On 30 June 2004 Downton’s bank statement showed he had an overdraft on his current account at the

bank of £462.
When checking the cash book with the bank statement, you find the following:
(1) Bank charges of £64, shown on the bank statement, had not been entered in the cash book.
(2) Cheques drawn of £461 had been entered in the cash book, but had not been debited by the
bank
(3) Cheques received of £237 had been entered in the cash book, but had not been credited by the
bank.
(4) A cheque payment for £97, relating to telephone expenses, had been entered twice in the cash
book.
(5) Dividends received of £27 have been paid direct to the bank and not entered in the cash book.
(6) Downton instructed the bank to make a transfer of £200 from his deposit account to his current
account, which duly happened. This amount had, however, been credited in the cash book and
debited in the deposit account.
(7) The bank dishonoured a cheque from Jones for £68. Downton has correctly amended the cash
book, but has now decided the debt in question should be provided as a bad debt. No entry has
yet been made for this.
(8) The bank has incorrectly debited a cheque for £86 to Downton’s account.
REQUIRED
Prepare:
(a) a Bank Reconciliation Statement reconciling the statement with the revised balance in the cash
book
(b) the adjustments in the Cash Book showing clearly the balance before adjustment.
(c) a statement showing the effect on reported profit of the items above
(12 marks)
Explain:
(d) The difference between bank charges and bank interest charged (2 marks)
(e) The purpose of a cheque book stub (2 marks)
(f) The difference between a credit transfer and a direct debit (2 marks)
(g) Why an overdraft is a credit balance in the books of a business but a debit balance
on the bank statement (2 marks)
(Total 20 marks)

The book-keeper of Snodland Partners had prepared draft accounts showing a net profit of £13,200
and a Suspense Account with a debit balance of £2,800. When these accounts were checked the
following were discovered.
(1) Closing stock of £4,176 has been included in the accounts as £4,716. The partnership uses
a periodic stocktaking system.
(2) Proceeds of £2,000 from the sale of machinery had been credited to the Suspense Account
and debited to the Bank Account. No other entries had been made in respect of this
machinery, which cost £5,000, and had accumulated depreciation of £2,800 at the date of
sale. However, it had not been further depreciated at the year end.
(3) Prepaid rent expense of £312 had been entered as an accrual in the rent account.
(4) Accrued electricity expense of £163 had been entered as a prepayment of £136, in the
electricity account.
(5) Drawings by Sid Snodland of £500 had been debited to Suspense Account and credited to
Bank Account.
(6) A payment of £4,300 in respect of the tax incurred by the partners had been correctly
included in the Bank Account but no debit entry had been made.
REQUIRED
(a) Prepare:
(i) journal entries (with narratives) showing the necessary amendments
(ii) the Suspense Account
(iii) a statement showing the corrected net profit
(16 marks)
(b) Explain the difference between periodic stocktaking and continuous stocktaking and give one
advantage of each.
(4 marks)
(Total 20 marks)

The Sales Ledger Control Account of Ascot, in her Trial Balance, showed a debit balance of £71,540
on 31 January 2007. On that date, the list of balances extracted from the Sales Ledger had a net
total
of £71,431 debit.
The following errors were discovered:
(1) The discount allowed column in the Cash Book had been over-added by £40.
(2) Contras of £700 had been correctly recorded in the Purchase Ledger and Sales Ledger
Accounts but no entries had been made in either Control Account.
(3) A cheque for £1,200 received from a customer had been entered in the customer’s account
as £120.
(4) A page in the Sales Day Book had been over-added by £20.
(5) Debit balances of £70 and £80 had been omitted from the list of Sales Ledger balances and
a debit balance of £142 had been incorrectly listed as a credit balance.
(6) A credit sales invoice for £746 and a receipt from a credit customer of £60 had been
completely omitted from the books.
(7) An invoice for £75 recorded in the Sales Day Book had not been posted in the customer’s
account in the Sales Ledger.
REQUIRED
(a) Prepare journal entries (without narratives) showing the corrections necessary to
the double entry records.
(5 marks)
(b) Calculate
(i) the corrected Sales Ledger Control Account balance.
(ii) the corrected net total of the balances extracted from the Sales Ledger.
(7 marks)
(c) Calculate the change to Ascot’s net profit as a result of the discoveries.
(3 marks)
Ascot wishes to minimise her debtors. Currently sales invoices are sent on the first day of the month
after goods are sent. An enthusiastic sales ledger clerk has suggested that invoices should be sent
together with the goods. Ascot’s credit terms are 60 days after date of invoice.
REQUIRED
(d) Assess, and reach a conclusion, on the sales ledger clerk’s idea. (3 marks)
(e) Give two other suggestions as to how Ascot might reduce her debtors (4 marks)
Ascot has noticed that her electricity supplier has threatened to add a £50 late payment charge to
her
next bill, if payment is received after the due date. She is interested in the idea of imposing late
payment charges on her own customers.
REQUIRED
(f) Assess whether this approach could work for Ascot, a builder, whose work is
primarily for householders. (3 marks)
(Total 25 marks)

Leeds manufactures and sells 300,000 buckets a year. Financial data relating to each bucket is as
follows:
££
Selling price 6.00
Costs:
Direct materials 1.40
Direct labour 1.80
Variable overheads 1.00
Fixed overheads 0.40
4.60
Profit 1.40
REQUIRED
(a) Calculate how many buckets Leeds must sell each year to break even. (3 marks)
(b) Calculate how many buckets Leeds needs to sell in order to make an annual profit of £150,000.
(3 marks)
(c) If annual fixed costs increase by £100,000, whilst direct labour falls by £0.20 per bucket, calculate
the revised number of buckets Leeds must sell each year to break even.
(3 marks)
A business with a high contribution for each unit sold is potentially both more profitable and more risky
than a business with a low contribution for each unit sold.
REQUIRED
(d) Explain the above statement. (4 marks)

The following invoice was received on 29 December 2007 by Crewe Ltd, whose year end is
31 December.
Stoke plc
Crewe Ltd
London E17 London N12
21 December 2007
Due for our services for the three month
period ended 31 December 2007
£
General marketing advice - £2000 per month 6000
Supply of new photocopier 8000
Deposit paid for television advertising in March 2008 7000
Cost of newspaper advertising in December 2007 9000
30000
5% discount if paid within 30 days
REQUIRED
(a) Suggest the appropriate treatment for each of the four items on the invoice. Explain and justify
these suggestions by reference to relevant accounting concepts.
(12 marks)
(b) In respect of the discount:
(i) State whether this is a trade or settlement discount
(ii) Calculate the amount payable if the discount is taken
(iii) State the date the invoice must be paid by in order to qualify for the discount
(iv) If the invoice is paid on 27 December 2007, state the change in gross profit and net profit, if
any, resulting from taking the discount.
(5 marks)
The following errors have been discovered in the accounts of Derby Ltd:
(1) Discount received of £749 has been debited as discount allowed of £794
(2) Depreciation has been provided on an asset at 25% straight line instead of 20% straight line.
After providing the depreciation at 25%, the asset has a net book value of £9,000. This is the first
year the asset has been depreciated.
(3) Selling expenses of £325 have been recorded as an administrative expense.
REQUIRED
(c) Prepare journals correcting the errors. No narrative is required.
(6 marks)
(d) Calculate the change in net profit as a result of the corrections.
(2 marks)
(Total 25 marks)

The accounts of Newlin for the year ended 30 September 2009 are currently in draft form. The
following events have yet to be accounted for:
(i) On 15 October 2009, a fire in the kitchen on one of the ships destroyed stock valued at
£3,000 and prevented the ship from sailing for 10 days, losing revenue of £50,000. The
company was not insured for either event.
(ii) A passenger is suing the company for £20,000, claiming that she suffered food poisoning as
a result of a meal eaten on board on 21 April 2009. Legal advice suggests it is 95% certain
that the passenger will win the case.
REQUIRED
(b) State how each item would be treated in the financial statements for the year ended
30 September 2009.
(6 marks)
Newlin is considering introducing an airline service between the mainland and the Isle of Nilly. Initial
costings have shown the following:
Sales price per passenger £80
Variable costs per passenger 10% of sales price
Annual fixed costs £5,400,000
REQUIRED
(c) Calculate the number of passengers needed per annum in order for the service to:
(i) break even
(ii) make a profit of £1,800,000
(5 marks)
(d) Explain briefly why an airline would expect variable costs to be a small proportion of
sales price.
(2 marks)