Level 2 Book keeping and Accounts Home LCCI International Book

Level 2 Book keeping and Accounts Home LCCI International Book
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    Level 2 Book-keeping & Accounts Solutions Booklet For further information contact us: Tel. +44 (0) 8707 202909 Email. enquiries@ediplc.com www.lcci.org.uk

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    London Chamber of Commerce and Industry (LCCI) International Qualifications are provided by EDI, a leading international awarding body. Passport to Success Level 2 Book-keeping & Accounts Solutions Booklet

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    The initials LCCI and the words LONDON CHAMBER OF COMMERCE AND INDUSTRY are registered trademarks belonging to the London Chamber of Commerce and Industry and are used under licence. Every effort has been made to trace all copyright holders, but if any have been inadvertently overlooked the...

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    CONTENTS 1 Advanced Aspects of Depreciation 1 2 Adjusting for Accruals and Prepayments ...

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    1 Chapter 1 Advanced Aspects of Depreciation Answers to ‘Think about it’ Questions Page 2 – Specific causes of depreciation:  Wear and tear  Depletion (of natural resources)  Technical obsolescence  Inadequacy  Passage of time Page 5 – Three types of assets and meth...

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    2 Motor Vehicles Cost £ £ 01/01/X5 Bank 28 000 31/12/X5 Balance c/d 28 000 28 000 28 000 01/01/X6 Balance b/d 28 000 31/12/X6 Balance c/d 28 000 28 000 28 000 01/01/X7 Balance b/d 28 000 Provision for Depreciation of Motor Vehicles £ £ 31/12/X5 Balance c/d 7 000 31/12...

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    3 Machinery Cost £ £ 01/01/X7 Bank 149 500 30/04/X7 Disposal Machine C 22 500 31/10/X7 Disposal Machine A 35 000 31/12/X7 Balance c/d 92 000 149 500 149 500 01/01/X8 Balance b/d 92 000 Provision for Depreciation of Machinery £ £ 30/04/X7 Disposals - C 900 30/04/X7 D...

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    4 Trucks Cost £ £ 01/04/X6 Balance b/d 131 000 30/09/X6 Disposal Truck 2 30 000 31/12/X6 Disposal Truck 3 36 000 31/12/X6 Balance c/d 65 000 131 000 131 000 01/01/X7 Balance b/d 65 000 Provision for Depreciation of Trucks £ £ 01/04/X6 Balance b/d 33 750 30/09/X6 ...

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    5 Chapter 2 Adjusting for Accruals and Prepayments Answers to ‘Think about it’ Questions Page 16 – Why is an expense prepayment an asset on the balance sheet?  As the expense is paid for before it is used, the supplier owes the business the amount until such time when the expense ...

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    6 Question 2 (a) Telephone accrual: 1/3 x £900 = £300 (b) Insurance prepayment: 7/12 x £420 = £245 (c) Electricity accrual: 2/3 x £840 = £560 (d) Rent prepayment: 1/2 x £8000 = £4000 Question 3 Telephone £ £ 30/06/X1 Accrual 300 30/06/X1 Profit and Loss Account 300 3...

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    7 Question 4 Rent, Rates, Electricity and Gas £ £ 01/10/X6 Balance b/d - Rent 780 01/10/X6 Balance b/d - Electricity 275 01/10/X6 Balance b/d - Rates 1 500 01/10/X6 Balance b/d - Gas 130 01/04/X7 Bank - Rates 1 700 30/09/X7 Bank - Rent (12 x £800) 9 600 30/09/X7 Bank - Electrici...

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    8 Birch Balance Sheet at 31 December 20X3 £ £ Fixed assets Motor vehicles: cost 15 750 Less: Accumulated depreciation 5 907 9 843 Current assets Stock 3 765 Debtors 3 553 Prepayments (£442 + £1312 + £210 + £95) 2 059 Bank 195 9 572 Current liabilities Creditors 3 ...

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    9 Chapter 3 Bad Debts and Provision for Doubtful Debts Answers to ‘Think about it’ Questions Page 28 – Why would a business decide to increase or decrease its provision for doubtful debts?  If the business financial records over a period of time show a trend i...

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    10 Question 4 Year ended 30 September: 20X5 20X6 20X7 £ £ £ Debtors 34 150 39 275 44 498 Bad debts written off (500) (1 800) (1 926) Revised debtors 33 650 37 475 42 572 Less: specific provision (850) (1 475) (1 772) Balance of debtors 32 800 36 000 40 800 1% 2% 3% General provisio...

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    11 Alice Jones - Profit and Loss Account Extract for the year ended 30 September 20X7 £ Gross Profit Add: Bad debts recovered 423 Expenses £ Increase in ...

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    12 Chapter 4 Introduction to Partnership Accounts Answers to ‘Think about it’ Questions Page 33 – What are some of the benefits of a partnership in comparison to a sole trader?  More capital available to invest in the business; greater opportunity to expand th...

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    13 Question 2 Debit Credit Share of profit Appropriation Account Partners’ Current Account Share of loss Partners’ Current account Appropriation Account Salary Appropriation Account Partners’ Current Account Interest on capital Appropriation Account Partners’ Current Account Interes...

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    14 Exe, Why and Zed Balance Sheet at 1 July 20X6 £ £ Fixed assets Plant and equipment 80 500 Motor vehicles 29 600 110 100 Current assets Stock 7 500 Debtors 15 846 Bank 3 213 26 559 Current liabilities Creditors (10 335) Net Current Assets 16 224 126 3...

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    15 Partners’ Current Accounts Jake £ Misty £ Jake £ Misty £ 01/01/X2 Balance b/d - 4 420 01/01/X2 Balance b/d 2 340 - 31/12/X2 Interest on drawings 831 1 188 31/12/X2 Interest on capital 2 080 1 560 31/12/X2 Drawings 16 620 23 760 31/12/X2 Salary - 7 800 31/12/X2 Profit share 21 ...

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    16 Partners’ Current Accounts Tiger £ Snake £ Tiger £ Snake £ 31/12/X8 Interest on drawings 100 200 01/01/X8 Balance b/d 11 300 9 088 31/12/X8 Drawings 2 000 4 000 31/12/X8 Interest on capital 2 800 1 400 31/12/X8 Salary - 4 000 31/12/X8 Balance c/d 33 188 20 882 31/12/X8 Profit ...

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    17 Chapter 5 Admission and Retirement of Partners Answers to ‘Think about it’ Questions Page 44 – What are some of the specific reasons why someone would be willing to pay for goodwill? - Goodwill in a business may be based on the industry-specific knowledge, know-ho...

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    18 Partners’ Capital Accounts Dan £ Collette £ Helen £ Dan £ Collette £ Helen £ 01/01/X7 Goodwill 15 000 10 000 5 000 01/01/X7 Balance b/d 35 000 35 000 01/01/X7 Bank 18 000 01/01/X7 Balance c/d 35 000 40 000 13 000 01/01/X7 Goodwill 15 000 15 000 50 000 50 000 18 000 ...

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    19 Berry and Rasp Balance Sheet at 1 January 20X3 £ £ Fixed assets Plant and machinery (£92 000 + £15 000) 107 000 Motor vehicles 32 700 139 700 Current assets Stock 19 125 Debtors (£22 950 - £458) 22 492 Bank 8 415 50 032 Current liabilities Creditors (11...

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    20 Freeman, Hardy and Willis Balance Sheet at 1 July 20X1 £ £ Fixed assets Land and buildings 93 750 Fixtures and fittings 37 500 131 250 Current assets Stock 28 125 Debtors 18 750 Bank (£4600 + £33 000) 37 600 84 475 Current liabilities Creditors (23 450) Ne...

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    21 Chapter 6 Dissolution of a Partnership Answers to ‘Think about it’ Questions Page 69 – How can you tell that the accounting entries for the sale of the partnership are correct?  They are correct because the balances on the partners’ capital account (£850...

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    22 Debtors £ £ 31/12/X7 Balance b/d 12 200 31/12/X7 Dissolution account 12 200 12 200 12 200 Bank £ £ 31/12/X7 Balance b/d 355 31/12/X7 Creditors paid 9 050 31/12/X7 Sale of fixtures and fittings and stock 29 500 31/12/X7 Costs of dissolution 600 31/12/X7 Debtors collecte...

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    23 Partners’ Capital Accounts Ham £ Shem £ Jake £ Ham £ Shem £ Jake £ 31/12/X7 Current account 2 265 980 31/12/X7 Balance b/d 10 000 10 000 10 000 31/12/X7 Delivery van 2 500 31/12/X7 Current 851 31/12/X7 Dissolution account 1 567 1 567 1 567 account 31/12/X7 Bank 9 284 3...

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    24 Bank £ £ 30/06/X2 Balance b/d 6 520 30/06/X2 Creditors paid 109 680 30/06/X2 Lincoln Ltd 400 000 30/06/X2 Repay loan to Ely 8 000 30/06/X2 Debtors collected 135 470 30/06/X2 Capital account: Ely 221 357 30/06/X2 Capital account: Bath 202 953 541 990 541 990 Partners’ Capi...

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    25 DR CR £ £ Current account: Hales 3 000 Capital account: Hales 3 000 Current account: Owen 1 925 Current account: Owen 1 925 Transferring the balances on the partners’ current accounts to their capital accounts. Capital account: Hales 11 000 Capital account: Owen 8...

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    26 Chapter 7 Formation of a Company – Meaning, Purpose and Effect Answers to ‘Think about it’ Questions Page 75 – What are some of the advantages a limited company may have in comparison to a partnership?  Liability of owners is limited; this means that ow...

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    27 If the company is wound up, preference shareholders have their capital repaid before the ordinary shareholders. Because they take preference over the ordinary shares, preference shares are a less risky investment. However, preference shareholders are not normally entitled to vote at genera...

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    28 Chapter 8 Limited Companies – The Profit and Loss Account Solutions to Target Practice Questions Question 1 First calculate the number of ordinary shares and then use it to calculate the dividends for ordinary shareholders:  Ordinary dividend: £600 000 ÷ £0.75 = 800 000 shares ...

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    29 Question 4 Thomas Ltd Profit & Loss and Appropriation Account for the year ended 30 April 20X7 £ £ Gross profit 192 953 Less: Expenses Other administrative expenses 32 471 Depreciation charge 4 600 Auditors’ remuneration 10 200 Directors’ remuneration (£36 20...

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    30 Chapter 9 Limited Companies – The Balance Sheet Solutions to Target Practice Questions Question 1 Largo Ltd Trading, Profit & Loss and Appropriation Account for the year ended 30 September 20X1 £000 £000 Sales 4 800 Cost of sales Opening stock 500 Purchases ...

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    31 Largo Ltd Balance Sheet at 30 September 20X1 Cost £000 Acc. Dep. £000 NBV £000 Fixed assets Motor vehicles 600 120 480 Plant and machinery 1 800 616 1 184 2 400 736 1 664 Current assets Stock 568 Debtors 590 Prepayments 20 Cash in hand 150 ...

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    32 Question 2 Legato plc Trading, Profit & Loss and Appropriation Account for the year ended 31 December 20X8 £ £ Sales 224 000 Cost of sales Opening stock 20 000 Purchases 100 000 120 000 Less: Closing stock 39 200 80 800 Gross profit 143 200 Less:...

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    33 Legato plc Balance Sheet at 31 December 20X8 Cost £ Acc. Dep. £ NBV £ Fixed assets Plant 144 000 38 400 105 600 Motor vehicles 64 000 34 000 30 000 208 000 72 400 135 600 Current assets Stock 39 200 Debtors 20 800 Cash at bank 4 800 64 800 ...

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    34 Question 3 Molto plc Appropriation Account for the year ended 31 December 20X3 £ £ Net profit for the year 166 100 Preference dividend 6 600 Proposed final ordinary dividend 9 900 16 500 149 600 Transfer to general reserves 22 000 Retained profit for the year 127 60...

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    35 Question 4 Rall Ltd Trading, Profit & Loss and Appropriation Account for the year ended 31 March 20X6 £ £ Sales 1 071 900 Cost of sales Opening stock 80 400 Purchases 567 000 647 400 Less: Closing stock 84 420 562 980 Gross profit 508 920 Less: Ex...

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    36 Rall Ltd Balance Sheet at 31 March 20X6 Cost £ Acc. Dep. £ NBV £ Fixed assets Freehold property 201 600 48 384 153 216 Motor vehicles 90 000 43 860 46 140 Plant and machinery 160 800 96 480 64 320 452 400 188 724 263 676 Current assets Stock 84 420 ...

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    37 Question 5 Poco plc Trading, Profit & Loss and Appropriation Account for the year ended 31 May 20X8 £ £ Sales 609 141 Cost of sales Opening stock 26 364 Purchases 349 003 375 367 Less: Closing stock 48 230 327 137 Gross profit 282 004 Less: Expens...

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    38 Poco plc Balance sheet at 31 May 20X8 Cost £ Acc. Dep. £ NBV £ Fixed assets Leasehold premises 364 000 60 060 303 940 Motor vehicles 73 060 18 057 55 003 Fixtures and fittings 45 500 31 538 13 962 482 560 109 655 372 905 Current assets Stock 48 230 D...

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    39 Chapter 10 Control Accounts Answers to ‘Think about it’ Questions Page 101 – Other control/checking measure or process introduced at Level 1:  Trial balance  Bank Reconciliation statement Page 103 – What does the balance on the Sales Ledger Control Account represent? ...

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    40 Question 2 Sales Ledger Control Account £ £ 01/01/20X4 Balance b/d 15 030 01/01/20X4 Balance b/d 42 30/06/20X4 Credit sales 93 450 30/06/20X4 Bank: (payments received) 89 948 30/06/20X4 Discounts allowed 2 610 30/06/20X4 Sales returns (returns inwards) 797 30/06/20X...

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    41 Foley Fixings Balance Sheet Extract at 31 March 20X7 Current Assets £ Debtors (£12 503 + £166) 12 669 12 669 Current Liabilities £ Creditors (£8 335 + £268) 8 603 8 603

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    42 Chapter 11 Incomplete Records Answers to ‘Think about it’ Questions Page 119 – How could we tell that the cash balances were debit ones?  Because it is not possible for the cash account to have a credit balance Page 121 – Why is the comparison of capital method of calculating...

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    43 Question 3 (a) Calculation of opening and closing capital Assets and Liabilities at 1 January 20X3 £ 31 December 20X3 £ Shop fittings 13 200 11 200 Stock 42 240 49 170 Debtors 48 180 33 660 Bank 23 100 ...

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    44 Phil Fordham Balance Sheet at 31 December 20X3 £ £ Fixed assets Shop fittings 11 200 Current assets Stock 49 170 Debtors 33 660 Bank 30 060 Cash in hand 2 640 115 530 Current liabilities Creditors 26 400 26 400 Net current assets 89 130 Net assets...

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    45 Question 4 (a) Fran Fosset Statement of Affairs at 1 July 20X7 £ £ Fixed assets Motor vehicle (NBV) 5 225 Current assets Stock 4 400 Debtors 4 290 Bank 963 9 653 Current liabilities Creditors 3 718 3 718 5 935 Capital at 1 July 20X7 11 160 (b) S...

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    46 (d) Fran Fosset Trading, Profit and Loss Account for the year ended 30 June 20X8 £ £ Sales Cost of sales 99 385 Opening stock 4 400 Purchases 53 834 58 234 Less: Closing stock 4 950 53 284 Gross profit 46 101 Bank interest received 138 46 239 Less: Expenses W...

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    47 Question 5 Workings: The following accounts need to be prepared to calculate the sales and purchases figures for the trading account and the business and depreciation expense for the profit and loss account. Sales / Debtors £ £ Balance b/d 50 400 Bank 141 400 Sales for the yea...

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    48 Sand and Iego Appropriation Account for the year ended 31 March 20X2 £ £ Net profit 42 175 Interest on capital: Sand (£60 000 x 5%) 3 000 Iego (£30 000 x 5%) 1 500 4 500 37 675 Iego - Salary 5 000 32 675 Profit share Sand (3/5) 19 605 Iego (2/...

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    49 Chapter 12 Stock Valuation Answers to ‘Think about it’ Questions Page 134 – Which accounting concept is the principle of valuing stock at NRV based on?  It is based on the accounting concept of ‘prudence’. If stock is not valued at NRV where it is less than cost, then closi...

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    50 If the NRV is lower than the cost then the difference between the two figures must be deducted from the original stock value. Question 3 Carol Carlton Trading Account for the year ended 31 December 20X7 £ £ Sales 18 000 Less: Cost of sales Opening stock 38 720 Purchases 12 00...

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    51 Chapter 13 Manufacturing Account Solutions to Target Practice Questions Question 1 Direct materials Indirect materials Direct labour Direct expenses Production overheads Raw materials  Business rates  Wages of factory foreman  Crane hire for one order  Roy...

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    52 Question 3 Resin Ltd Manufacturing Account for the year ended 30 September 20X7 £ £ Raw materials Opening stock - raw materials 89 900 Purchases – raw materials 756 900 Carriage on raw materials purchased 39 150 885 950 Less: Returns to raw materials suppli...

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    53 Kevin Coyle Trading & Profit and Loss Account for the year ended 31 March 20X6 £ £ Sales 112 500 Opening stock –finished goods 7 625 Production cost 55 875 Closing stock – finished goods (10 250) 53 250 Gross profit 59 250 Add: Discount received ...

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    54 Question 5 (a) Edwin Crump Ltd Manufacturing Account for the year ended 31 December 20X8 £ £ Raw materials Opening stock - raw materials 29 900 Purchases – raw materials 651 300 Carriage inwards 35 640 716 840 Less: Purchase returns – raw materials (1...

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    55 Chapter 14 Non-trading Organisations Answers to ‘Think about it’ Questions Page 164 – Why is it important for any organisation to prepare a bank reconciliation statement?  A bank reconciliation statement is necessary to explain any differences between the c...

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    56 Question 3 Skitter Bowls Club Receipts and Payments Account for the year ended 31 December 20X2 £ £ Cash in hand 145 Cash at bank 2 366 2 511 Receipts Subscriptions 4 950 Competition entry fees 600 Sales of refreshments 845 Donations 200 6 595 9 106 Payments Rent pa...

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    57 Question 5 Seadley Boys Football Club Income and Expenditure Account for the year ended 31 August 20X9 £ £ Income Gate fees 6 960 Profit from sale of refreshments 9 108 Donations 460 Sponsorship 1 280 Advertising revenue 586 18 394 Less: Expenditure Rent fo...

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    58 Chapter 15 Non-trading Organisations: Subscriptions Account and Balance Sheet Solutions to Target Practice Questions Question 1 Chuggle Bowls Club Subscriptions Account £ £ Balance b/d – Subscriptions owing 540...

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    59 Question 3 Totem Kick-boxing Club Accumulated Fund at 30 April 20X7 £ £ Club house 45 000 Sports equipment 2 300 Stock of merchandise 1 105 Prepaid club expenses 325 Subscriptions in arrears 108 High interest bank account 5 000 Cash in hand 140 53 978 Loan 33 750 ...

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    60 Kidling Gardeners Association Seed Trading Account for the year ended 30 June 20X6 £ £ Sales 1 812 Opening stock 130 Purchase of seeds (£1090 - £175 + £126) 1 1 041 1 171 Less: Closing stock (145) 1 026 Seeds Profit 786 Kidling Gardeners Associatio...

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    61 Kidling Gardeners Association Balance Sheet at 30 June 20X6 £ £ Fixed assets Gardening tools and equipment 2 044 Current assets Stock of seeds 145 Subscriptions in arrears 105 Prepaid insurance 60 Bank 1 177 1 487 Current liabilities...

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    62 Covington Handbell Ringers Society Income and Expenditure Account for the year ended 31 December 20X7 £ £ Income Subscriptions 7 500 Concert ticket sales 3 000 Hire of concert venue 2025 Profit on concert 975 8 475 Expenditure Hire of practice hall 2 600 M...

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    63 Chapter 16 Errors and the Use of a Suspense Account Answers to ‘Think about it’ Questions Page 196 – Now that there is no longer a balance on the suspense account (shown on the page), what does this tell you?  If the balance on the suspense is cleared this in...

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    64 OR Question 3 Suspense Account £ £ Trade debtors 5 250 Balance b/d 4 125 Rent receivable 750 Fixed assets 1 875 6 000 6 000 Dr Cr (d) £ £ Purchases Ledger Control 678 Slipshod Ltd – Purchases Ledger (memo) 678 ...

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    65 Question 4 Suspense Account £ £ Balance b/d 442 Sales day Book under-cast 750 Bad debt 245 Understated sales receipt 63 750 750 Sales Ledger Control £ £ Balance b/d 21 942 Correct sales invoice 500 Sales Day Book under-cast 750 Bad ...

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    66 Suspense Account £ £ Balance b/d 74 Sales Ledger Control Account 27 Discounts allowed 85 Bank charges 280 Discounts received 85 Purchases Ledger Control Account 63 307 307 Amended profit calculation for Kandoo Books Ltd at 30 June 20X7 ...

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    67 Chapter 17 Calculation and Interpretation of Ratios Answers to ‘Think about it’ Questions Page 205 – Why would each of these parties be interested in the information provided by ratio analysis?  The owners and managers would want to find out how profitable ...

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    68 (e) Working capital / Current ratio 49 560 = 2.3 : 1 21 780 This is the number of times that current liabilities are covered by current assets. The ratio indicates that Danrow has £2.30 of current assets for every £1 of current liabilities; Danrow could pay its current liabiliti...

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    69 Question 4 Rond Ltd Trub Ltd Return on capital employed 1125 x 100 = 26.04% 935 x 100 =13.06% 4320 7160 Gross profit margin percentage 2115 x 100 = 55.29% 2375 x 100 = 47.98% 3825 4950 Net profit percentage 1125 x 100 = 29.41% 935 x 100 = 18.89% 3825 ...

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    70 Current ratio This ratio gives an overall view of the financial stability of a company by considering whether its current liabilities are adequately covered by its current assets. The results of Hymid Ltd for each of the years ended 30 June 20X6 and 30 June 20X7 indicate that it can comfor...

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    71 Chapter 18 Preparing Simple Financial Statements Using Ratios Solutions to Target Practice Questions Question 1 The first step is to calculate gross profit: Cost price + Gross profit = Selling price £9 600 ? £1...

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    72 (c) Calculate purchases using cost of sales: Opening stock + Purchases – Closing stock = Cost of sales £8540 + ? - £14 500 = £57 600 Therefore, the figure for purchases is £63 560. (d) If gross profit is 40% of sales, then cost of sal...

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    73 Question 5 Workings: (a) Average stock (£7392 + £11 088) ÷ 2 = £9 240 (b) Calculate cost of sales using stock turnover: Therefore, cost of sales is 15 x £9240 = £138 600 (c) Calculate purchases using cost of sales: Opening stock + Purchases – Closing stock = Cost of ...

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    74 John Duffy Trading and Profit & Loss Account for the year ended 31 December 20X8 £ £ Sales 262 500 Cost of sales Opening stock 7 392 Purchases 142 296 149 688 Less: Closing stock (11 088) 138 600 Gross profit 123 900 Less: Expenses (balancing figure) ...

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    75 EDI International House Siskin Parkway East Middlemarch Business Park Coventry CV3 4PE UK Tel. +44 (0) 8707 202909 Fax. +44 (0) 2476 516505 Email. enquiries@ediplc.com www.ediplc.com LCCI/SB2/0909