CIE Accounting Paper-2: Specimen Questions 56 - 58 of 103

Passage

Miss. Rosy started a small business as a sole proprietor in the year 2013 and had the following transaction during the year:

• Commenced business with cash £200000
• Purchases made for cash £80000 and credit £120000
• Made Sales of £160000 in cash of goods costing £120000
• Rent paid £2000 and outstanding rent for the year was £400
• Bought car on credit £20000
• Purchased a mobile phone for personal use £20000
• Purchased a land for cash £80000

Question number: 56 (6 of 7 Based on Passage) Show Passage

Write in Short

What is the importance of accounting equation in a business?

Explanation

Accounting equation is said to be the foundation or the stepping stone for the double entry system of book keeping. As per the Accounting equation, in every business:

Assets = Liabilities + Capital, Which means, that all the assets in the business are either financed by the proprietor or by borrowing funds from outside.

Question number: 57 (7 of 7 Based on Passage) Show Passage

One Liner Question▾

Capital:

Explanation

Capital: It is said to be the value of assets minus he value of liabilities. In simple words it is the residual value that would be released after the sale of all the assets and payment of all liabilities.

Passage

Fancy dresses show the following information as on 31.12. 2012.

Debtors- £164000, Bad debts during the year 2012 amounts to £4000, Bad debts for the year 2013 amounts to £2000. Provision for bad and doubtful debts in 2012 is £5000 and for the year 2013 is@5%. Discount allowed in 2012 is £2000 and for the year 2013 a provision for discount on debtors is created@2%.

Question number: 58 (1 of 5 Based on Passage) Show Passage

Essay Question▾

Describe in Detail

Show the treatment of the above entries in the profit and loss account of Fancy dresses for the year ending 31.12. 2012

Explanation

 PARTICUALRS AMOUNT AMOUNT PARTICUALRS AMOUNT AMOUNT To Bad debts 4000 Add: New bad debts 2000 6000 Add: New Provision on bad debts@5% 8100 14100 Less: Old provision on bad and doubtful debts 5000 9100 To discount allowed 2000 To provision for discount on debtors 3078

SOLUTION:

New provision@5%= Debtors – new bad debts

= 164000 – 2000

=162000 * 5%

=8100

Provision for discount on debtors

= 162000 – 8100

= 153900 * 2%

= 3078

Share