23 Study Period 12 continued 4 A business is set up with $5,000 capital and a $3,000 loan. During the first six months trading $1,500 is spent on non current assets and $4,400 on inventory. Half the inventory is sold for $3,050. The owner withdraws $200 per month for living expenses and takes $150 worth of goods from inventory. What is the balance on the capital account at the end of the period? A $5,850 B $3,650 C $4,500 D $4,350 5 A business has non-current assets which cost $12,000 three years ago and are being depreciated at 25% per annum. It has receivables of $2,100 and payables of $1,600 and has paid $500 in advance for local taxes. The bank account is overdrawn by $75. it owes $350 tax. What are its total net assets? A $3,575 B $6,575 C $3,075 D $3,725 24 Study Period 12 continued 6 A business has received telephone bills as follows: Date received Amount of bill Date paid $ Quarter to 30 November 19X8 December 19X8 739.20 January 19X9 Quarter to 28 February 19X9 March 19X9 798.00 April 19X9 Quarter to 31 May 19X9 June 19X9 898.80 June 19X9 Quarter to 31 August 19X9 September 19X9 814.80 October 19X9 Quarter to 30 November 19X9 December 19X9 840.00 January 20X0 Quarter to 28 February 20X0 March 20X0 966.00 March 20X0 In the income statement for the year ended 31 December 19X9, the charge for telephone should be: A $3,250.80 B $3,351.60 C $3,407.60 D $3,463.60 7 On 1 January 19X9 Davies Co owned freehold land and buildings which had cost $500,000 (building element $200,000) and had a net book value of $460,000. On 31 December 19X9 this non-current asset was revalued at $750,000. Davies Co depreciates freehold buildings on a straight line basis over 50 years. What is the amount that would be credited to the revaluation reserve? A $294,000 (750,000 – 456,000) B $290,000 (750,000 – 460,000) C $280,000 (750,000 – (460,000 + 10,000)) D $250,000 (750,000 – 500,000) 8 On 1 January 19X5 Blun Co bought a machine for $70,000. It was estimated that the machine's useful life would be 7 years and its residual value $7,000. Two years later the useful life was revised to three remaining years and at 31 December 19X8 the machine was sold for $30,000. What is the profit on disposal? A $2,000 B $8,000 C $12,000 D $20,000 25 Study Period 12 continued 9 At 31 December 19X8 the ledger of X Co included a $2,240 receivables allowance. During the year ended 31 December 19X9 bad debts of $850 were written off. Receivables balances at 31 December 19X9 totalled $72,400 and the company wished to carry forward a general allowance of 2%. The charge for bad debts in the 19X9 income statement is: A $41 B $58 C $1,642 D $2,298 10 Humphrey Co's trial balance shows a receivables account balance of $50,000, this includes the following: • $2,500 from J Dougall & Sons who have gone into liquidation • Debts of $500 + $1,500 which are to be specifically allowed for • Cash received from P King of $1,800 which had previously been written off • Cash received from T Hussle of $2,900 which had previously been allowed for What is the revised receivables figure? A $52,200 B $50,200 C $49,300 D $45,500 You will find the answers to this test at the end of this Study Programme. If you answer more than 5 questions correctly, your performance is satisfactory; if you answer more than 7 correctly, you are doing very well. 26 Study Period 13 Bank reconciliations Priority = Medium Date due: Exam Guidance This is an extremely practical topic and you may well end up doing a bank reconciliation in real life. Therefore you should pay particular attention to this chapter. Guidance through the Study Text These topic are covered in Chapter 8 Bank reconciliations. Section Approach Essential points 1 Bank statement and cash book Read through quickly. 2 The bank reconciliation Read through carefully. Common causes of differences between the cash book and the bank statement 3 Worked examples Work through very carefully. Learn the layout of a bank reconciliation Try Questions 10 and 11 in the Exam Question Bank of your Study Text Exam focus point This topic will usually be examined by one or more MCQs. However a more complex ten mark question could well be set. 27 Study Period 13 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. What are the common causes of differences between the cash book and the bank statement? Why do businesses want to prepare a bank reconciliation? The bank statement balance is reconciled to the cash book balance before any adjustments are made to the cash book. True or false? List three examples of adjustments to be made to the cash book. Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 4: Accounting records and reconciliations Learn interactively BPP i-Learn/BPP Virtual Campus Module 5 Part 2 Improve your study skills BPP's Learning to Learn Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca Common Pitfalls • Failing to learn the layout • Treating bank statement balances incorrectly. Remember the bank statement is shown from the bank's perspective not yours. A credit on the statement, for example, shows that you are a creditor of the bank and they owe you money. For you this is a debit, an asset • Getting confused with overdrafts. Remember, a bank overdraft should be shown as a negative number on the bank reconciliation statement. In the nominal ledger of the business it will be a credit balance in the bank T-account 28 Study Period 14 Control accounts Priority = High Date due: Exam Guidance A highly examinable topic. This topic gives scope for testing of double entry techniques, discounts, bad debts etc, so you must be clear on your basic double entry in these areas. Control accounts may form an entire question or part of a question. Guidance through the Study Text These topics are covered in Chapter 7 Control accounts. Section Approach Essential points 1 What are control accounts? Read through quickly. 2 Discounts Read through carefully. Distinction between trade and settlement discounts and their accounting treatments 3 The operation of control accounts Pay particular attention to this section. Typical entries to the receivables and payables control accounts 4 The purpose of control accounts Read through carefully. Reconciliations with the sales or purchase ledgers Try Question 9 in the Exam Question Bank of your Study Text Exam focus point Has been examined by MCQs to date. However it could form a ten mark question in a future exam. 29 Study Period 14 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. What are the typical entries to a receivables control account? Are the receivables and payables control accounts part of the double entry system? What is the purpose of a control account? What are the accounting entries for a trade discount received? Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 4: Accounting records and reconciliations Learn interactively BPP i-Learn/BPP Virtual Campus Module 5 part 1 Improve your study skills BPP's Learning to Learn Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca Common Pitfalls • Confusing receivables/payables ledger control accounts with receivables/payables ledgers • Adjusting in the wrong place when making corrections • Not tackling this early on in studies, as it seems quite daunting at first 30 Study Period 15 Correction of errors Priority = Medium Examined: 6/05 Date due: Exam Guidance A highly examinable topic which has featured regularly in the MCQs of past exam papers. Guidance through the Study Text These topics are covered in Chapter 9 Correction of errors. Section Approach Essential points 1 Types of error in accounting Read through carefully. Definitions of the different types of error 2 The correction of errors Work through this section very carefully. Learn how to use suspense accounts correctly Try Question 12 and 35 in the Exam Question Bank of your Study Text Exam focus point This topic is likely to be examined by MCQs. However it could also be part of an accounts preparation question, for example where the trial balance does not in fact balance. The June 2005 paper had a 10 mark question on preparing journal entries to correct errors. 31 Study Period 15 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. What is an error of commission and give an example? When would you use a journal to correct an error? When would you use a suspense account? Is the balance on suspense account included in the income statement or balance sheet? Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 8: Errors and suspense accounts Learn interactively BPP i-Learn/BPP Virtual Campus Module 11 Improve your study skills BPP's Learning to Learn Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca Common Pitfalls • Not following this approach: – What has been done? – What should have been done? – Entry required to correct? – Other side to suspense account • Remember that some errors will not give rise to a suspense account – it is only when total debits do not equal total credits that a suspense account is needed. 32 Study Period 16 Computer applications in accounting Priority = Low Date due: Exam Guidance A general awareness is required, not detailed technical knowledge. You may be asked for the advantages and disadvantages of computer accounting systems over manual accounting systems or about the types of error that could occur in manual and computer accounting systems. Guidance through the Study Text These topics are covered in Chapter 23 Computer applications in accounting. Section Approach Essential points 1 Accounting packages Read through carefully. Advantages and disadvantages of accounting packages 2 Accounting modules Read through quickly to obtain an overview. 3 Databases Work through quickly. Database key terms 4 Spreadsheets Skim through quickly. 5 Practical experience Skim through quickly. Exam focus point This has only been examined by MCQs to date. . @bpp.com) fax (020 8 740 2293) or phone us (020 8 740 2 242 /2 245 ) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 4: Accounting records. @bpp.com) fax (020 8 740 2293) or phone us (020 8 740 2 242 /2 245 ) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 4: Accounting records. that would be credited to the revaluation reserve? A $2 94, 000 (750,000 – 45 6,000) B $290,000 (750,000 – 46 0,000) C $280,000 (750,000 – (46 0,000 + 10,000)) D $250,000 (750,000 – 500,000) 8 On