials amounting to £300 were sold as scrap for cash;
(g) Closing inventory of packing materials was valued at £2,400.
You are required to write up the two accounts showing the appropriate amounts transferred to the
statement of profit or loss at 31 December 2015, the end of the financial year of the trader.

Q4 On 1 January 2016 the following balances, among others, stood in the books of B. Baxter:
(a) Lighting and heating, (Dr) £192.
(b) Insurance, (Dr) £1,410.
During the year ended 31 December 2016 the information related to these two accounts is as follows:
(c) Fire insurance, £1,164 covering the year ended 31 May 2017 was paid.
(d) General insurance, £1,464 covering the year ended 31 July 2017 was paid.
(e) An insurance rebate of £82 was received on 30 June 2016.
(f) Electricity bills of £1,300 were paid.
(g) An electricity bill of £162 for December 2016 was unpaid as on 31 December 2016.
(h) Oil bills of £810 were paid.
(i) Inventory of oil as on 31 December 2016 was £205.
28.8 The following trial balance was extracted from the books of R. Giggs at the close of business
on 28 February 2014.

__________________________________________________________________________________

__________________________________________________________________________________
39

Q5. The trial balance for a small business at 31 March 2013 is as follows

Dr Cr
£ £
Purchases and sales 92,800 157,165
Cash at bank 4,100
Cash in hand 324
Capital account 1 March 2013 11,400
Drawings 17,100
Office furniture 2,900
Rent 3,400
Wages and salaries 31,400
Discounts 820 160
Trade receivable and Trade payable 12,316 5,245
Inventory 1 March 2013 4,120
Allowance for doubtful debts 1 March 2013 405
Delivery van 3,750
Van running costs 615
Bad debts written off 730
174,375 174,375
Notes:
(a) Inventory 28 February 2014 £2,400.
(b) Wages and salaries accrued at 28 February 2014 £340.
(c) Rent prepaid at 28 February 2014 £230.
(d) Van running costs owing at 28 February 2014 £72.
(e) Increase the allowance for doubtful debts by £91.
(f) Provide for depreciation as follows: Office furniture £380; Delivery van £1,250.
Required:
Draw up the statement of profit or loss for the year ending 28 February 2014 together with a statement
of financial position as at 28 February 2014.

__________________________________________________________________________________

__________________________________________________________________________________
40

__________________________________________________________________________________

__________________________________________________________________________________
41

__________________________________________________________________________________

__________________________________________________________________________________
42

Q6. The trial balance for a small business at 31 August 2015 is as follows

£ £

Inventory 1 September 2014 8,200

Purchases and sales 26,000 40,900
Rent 4,400
Business rates 1600
Sundry expenses 340
Motor vehicle at cost 9000
Trade receivable and Trade payable 1,160 2,100
Bank 1500
Provision for depreciation on motor vehicle 1,200
Capital at 1 September 2014 19,700
Drawings 11,700
63,900 63,900
At 31 August 2015 there was:
• Inventory valued at cost prices £9,100
• Accrued rent of £400
• Prepaid business rates of £300
• The motor vehicle is to be depreciated at 20 per cent of cost
Required:
1 The adjustments to the ledger accounts for rent and business rates for the year to 31 August 2015.
2 A statement of profit or loss for the year ending 31 August 2015, together with a statement of
financial position as at that date.

__________________________________________________________________________________

__________________________________________________________________________________
43

__________________________________________________________________________________

__________________________________________________________________________________
44

__________________________________________________________________________________

__________________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________________
45

Q7. J. Wright, a sole trader, extracted the following trial balance from his books at the close
of business on 31 March 2016:

Dr Cr
£ £
Purchases and sales 61,420 127,245
Inventory 1 April 2015 7,940
Capital 1 April 2015 25,200
Bank overdraft 2,490
Cash 140
Discounts 2,480 62
Sales return 3,486
Purchases return 1,356
Carriage outwards 3,210
Rent and insurance 8,870
Allowance for doubtful debts 630
Fixtures and fittings 1,900
Van 5,600
Trade receivable and Trade payable 12,418 11,400
Drawings 21,400
Wages and salaries 39,200
General office expenses 319
168,383 168,383
Notes:
(a) Inventory 31 March 2016 £6,805.
(b) Wages and salaries accrued at 31 March 2016 £3,500; Office expenses owing £16.
(c) Rent prepaid 31 March 2016 £600.
{d) Increase the allowance for doubtful debts by £110 to £740.
(e) Provide for depreciation as follows: Fixtures and fittings £190; Van £1,400.
Required:
Prepare the statement of profit or loss for the year ending 31 March 2016 together with a statement
of financial position as at that date.

__________________________________________________________________________________

__________________________________________________________________________________
46

__________________________________________________________________________________

__________________________________________________________________________________
47

__________________________________________________________________________________

__________________________________________________________________________________
48

Q8. Mr Chai has been trading for some years as a wine merchant. The following list of balances
has been extracted from his ledger as at 30 April 2014, the end of his most recent financial year.
£
Capital 83,887
Sales 259,870
Trade payable 19,840
Purchases return 13,407
Allowance for doubtful debts 512
Discounts allowed 2,306
Discounts received 1,750
Purchases 135,680
Sales return 5,624
Carriage outwards 4,562
Drawings 18,440
Carriage inwards 11,830
Rent, rates and insurance 25,973
Heating and lighting 11,010
Postage, stationery and telephone 2,410
Advertising 5,980
Salaries and wages 38,521
Bad debts 2,008
Cash in hand 534
Cash at bank 4,440
Inventory as at 1 May 2013 15,654
Trade receivable 24,500
Fixtures and fittings - at cost 120,740
Provision for depreciation on fixtures and fittings - as at 30 April 2014 63,020
Depreciation 12,074

The following additional information as at 30 April 2014 is available:

(a) Inventory at the close of business was valued at £17,750.
(b) Insurances have been prepaid by £1,120.
(c) Heating and lighting is accrued by £1,360.
(d) Rates have been prepaid by £5,435.
(e) The allowance for doubtful debts is to be adjusted so that it is 3% of trade accounts receivable.
Required:
Prepare Mr Chai's statement of profit or loss for the year ending 30 April 2014 and a statement of
financial position as at that date.

__________________________________________________________________________________

__________________________________________________________________________________
49

__________________________________________________________________________________

__________________________________________________________________________________
50

__________________________________________________________________________________

__________________________________________________________________________________
51

Q9. The following trial balance has been extracted from the ledger of Mr Yousef, a sole trader.
Trial Balance as at 31 May 2016
Dr Cr
£ £
Sales 138,078
Purchases 82,350
Carriage 5,144
Drawings 7,800
Rent, rates and insurance 6,622
Postage and stationery 3,001
Advertising 1,330
Salaries and wages 26,420
Bad debts 877
Allowance for doubtful debts 130
Trade receivable 12,120
Trade payable 6,471
Cash in hand 177
Cash at bank 1,002
Inventory as at 1 June 2015 11,927
Equipment at cost 58,000
accumulated depreciation 19,000
Capital 53,091
216,770 216,770
The following additional information as at 31 May 2016 is available:
(a) Rent is accrued by £210.
(b) Rates have been prepaid by £880.
(c) £2,211 of carriage represents carriage inwards on purchases.
(d) Equipment is to be depreciated at 15% per annum using the straight line method.
(e) The allowance for doubtful debts to be increased by £40.
(f) Inventory at the close of business has been valued at £13,551.
Required:
Prepare a statement of profit or loss for the year ending 31 May 2016 and a statement of financial
position as at that date.

__________________________________________________________________________________

__________________________________________________________________________________
52

__________________________________________________________________________________

__________________________________________________________________________________
53

__________________________________________________________________________________

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Grade 10 Accounts Workbook

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Grade 10 Accounts Workbook

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1

Capital and expenditure

Difference between capital and revenue (expenditure and receipts)

Capital expenditure is incurred when a business spends money either to:

Loan from financial institutions/banks

Incorrect What happens? Effect on Profit Effect on asset

Incorrect What happens? Effect on Profit Effect on Statement

Q8. Classify the following items as either revenue or capital expenditure:

Recovery of debts written off

Provision for doubtful debts

Calculating Provision for doubtful debts:

 Debit Income statement Expense

 Adjusting an Increase in Provision for doubtful debts

 Debit Income statement Expense

 Adjusting a Decrease in Provision for doubtful debts

 Debit Provision for doubtful debts Income

Presentation in Income Statement:

Income Statement (extract)

Increase in provision for doubtful debt

Presentation in Statement of Financial Position:

Statement of Financial Position (extract)

Bad debts written-off Accounts receivable at 31 Percentage allowance

You are required to show:

1) Wear and tear

Straight-line method of depreciation

( Cost - Scrap value) OR Cost × Rate of depreciation (%)

Effect on Profit for the year:

Depreciation expenses remains constant over the asset's useful life

Reducing-balance method of deprecia on

( Cost - Accumulated depreciation ) × Rate of depreciation (%)

Effect on Profit for the year:

Depreciation expenses decreases over the asset's useful life

Revaluation method of depreciation

Value of asset + Purchases - Disposal - Value of asset

Disposal of fixed assets

Ledgers relating to Depreciation

Date Details $ Date Details $

2. Provision for accumulated depreciation machine / equipment / furniture

Date Details $ Date Details $

Q1. Debit Credit

(a) Prepare income statement for the year ended 2009

Q2. Debit Credit

(a) Prepare income statement for the year ended 2010

Other payables and other receivables

 Recognise the importance of matching costs and revenues

Recording Accrued and Prepaid Expenses

Debit (+) Credit (-)

Balance b/d [Prepaid expense] Balance b/d [Accrued expense]

Cash/Bank/Other payable [Expense paid] Income statement [Expense incurred]

Balance c/d [Accrued expense] Balance c/d [Prepaid expense]

Recording in Statement of Financial Position:

Prepaid expense : Current asset > Other receivables

Accrued expense : Current liability > Other payables

Recording Accrued and Prepaid Income

Debit (-) Credit (+)

Balance b/d [Accrued income] Balance b/d [Prepaid income]

Cash/Bank/Other receivable [Income

Balance c/d [Prepaid expense] Balance c/d [Accrued income]

Recording in Statement of Financial Position:

Prepaid income: Current liability

Inventory 1 September 2014 8,200

The following additional information as at 30 April 2014 is available:

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