1.

RW Ltd. Uses control accounts to check the accuracy of its trade receivables and trade
payables as shown by its double entry book keeping system. The Sales Ledger Control
Account and the Purchases Ledger Control Account for the financial year ended 31 December
2015 have been prepared from the following information.
1 January 2015 balances b/d:

Sales Ledger Control Account

262000 Dr

Purchases Ledger Control Account

307000 Cr

Totals for the year 1 January 2015 to 31 December 2015:

Credit sales

376000

Credit purchases

287500

Sales returns

12700

Purchases returns

13700

Cheques received from customers

Cash received from customers
Cheques paid to suppliers

327800
18200
212700

Discounts received

7600

Discount allowed

8800

Dishonored cheques from customers

4500

At the financial year ended 31 December 2015. RW Ltds Schedule of trade receivables had a
total of $267000, which differed from its Sales Ledger Control Account balance at the date.
At the same date RW Ltds Schedule of trade payables had a total of $324000, which differed
from its Purchases Ledger Control Account balance at that date.
Subsequent investigation revealed the following errors:
(i)

The total of sales in the Sales Journal had been under cast by $66500.

(ii)

A cheque received form a debtor for $2500, correctly processed through the books, had
subsequently been dishonored. The books have not yet been adjusted to reflect this.

(iii) $4000 purchases made on 30 December 2015 were correctly entered in the Purchases
Journal but had not been posted to the individual suppliers account in the purchases
Ledger.
(iv) A credit sale to T. Cook for $45200 had been correctly entered in the Sales Ledger but
had not been posted to T. Cooks account.

(v)

D. Hubbard is both a customer and a supplier to RW Ltd. He purchases goods to the

value of $62500 from RW Ltd. and supplied RW Ltd with foods to the value of $32500
the correct entries have been made in the Sales Ledger and the Purchases Ledger but
no contra entries have been made in the control accounts.

(vi)

Purchases of $15300 form a supplier had been found to be unsuitable and were
returned on 14 December 2015. This transaction to record the return had not been
processed through the books.

(vii)

A cheque for $6200 sent to a supplier, for goods received, had been returned to RW
Ltd. as it had not been signed. As at 31 December 2015 a replacement cheque had
not been issued and the return of the original cheque had not been recorded in RW
Ltds books.

(viii)

Sales returns of $3200 had been correctly entered in the Sales Returns Journal but
had not been posted to the individual debtors account.

Required:
(a) A corrected Sales Ledger Control Account for the year ended 31 December 2015.

[8]

(b) A corrected Purchases Ledger Control Account for the year ended 31 December 2015. [8]
(c) Statement reconciling:
(i) The Schedule of trade receivables total with the corrected balance in the Sales
Ledger Control Account.
(ii) The Schedule of trade payables total with the correctly balance in the Purchases
Ledger Control Account.
[10]
(d)

Explain why books of prime (original) entry are important in the production of control
accounts.
[4]
[Total marks 30]

2. Pritchard and Singh had been in partnership for a number of years. As good friends, they had
never drawn up a formal partnership agreement. On 1 July 2015, they admitted Jones as a
partner. Jones paid $40000 capital into the partnership and also brought a motor vehicle,
valued at $7000, for partnership use.
As the number of partners had increased, a formal partnership agreement was drawn up,
effective from 1 July 2015, form this date:
(i)

Partners share profits in the ratio Pritchard 2/5, Singh 2/5 and Jones 1/5.

(ii)

Interest on capital is payable at the rate of 10% on the balance of capital as shown in the
partners capital accounts at the end of each financial year.

(iii) Interest on drawings is charged at 5% on the balance of drawings at the end of each
financial year.
(iv) Singh would receive a salary of $10000 per annum.
On 1 July 2015 goodwill in the business was valued at $40000 and the partners agreed that
this would not remain in the books. The following information relates to the year ended 31
December 2015.
$
Sales

2600000

Sales returns

200000

Purchases

1625000

Inventory at 1 January

120000

Inventory at 31 December

145000

General expenses

480000

Capital accounts balances (before goodwill) at 1 January - Pritchard

- Singh

120000
80000

Current account balances at 1 January -

Drawings

- Pritchard
- Singh

17000 Dr
12000 Cr

- Pritchard

96000

- Singh

120000

- Jones

35000

Additional information:

(i)

On 1 July 2015 Singh has provided loan of $50000 to the partnership.

(ii)

During the year Pritchard has taken goods worth $4000 for personal use.

(iii) General expenses owing at the end of the year amounted to $2000.
Required:

(a)

Capital Accounts for each of the partners for the year ended 31 December 2015.
[5]

(b)

The income statement and profit and loss and appropriation account for the year ended
31 December 2015.
[8]

(c)

The partners are considering changing their business from a partnership to a private
limited company. Write two benefits to the partners of such a change.
[2]

[Total marks 15]

2. (B) Ralph is in business and it has a financial year ended 31 December 2009. He is unsure how
to deal with the following transactions in the accounts of the business.
(i)

On 1 December 2009, Ralph started an agreement to rent additional premises. On

this date he paid $7200 by cheque to cover the rent for the period 1 December 2009
to 31 May 2010. He intends to charge all of this payment to his Profit and Loss
Account for the year ended 31 December 2009. An equal amount is charged for rent
each month.

(ii)

During the year ended 31 December 2009, Ralphs general expenses account
showed that he paid $15000. This includes an amount of $2500 for the family holiday
which has been paid out of the business bank account.

(iii) In December 2009, Ralph was negotiating a sale of goods to the value of $10000.
He was fairly certain that during January 2010. The client would sign the contract to
purchases the gods. He planned to include this amount in the sales figures for the
year ending 31 December 2009.
(iv) Ralph feels that his management team is an asset to the business and wants to
include the team at a value of $50000 on the balance sheet of the business.
Required:
(a)

Advise Ralph how he should deal with each of the above transactions in his final
accounts, identifying and applying appropriate accounting concepts.

[8]
(b)

The following ledger accounting entries to record transactions (i) and (ii) above for the
year ended 31 December 2009, showing (where appropriate) the transfers to the final
accounts.
(i)

Rent

(ii)

General expenses

[4]

[Total marks 30]

3. Duke plc had estimated the following factory indirect costs for its financial year ended 30
November 2015.
$
Indirect wages

2120 000

Repairs and maintenance

410 000

Rent and rates

53 000

Insurance of machinery

24 000

Insurance of premises

28 000

Electricity power

48 000

Depreciation of machinery

14 000

Consumables

21 150

The company calculated a suitable overhead absorption rate for each of its two production
departments using the following information.

Production Departments

Service Departments

Machining

Assembly

Canteen

Maintenance

Machine cost ($)

617500

332500

Direct machine hours

202 500

22 500

Direct labour hours

55 500

314 500

Floor area (square metres)

9 000

8000

1000

2000

Power usage (%)

55

35

Number of employees

70

104

10

16

9550

9800

550

1250

Consumables ($)

The proportion of work done by each service department was:

Machining

Assembly

Canteen

Maintenance

Canteen (%)

35

60

Maintenance (%)

80

20

The actual results for the year ended 30 November 2010 were as follows:
Production Departments
Machining

Assembly

Factory indirect costs ($)

1410000

1312000

Direct machine hours

195000

21000

Direct labour hours

57000

318000

Required:
(a) Calculate the appropriate overhead absorption rate for each production department,
stating and using suitable bases for apportioning the factory indirect costs.
[16]
(b) (i) Calculate the amount of overhead which would be over or under absorbed by each
production department, using the actual results provided.
[6]
(ii) Explain the significance of the results calculated in (b), (i).

(c)

[4]

Discuss the problems associated with using predetermined overhead absorption rates,
indicating how an unsatisfactory method of overhead absorption can adversely affect the
profits of a business.
[4]
[Total marks 30]