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

Question number: 282

Short Answer Question▾

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

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.

Short Answer Question▾

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

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

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