IGCSE Accounting Paper-1: Specimen Questions with Answers 282 - 283 of 338

Question number: 282

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Short Answer Question▾

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What do you mean by the term ‘Reserves’? (Marks 1)

Explanation

  • Reserves are a part of profits set aside for a particular purpose. Reserves are made so as to save the cash from being used in any other purpose.

  • They can be made to buy fixed assets, pay bonus, pay off debts etc. For Ex- Debenture Redemption Reserves are made to pay off debentures.

  • Similarly, Valuation reserves are set up to offset the loss of value of assets like machinery, receivables etc.

Question number: 283

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Short Answer Question▾

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Sudhanshu is a trader whose financial year ends on 31 March. On 31st March 2019 he opened a suspense account with a credit balance of $2225.

Give two reasons of opening a suspense account. (Marks 2)

Explanation

Suspense A/c is opened when:

  • It is not sure as to which A/c an item should be posted to. The suspense A/c is then opened temporarily to keep that entry. For Ex- Payment received from an unidentified customer can be temporarily credited to Suspense A/c until the customer is identified.

  • The debit and credit columns trial balance do not match resulting from some one-sided errors in the books of accounts. In such a case, the amount of difference in the trial balance is transferred to the suspense A/c to balance the trial balance until the error is located.

Sudhanshu found some errors in his books of accounts

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