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Financial Accounting
Sample Paper 3
Questions & Suggested Solutions
Financial Accounting Sample Paper 3 Page 2 of 31
NOTES TO USERS ABOUT SAMPLE PAPERS
Sample papers are published by Accounting Technicians Ireland. They are intended to provide guidance
to students and their teachers regarding the style and type of question, and their suggested solutions, in
our examinations. They are not intended to provide an exhaustive list of all possible questions that may
be asked and both students and teachers alike are reminded to consult our published syllabus (see
www.AccountingTechniciansIreland.ie) for a comprehensive list of examinable topics.
There are often many possible approaches to the solution of questions in professional examinations. It
should not be assumed that the approach adopted in these solutions is the only correct approach,
particularly with discursive answers. Alternative answers will be marked on their own merits.
This publication is copyright 2017 and may not be reproduced without permission of Accounting
Technicians Ireland.
© Accounting Technicians Ireland, 2017
Financial Accounting Sample Paper 3 Page 3 of 31
Accounting Technicians Ireland
Year 1
FINANCIAL ACCOUNTING
Sample Paper 3
EXAM DURATION: THREE HOURS
INSTRUCTION TO CANDIDATES
PLEASE READ CAREFULLY
In this examination paper the £/€ symbol may be understood and used by candidates in Northern
Ireland to indicate the UK pound sterling and by candidates in the Republic of Ireland to indicate
the Euro.
Answer ALL THREE questions from Section A. Answer ANY TWO of the three questions from
Section B. If more than TWO questions are answered in section B, then only the first two
questions, in the order filed, will be corrected.
Candidates should allocate their time carefully.
All workings should be shown.
All figures should be labelled as appropriate e.g. €s, units etc.
Answers should be illustrated with examples, where appropriate.
Financial Accounting Sample Paper 3 Page 4 of 31
SECTION A
Answer ALL THREE QUESTIONS (Compulsory) in this Section
QUESTION 1 (compulsory)
The following trial balance is available for P Xavier a sole trader for the year ended 31 December 2016.
€ €
Proprietor’s capital 688,000
Land at cost 140,000
Office buildings at cost 634,000
Accumulated depreciation office building to 31/12/15 53,128
Delivery vans at cost 46,500
Accumulated depreciation delivery vans to 31/12/15 17,100
Inventory at 31/12/08 28,621
Purchases 156,607
Sales 389,061
Wages and salaries 59,000
Long term loan (interest rate 9%) 40,000
Interest on long term loan 1,600
Bank 33,662
Allowance for receivables 31/12/15 6,500
Receivables and Payables 43,359 23,491
General expenses 19,018
Carriage inwards 4,100
Carriage outwards 14,000
Drawings 4,800
Building maintenance 4,200
Light and heat 12,900
Irrecoverable debts 3,451
Accounting charges 4,000
Insurance 7,462
1,217,280 1,217,280
The following additional information has not been accounted for and should be taken into consideration:
PTO
Financial Accounting Sample Paper 3 Page 5 of 31
1. Inventory items were physically counted on the 31 December 2016 and were valued at €32,670.
2. The following information relates to non current assets:
a. The estimated useful economic life of office buildings is estimated at 40 years.
Depreciation is to be provided using the straight-line method assuming a zero residual
value.
b. Delivery vans are depreciated at 20% using the reducing balance method.
c. Land is not depreciated.
3. Additional irrecoverable debts of €1,700 should be written off. The allowance for receivables
should be set at 5% of net receivables.
4. €4,100 of insurance is prepaid for 2017 and light and heat of €1,100 should be accrued for 2016.
5. Discounts of €1,050 were received from payables during 2016. These discounts have not been
accounted for in the above trial balance.
You are required to prepare:
i. The Income Statement for the year ended 31 December 2016.
13 Marks
ii. The Statement of Financial Position as at that date.
7 Marks
Total 20 Marks
Financial Accounting Sample Paper 3 Page 6 of 31
Question 2 (compulsory) The following Trial Balance was extracted from the books of J. Burke as at 1 December 2016.
Trial Balance as at 1 December 2016
Debit Credit
€ €
Bank 78,000
Payables 71,600
Non current assets 52,500
Receivables 43,150
Capital account 85,000
Bank loan 17,050
173,650 173,650
The following transactions took place during the month of December 2016:
1. On 2 December purchased goods on credit for resale for €18,000;
2. On 4 December sold goods on credit for €31,000;
3. On 5 December purchased goods on credit for resale for €23,400;
4. On 8 December received €41,250 from receivables;
5. On 11 December returned faulty goods valued at cost of €1,550;
6. On 14 December purchased an item of non current asset, paid for in total by cheque for €11,000;
7. On 16 December purchased goods for resale by cheque for €48,900;
8. On 17 December transferred €2,000 from the bank account to the loan account;
9. On 20 December cash sales of €55,000 were lodged to the bank account;
10. On 21 December paid ESB by cheque €1,500;
11. On 28 December paid payables €51,000 by cheque;
12. On 30 December paid wages by cheque €7,500.
(Ignore depreciation, VAT and interest on loan)
You are required to prepare: i. Enter the trial balance figures as at 1 December 2016 in the relevant ledger accounts.
3 Marks
ii. Write up the original books of entry for December 2016 and post the balances to the ledger
accounts.
10 Marks iii. Balance the ledger accounts at 31 December 2016.
4 Marks iv. Extract the Trial Balance at 31 December 2016.
3 Marks
Total 20 Marks
Financial Accounting Sample Paper 3 Page 7 of 31
Question 3 (compulsory) - Complete Any Four Parts
Part A
The following information is available for sole trader M. Maple for the year ended 31 December 2016:
€/£
Draft receivables debit balances as at 31 December 2016 210,150
Draft irrecoverable debts written off during the year 9,120
Allowances for receivables as at 1 January 2016 11,550
As at 31 December 2016 M. Maple reviewed their receivables listing and decided the following (none of
these adjustments have been reflected in the draft figures above):
An additional €/£3,700 of debts should be written off as irrecoverable;
M. Maple considers that €/£4,190 of debts should be made the subject of a specific allowance;
The general allowance for receivables should be set at 4% of the remaining receivable balances
(round to the nearest whole number).
Prepare the allowance for receivables T account for M. Maple for the year ended 31 December 2016
5 Marks
Part B
The following information relates to the payroll costs for O. Oaks, a sole trader for the month of
December 2016.
Gross wages and salaries €/£30,400;
Employers PRSI/Social Insurance €/£3,240;
Net wages and salaries €/£24,450;
Note: The difference between gross and net wages and salaries relates only to salary taxes and employees
PRSI/social insurance.
Prepare appropriate journal entries to record the:
i) Wages expense in the books and records of O. Oaks
3 Marks
ii) Payment of wages through the bank.
2 Marks
Financial Accounting Sample Paper 3 Page 8 of 31
Part C
The following information relating to the motor vehicles of E. Elm is available for the year ended 30 June
2016.
Vehicle Number Cost Date of Purchase Date of Disposal
Motor vehicle 1 €/£26,400 1 June 2011 1 March 2016
Motor vehicle 2 €/£33,600 1 May 2014 Not applicable
Motor vehicle 3 €/£18,000 1 November 2015 Not applicable
The deprecation policy of E. Elm is to charge depreciation on motor vehicles from the month of purchase
to the month of sale on a proportional basis. Depreciation is charged at 10% straight line basis. Opening
depreciation as at 1 July 2015 was €/£14,700.
Prepare the motor vehicle depreciation T account for E. Elm for the year ended 30 June 2016
5 Marks
Part D
Below is a sample of error types:
Error of omission
Error of commission
Error of principle
Compensating errors
Error of original entry
For each of the error types outlined above provide an example of the error and state whether the error
would leave the trial balance in balance or not.
5 Marks
Part E
S. Spruce manufactures and sells three products: Products Delta, Epsilon and Zeta. The following
information is available for the year ended 31 December 2016 (on a per unit basis):
Inventory Item Costs
Incurred
Cost to
Complete
Sales Price Costs to Sell Units in
Inventory
€/£ €/£ €/£ €/£
Delta 54 1.75 58 Nil 1,500
Epsilon 16.2 Nil 21.6 1.25 2,000
Zeta 10 4 16 2.50 3,500
Calculate the total value of inventory for inclusion in the financial statements of S. Spruce for the year
ended 31 December 2016.
5 Marks
Financial Accounting Sample Paper 3 Page 9 of 31
Part F
L. Limes does not maintain proper books and records. However he is in a position to provide you with the
following information for the year ended 31 December 2016.
31 December 2016 1 January 2016
€/£ €/£
Assets 95,250 81,200
Liabilities 24,540 29,780
During the year L. Limes introduced capital of €/£26,500 and took drawings of €/£11,200.
From the information above calculate the profit or loss for the year ended 31 December 2016.
5 Marks
Total 20 Marks
Financial Accounting Sample Paper 3 Page 10 of 31
SECTION B
Answer TWO of the THREE Questions in Section B
Question 4
M. Edwards, a sole trader, has the following balances in his payable’s ledger as at 1 December 2016:
Payable Name Nature of Balance €
A. Andrews Credit balance 15,110
B. Martin Credit balance 23,750
C. Williams Debit balance 2,660
D. Devit Credit balance 58,150
The following transactions took place in the month of December 2016:
1. On 2 December 2016 goods valued at €7,600 net of VAT (€9,234 gross) were purchased from A.
Andrews;
2. On 6 December 2016 goods valued at €17,200 net of VAT (€20,898 gross) were purchased from
D. Devit;
3. On 10 December 2016 goods valued at €3,935 net of VAT (€4,781 gross) were returned to A.
Andrews;
4. On 14 December 2016 goods valued at €30,000 net of VAT (€36,450 gross) were purchased from
B. Martin;
5. On 15 December 2016 C. Williams paid the balance owed by him;
6. On 17 December 2016 goods valued at €1,600 net of VAT (€1,944 gross) were returned to B.
Martin;
7. On 28 December 2016 the following balances were paid to payables:
a. A. Andrews: €13,000
b. B. Martin: €30,050
c. D. Devit: €47,400
You are required to:
i. Prepare the following books of original entry to record the above transactions:
a. The purchases day book
b. The purchases returns day book
c. The cheque payments book
d. The cash book
7 Marks
Financial Accounting Sample Paper 3 Page 11 of 31
ii. From the books of original entry prepared in part i above and any other relevant information,
prepare the payable’s control account for the month ended 31 December 2016.
4 Marks
iii. Prepare the individual T accounts for each payable for the month of December 2016 and extract a
payable’s listing as at 31 December 2016.
7 Marks
iv. Reconcile the payable’s listing as per part iii to the payable’s control account prepared in part ii.
2 Marks
Total 20 Marks
[Note to Students: The Examiner has advised that questions similar to Question 2 and Question 4 above
are unlikely to be examined on the same Examination Paper.]
Financial Accounting Sample Paper 3 Page 12 of 31
Question 5 (a) Draft a letter to a client of your firm, explaining briefly the following:
i. FIFO
4 Marks
ii. The ‘going concern’ concept
4 Marks
iii. The main differences between the financial statements of a not for profit organisation
and the financial statements of a sole trader
4 Marks
(b) Prepare the journal entries to record the following transactions.
1. On 1 January purchased a machine on credit from Kelly Ltd for €20,000. Depreciation
is charged at 20% on cost, with a full year’s depreciation charged in the year of
purchase and none in the year of sale. On 31 January 2016 paid Kelly Ltd €19,500 in
full settlement for amount owed for Machine.
2. During 2016 paid rent and rates of €35,000. At year end, of 31 December, rent due was
€12,000 and rates prepaid was €5,000.
8 Marks
Total 20 Marks
Financial Accounting Sample Paper 3 Page 13 of 31
Question 6 O. Higgins received his bank statement on 2 January 2017 that showed a credit balance of €231,500. This
did not agree with the balance on the nominal ledger account for the year ended 31 December 2016.
On investigation the following errors were noted:
1. Cash of €12,450 received from a customer had been entered twice to the bank account in O.
Higgins’s books.
2. A lodgement recorded in the bank on the 31 July 2016 for €14,500 was not accounted for in the
books of O. Higgins.
3. Bank charges of €1,030 for 2016 had not been accounted for in the books of O. Higgins.
4. Cheques received from customers on the 24 December 2016 were entered into the books of O.
Higgins and lodged on the 28 December 2016 but not recorded by the bank until the 3 January
2017. The value of these cheques was €80,750.
5. A cheque drawn for €145 was debited in error in the books of O. Higgins as €415 in March
2016.
6. Mr Higgins had raised capital from private sources and had lodged it to the bank on 6 June 2016
but no record had been made in the books of O. Higgins. The capital raised was €33,200.
7. Cheques drawn by the company that had not been cashed by the bank as at 31 December 2016.
Cheque No Date Drawn Amount
€
1234 03/05/2015 5,240
1767 08/02/2016 11,346
1989 09/12/2016 12,543
2004 24/12/2016 1,890
2005 24/12/2016 240
2006 24/12/2016 937
You are required to:
i. Prepare a bank reconciliation statement as at 31 December 2016.
6 Marks
ii. Correct the books of O. Higgins and determine the original nominal ledger balance, prior to the
correction of the above.
10 Marks
iii. Write a short note to O. Higgins advising him on two issues uncovered during this reconciliation.
4 Marks
Total 20 Marks
Financial Accounting Sample Paper 3 Page 14 of 31
Financial Accounting
Sample Paper 3 – Suggested Solutions
Financial Accounting Sample Paper 3 Page 15 of 31
Solution One P. Xavier
Income Statement for the year ended 31 December 2016
€ €
Sales 389,061
Cost of sales
Opening inventory 28,621
Purchases 156,607
Carriage inwards 4,100
189,328
Less closing inventory (32,670)
Cost of sales (156,658)
Gross Profit 232,403
Discount received 1,050
Less Expenses
Carriage outwards 14,000
General expenses 19,018
Building maintenance 4,200
Insurance 3,362
Interest 3,600
Wages and salaries 59,000
Accounting charges 4,000
Depreciation of office buildings 15,850
Depreciation of motor vehicles 5,880
Irrecoverable debts 5,151
Decrease in allowance for receivables (4,417)
Light and heat 14,000
Total expenses (143,644)
Net Profit 89,809
Financial Accounting Sample Paper 3 Page 16 of 31
P. Xavier
Statement of Financial Position as at 31 December 2016
2016 2016 2016
€ € €
Non current assets
Land 140,000 - 140,000
Office buildings 634,000 (68,978) 565,022
Motor Vehicles 46,500 (22,980) 23,520
728,542
Current assets
Closing inventory 32,670
Receivables 39,576
Prepayments 4,100
Bank 33,662
110,008
Total Assets 838,550
Equity and Liabilities
Capital
Capital 688,000
Profit for 2016 89,809
Accumulated profits 777,809
Drawings (4,800)
773,009
Non current liabilities
Term loan 40,000
Current liabilities
Payables 22,441
Accruals 3,100
25,541
Total Equity and Liabilities 838,550
Workings 1
€
Cost of office buildings 634,000
Useful economic life 40
Depreciation 15,850
€
Cost of delivery vans 46,500
Financial Accounting Sample Paper 3 Page 17 of 31
Accumulated depreciation (17,100)
29,400
Depreciation 20% reducing balance method 5,880
Workings 2
€
Receivables as per TB 43,359
Irrecoverable debts as per note 3 (1,700)
Restated receivables 41,659
Allowance for receivables 5% 2,083
Opening allowance for receivables (6,500)
Decrease in allowance for receivables 4,417
€
Irrecoverable debts as per trial balance 3,451
Irrecoverable debts as per note 3 1,700
5,151
Workings 3
€
Insurance as per trial balance 7,462
Insurance prepaid (4,100)
3,362
€
Light and heat as per trial balance 12,900
Light and heat accrual (1,100)
14,000
Workings 4
€
Payables as per trial balance 23,491
Discounts received (1,050)
Restated payables 22,441
Workings 5
€
Loan 40,000
Interest per annum 9% 3,600
Interest paid 1,600
Interest Accrual 2,000
Financial Accounting Sample Paper 3 Page 18 of 31
Solution Two
Part ii
Purchases Book
Date Analysis Total Net VAT
€ € €
02-Dec Goods for resale 18,000 18,000 -
05-Dec Goods for resale 23,400 23,400 -
41,400 41,400 -
Purchase Returns Book
Date Analysis Total Net VAT
€ € €
11-Dec Goods for resale 1,550 1,550 -
1,550 1,550 -
Sales Book
Date Analysis Total Net VAT
€ € €
4-Dec Sale of goods 31,000 31,000 -
31,000 31,000 -
Cheque Payments Book
Date Analysis Total Expenses Non current
Assets
Purchases Payables Wages
€ € € € € €
14-Dec Non current Asset 11,000 11,000
16-Dec Goods for resale 48,900 48,900
21-Dec ESB 1,500 1,500
27-Dec Payables 51,000 51,000
30-Dec Wages 7,500 7,500
119,900 1,500 11,000 48,900 51,000 7,500
Financial Accounting Sample Paper 3 Page 19 of 31
Cash Receipts & Lodgements book
Date Analysis Total Receivables Sales VAT
€ € € €
8-Dec Receivables 41,250 41,250
20-Dec Sales 55,000 55,000 -
96,250 41,250 55,000 -
Part i and Part iii
Bank A/C
€ €
Balance b/d 78,000 Chq Payments Book 119,900
Cash Receipts Book 96,250 Loan Repayment 2,000
Balance c/d 52,350
174,250 174,250
Balance b/d 52,350 .
Payables A/C
€ €
Cheque Book 51,000 Balance b/d 71,600
Purchase Returns Book 1,550 Purchases Book 41,400
Balance c/d 60,450
113,000 113,000
Balance b/d 60,450
Receivables A/C
Balance b/d 43,150 Cash receipts books 41,250
Sales 31,000 Balance c/d 32,900
74,150 74,150
Balance b/d 32,900
Capital A/C
€ €
Balance 85,000
Financial Accounting Sample Paper 3 Page 20 of 31
Loan A/C
€ €
Repayment bank 2,000 Balance b/d 17,050
Balance c/d 15,050
17,050 17,050
Balance b/d 15,050
Expenses
€ €
Cheque Payments Book 1,500
Wages
€ €
Cheque Payments Book 7,500
Sales Account
€ €
Balance c/d 86,000 Cash Receipt Book 55,000
Sales book 31,000
86,000 86,000
Balance b/d 86,000
Purchases Account
€ €
Purchases Book 41,400 Balance c/d 90,300
Cheque payments book 48,900
90,300 90,300
Balance b/d 90,300
Purchases Returns
€ €
Balance c/d 1,550 Purchases Returns Book 1,550
1,550 1,550
Balance b/d 1,550
Financial Accounting Sample Paper 3 Page 21 of 31
Non Current Assets
€ €
Balance b/d 52,500 Balance c/d 63,500
Cheque Payments Book 11,000
63,500 63,500
Balance B/D 63,500
Part iv
J. Burke
Trial Balance at 31 December 2016
Debit Credit
€ €
Bank 52,350
Payables 60,450
Receivables 32,900
Non Current Assets 63,500
Capital 85,000
Loan 15,050
Sales 86,000
Purchases 90,300
Purchases returns 1,550
Wages 7,500
Expenses 1,500
248,050 248,050
Financial Accounting Sample Paper 3 Page 22 of 31
Solution Three
Part A
€/£
Receivables 210,150
Additional irrecoverable debts written off (3,700)
206,450
Specific allowance (4,190)
202,260
General allowance 4% 4%
8,090
Specific allowance 4,190
Closing allowance 12,280
Opening allowance 11,550
Increase in allowance 730
Allowance for receivables T Account
Details €/£ Details €/£
Balance b/d 11,550
Balance c/d 12,280 Statement of PL 730
12,280 12,280
Balance c/d 12,280
Part B
€/£ €/£
Dr Wages and salaries – income statement 30,400
Dr Employers PRSI 3,240
Cr Paye/prsi 9,190
Cr Net wages 24,450
Being the posting of wages and salaries
Dr Net wages 24,450
Cr Bank 24,450
Being the payment of wages and salaries
Part C
Allowance for Motor Vehicles Depreciation
Details €/£ Details €/£
Disposal 12,540 Balance b/d 14,700
Balance c/d 8,480 Statement of PL 6,320
21,020 21,020
Balance b/d 8,480
Motor Vehicle 1:
€/£
Financial Accounting Sample Paper 3 Page 23 of 31
Cost 26,400
Annual depreciation 10%
Annual depreciation 2,640
Depreciation for 2011 €/£2,640/12*1 220
Depreciation 2012 2,640
Depreciation 2013 2,640
Depreciation 2014 2,640
Depreciation 2015 2,640
Depreciation 2016 €/£2,640/12*8 1,760
Motor Vehicle 2:
€/£
Cost 33,600
Annual depreciation 10%
Annual depreciation 3,360
Motor Vehicle 3:
€/£
Cost 18,000
Annual depreciation 10%
Annual depreciation 1,800
Depreciation for 2016 €/£1,800/12*8 1,200
Part D
Error of omission – this is when an entry is completely omitted from the books and records. There is no
debit entry and no credit entry. The error type will leave the trial balance still in balance.
Error of commission - this is when an entry is recorded in the correct category of account but in the
wrong account. For example light and heat expenses being recorded as a wages and salaries expense. The
error type will leave the trial balance still in balance.
Error of principle – this is when an entry is recorded in the wrong category of account. For example
repairs to buildings being recorded as an addition to buildings. The error type will leave the trial balance
still in balance.
Compensating errors – this is when two complete unrelated errors, by chance, compensate each for other
and therefore this error type will leave the trial balance still in balance.
Error of original entry – this error type is when the error was made in the books of original entry and
therefore the error has been carried through to the nominal ledgers. For example: a sale of €/£1,000 being
recorded in the books of prime entry as €/£900, in error. The error type will leave the trial balance still in
balance.
Financial Accounting Sample Paper 3 Page 24 of 31
Part E
Inventory Item Sales
Price
Cost to
Complete
Costs to
Sell
NRV
€/£ €/£ €/£ €/£ Delta 58 - 1.75 - Nil = 56.25
Epsilon 21.6 - Nil - 1.25 = 20.35
Zeta 16 - 4.00 - 2.50 = 9.50
Inventory Item Total Cost NRV Valuation Units of Valuation
€/£ €/£ €/£ Inventory €/£
Delta 54 56.25 54 * 1,500 81,000
Epsilon 16.2 20.35 16.2 * 2,000 32,400
Zeta 10 9.50 9.5 * 3,500 33,250
146,650
Part F
€/£
Net assets at the end of the year 70,710
Less net assets at the start of the year (51,420)
Change in net assets during the year 19,290
Less capital introduced in the year (26,500)
Add drawings for the year 11,200
Profit/loss for the year 3,990
Financial Accounting Sample Paper 3 Page 25 of 31
Solution Four
Part i
Purchases Book
Date Analysis Total Net VAT
€ € €
02-Dec Goods Andrews 9,234 7,600 1,634
06-Dec Goods Devit 20,898 17,200 3,698
14-Dec Goods Martin 36,450 30,000 6,450
66,582 54,800 11,782
Purchase Returns Book
Date Analysis Total Net VAT
€ € €
10-Dec Goods Andrews 4,781 3,935 846
17-Dec Goods Martin 1,944 1,600 344
6,725 5,535 1,190
Cheque Payments Book
Date Analysis Total Payables
€ €
28-Dec Payables - Andrews 13,000 13,000
28-Dec Payables - Martin 30,050 30,050
28-Dec Payables - Devit 47,400 47,400
90,450 90,450
Cash Receipts & Lodgements book
Date Analysis Total Payables
€ €
15-Dec Williams 2,660 2,660
2,660 2,660
Part ii
Payables A/C
€ €
Opening balance b/d 2,660 Balance b/d 97,010
Cheque payments book 90,450 Purchases Book 66,582
Purchase Returns Book 6,725 Cash receipts book 2,660
Balance c/d 66,417
166,252 166,252
Balance b/d 66,417
Part iii
Financial Accounting Sample Paper 3 Page 26 of 31
Andrews A/C
€ €
Cheque payments book 13,000 Balance b/d 15,110
Purchase Returns Book 4,781 Purchases Book 9,234
Balance c/d 6,563
24,344 24,344
Balance b/d 6,563
Martin A/C
€ €
Cheque payments book 30,050 Balance b/d 23,750
Purchase Returns Book 1,944 Purchases Book 36,450
Balance c/d 28,206
60,200 60,200
Balance b/d 28,206
Williams A/C
€ €
Balance b/d 2,660 Cash receipts books 2,660
2,660 2,660
Devit A/C
€ €
Cheque payments book 47,400 Balance b/d 58,150
Balance c/d 31,648 Purchases Book 20,898
79,048 79,048
Balance b/d 31,648
Payable’s Listing
€
Andrews 6,563
Martin 28,206
Williams -
Devit 31,648
Total 66,417
Financial Accounting Sample Paper 3 Page 27 of 31
Part iv
€
Balance as per payable’s control account 66,417
Balance as per payable’s listing 66,417
Difference -
The balance as per the payable’s control account and the payable’s listing should always be the same.
Financial Accounting Sample Paper 3 Page 28 of 31
Solution Five
An Accounting Technician
Auditors & Accountants
The Square
Dublin
Client
Client Road
The Road
Date: 31 December 2016
Dear Mr. Client
As previously discussed please find below a brief explanation of the terms requested by you.
FIFO
First In First Out method of valuing inventory
This means that from a valuation perspective it is assumed that the goods purchased first are sold first.
Every time a sale is made, the cost of goods sold is identified as representing the cost of the oldest goods
remaining in inventory. This is the most common way of valuing inventories as it gives inventory a value
based on most recent goods purchased.
The Going Concern Concept
Accountants assume, unless there is evidence to the contrary, that a business is not going to break up and
that it will continue in operational existence for the foreseeable future (this is taken as one year from the
date the financial statements are signed) and there is no intention to put the business into liquidation.
This has important implications for the valuation of assets and liabilities. One does not use this concept
when one is aware of circumstances, which would cause the business to be closed down or substantially
wound up.
Differences between the Financial Statements of a Not for Profit Organisation and the Financial
Statements of a Sole Trader
Not for profit organisations are organisations such as charities and clubs. These organisations are
established to promote an activity or a group of activities or to promote the interests of the members.
They are not run with the objective of making a profit, like a sole trader business. Not for profit
organisations do conduct business to earn revenue but this revenue is invested back into organisation for
the purpose of furthering the goals of the organisation as opposed to for the benefit of members
personally.
Not for profit organisations do not need to prepare a set of complex financial statements and the accounts
tend to include a statement of income and expenditure and an accumulated fund statement as at the end of
the year.
I trust the above explanations clarify the matters for you.
Yours sincerely
Financial Accounting Sample Paper 3 Page 29 of 31
An Accounting Technician
(b)
`(1)
Dr Cr
Machine a/c 20,000
Payables a/c 20,000
Purchase of machine on credit
Depreciation expense a/c 4,000
Accumulated depreciation a/c 4,000
Depreciation charge for 2016
Payables a/c 20,000
Bank a/c 19,500
Discount received a/c 500
Settlement of debt for purchase or machine
(2)
Rent & rates expense a/c 35,000
Bank a/c 35,000
Payment of rent & rates during 2016
Rent & rates expense a/c 12,000
Rent accrual a/c (SOFP) 12,000
Rent due at year end
Rent & rates expense a/c 5,000
Rates prepaid a/c (SOFP) 5,000
Rates prepaid at year end
Financial Accounting Sample Paper 3 Page 30 of 31
Solution Six
Part i
O. Higgins
Bank Reconciliation as at 31 December 2016
€
Balance per bank 231,500
Add outstanding Lodgement 80,750
Less O/S Cheques
1989 12,543
2004 1,890
2005 240
2006 937 (15,610)
Restated Balance 296,640
Part ii
O. Higgins
Corrected bank accounted
Bank Account
€ €
31/12/09 Balance 246,394 31/12/09 Error 1 12,450
31/7/09 Error 2 14,500 31/12/09 Error 3 – Bank charges 1,030
6/6/09 Error 6 – Capital raised 33,200 31/3/09 Error 5 (415 +145) 560
31/12/09 Error 7 - Backdated cheques 16,586 31/12/09 Balance c/d 296,640
310,680 310,680
31/12/09 Balance b/d 296,640
Financial Accounting Sample Paper 3 Page 31 of 31
Part iii
To: O. Higgins
From: An Accounting Technician
Subject: Matters regarding bank reconciliations
Date: 31/12/2016
We have completed the bank reconciliation as at 31 December 2016. During this process some matters
arose that we would like to bring to your attention.
Issue 1
Bank reconciliations should be prepared on a regular basis. This is normally taken as every month or in
some cases every week. From the errors that came to our attention it would appear that this is currently
not the case within your business. Preparing regular bank reconciliations helps to ensure the accuracy
of the books and records of the business by helping to identify errors, for example, on a timely basis.
This in turn helps to ensure the quality of information generated for you from the accounting function.
Issue 2
Cheques raised have six months to be presented to the bank for payment. If they are presented after this
period of time the cheque will be returned by the bank un-cashed to the payee. On the outstanding
cheque list there are two cheques that were written more than six month prior to the year end. These
cheques should be written back to the bank account (thereby increasing it) and increasing your
liabilities/payables.
The cheques can then be reissued or the balances held until the business is contacted by the payable
requesting payment.
Should you require any further information in this regard please feel free to contact me.
An Accounting Technician