CIE Accounting Paper-2: Specimen Questions 61 - 63 of 103

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 [email protected]%. Discount allowed in 2012 is £2000 and for the year 2013 a provision for discount on debtors is [email protected]%.

Question number: 61 (4 of 5 Based on Passage) Show Passage

Essay Question▾

Describe in Detail

How will the bad debts and the provision for bad and doubtful debts be treated in the balance sheet of Fancy dresses as on 31.12. 2012

Explanation

Balance sheet of Fancy dresses as on 31.12. 2012

Shows table of Balance sheet of Fancy dresses as on 31.12. 2012

LIABILITIES

AMOUNT

AMOUNT

ASSETS

AMOUNT

AMOUNT

Sundry debtors

164000

Less: Bad debts

2000

162000

Less: Provision for bad & doubtful [email protected]%

8100

153900

Less: Provision for discount on [email protected]%

3078

150822

Question number: 62 (5 of 5 Based on Passage) Show Passage

Essay Question▾

Describe in Detail

Why do Fancy dresses create a provision for discount on debtors for the next accounting year?

Explanation

As per the convention of conservatism Fancy dresses makes provision for bad and doubtful debts. But all these debts are not going to be bad debts. Some of these may turn to be good debts, and their payments may be received before the due dates. Hence for such debtors discount is to be given. Hence it is essential for fancy dresses to create a provision for such discounts in the current year itself.

Passage

The following information is provided by Micromax Ltd:

Net Sales £100000; Cost of goods sold £60000; operating expenses £15000; Current assets £30000; Current liabilities £15000; Capital employed 120000; Long term debts £80000

Question number: 63 (1 of 6 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

What is meant by Current ratio? What is the current ratio of Micromax Ltd?

Explanation

Current ratio is the relationship between the current assets and current liabilities of a firm. This ratio shows the ability of the firm to meet its short term obligations. The current ratio of Micromax Ltd is calculated to be 2: 1 which is the benchmark ratio of liquidity in any industry.

Currentratio=Currentassets/Currentliabilities

=30000/15000

=2/1

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