Balancing the books
Accounting is a practical subject that helps to increase students’ understanding of business as well as developing their numerical skills, writes Yeats College teacher Nora Dundon
The Accounting course involves the preparation, recording, presentation and analysis of financial information. This subject offers a conscientious student the real possibility of high grades. The exam paper is divided into three sections, and students have three hours in which to complete it. Sections 1 and 2 examine financial accounting, while Section 3 examines management accounting. Students must answer questions from all sections.
The following information and instructions are to be taken into account:
(i) Stocks on hand at 31/12/2017:
Finished goods €82,400
Work in progress €30,300
Raw materials €47,200
The figure for finished goods includes stock which cost €3,900
but now has a net realisable value of €2,600.
(ii) Finished goods sent to a customer on 31 December on a ‘sale or return’ basis were incorrectly treated as a credit sale. The recommended retail selling price of these goods was €8,500, which is cost plus 25%.
(iii) Repairs to plant and machinery amounting to €3,600 were carried out during the year by one of the firm’s employees. €700 of this expenditure consisted of parts taken from the firm’s stocks, while the remainder represented wages. (iv) Provide for depreciation on plant and machinery at the annual rate of 15% of cost from the date of purchase to the date of sale.
NOTE: On 30/09/2017, machinery which cost €18,000 on 31/5/2012 was traded against a new machine costing €30,000. An allowance of €4,000 was given on the old machine. The cheque for the net amount of this transaction was entered in the bank account but was incorrectly treated as a purchase of raw materials. These were the only entries made in the books in respect of this transaction.
(v) The suspense figure arises as a result of the incorrect figure for debenture interest (although the correct figure had been entered in the bank account) and discount allowed €400 entered only in the debtors account.
(vi) The figure for bank in the trial balance has been taken from the firm’s bank account. However a bank statement, dated 31/12/2017 has arrived showing an overdraft of €20,190. A comparison of the bank account and the bank statement has revealed the following discrepancies:
1. A cheque for €870 issued to a supplier had been entered in the books (cash book and ledger) as €780.
2. A credit transfer of €600 had been paid direct to the firm’s bank account on behalf of a debtor who had recently been declared bankrupt. This represents the first and final payment of 30c in the €1.
3. A cheque for fees of €500 issued to a director had not yet been presented for payment.
(vii) The directors recommend that:
1. Provision should be made for both investment income
and debenture interest due.