IGCSE Accounting Paper-2: Specimen Questions with Answers 49 - 51 of 103

Passage

Daffy Ltd had a profit of £500000, after charging depreciation of £100000 on assets and transferring an amount of £150000 to general reserve. The Goodwill amortized was £35000, and a profit was gained on the sale of machinery amounting to £15000. Other changes in current assets and current liabilities was as follows:

(i) Increase in trade receivables £15000

(ii) Increase in trade payables £30000

(iii) Increase in prepaid expenses £1000

(iv) Decrease in outstanding expenses £10000

Question number: 49 (4 of 5 Based on Passage) Show Passage

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Short Answer Question▾

Write in Short

What is meant by Operating activities? Give two examples of operating income and

Operating expenditure.

Explanation

In any business enterprise, the operating activities become the main source of revenue and expenditure. Hence it becomes essential to ascertain the cash flows into the business from such activities. Example of operating expenses is payment of taxes; Purchase of stock. Example of operating revenue is Receipts from royalties; Profit from sale of goods.

Question number: 50 (5 of 5 Based on Passage) Show Passage

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Short Answer Question▾

Write in Short

State any two benefits of cash flow statement?

Explanation

The two benefits of preparing cash flow statement are as follows:

(i) Helps in comparing the operating performances of different enterprises; as it eliminates the effects of using different accounting treatments for the same transaction.

(ii) It enables the users to evaluate the changes in the structure of assets and liabilities of an enterprise, its liquidity and solvency position and its ability to generate cash based on the changing circumstances.

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: 51 (1 of 7 Based on Passage) Show Passage

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Essay Question▾

Describe in Detail

How will Miss Rosy account for the above transactions in her books of accounts using the Accounting Equation?

Explanation

Accounting Equation in the books of Miss Rosy for the year 2013 2014

Table of amount and liability.

ASSET

AMOUNT

CAPITAL

AMOUNT

LIABILITY

AMOUNT

1

Cash

200000

=

Capital

200000

+

LIABILITY

0

200000

=

200000

2

Cash

120000

=

Capital

200000

+

Creditors

120000

Stock

200000

320000

=

200000

+

120000

3

Cash

280000

=

Capital

240000

+

Creditors

120000

Stock

80000

360000

=

240000

+

120000

4

Cash

278000

=

Capital

238000

+

Creditors

120000

Stock

80000

358000

=

238000

+

120000

5

Cash

278000

=

Capital

237600

+

Creditors

120000

Stock

80000

O/S rent

400

358000

=

237600

+

120400

6

Cash

278000

=

Capital

237600

+

Creditors

140000

Stock

80000

O/S rent

400

Car

20000

378000

=

237600

+

140400

7

Cash

258000

=

Capital

217600

+

Creditors

140000

Stock

80000

O/S rent

400

Car

20000

358000

=

217600

+

140400

8

Cash

178000

=

Capital

217600

+

Creditors

140000

Stock

80000

O/S rent

400

Car

20000

Land

80000

358000

=

217600

+

140400

WORKINGS:

shows table of cash, capital and stock details

shows this table is working of all details

2

Cash

200000

5

Capital

238000

Less: Purchases stock

80000

Less: O/S Exp

400

120000

237600

3

Cash

120000

6

Creditors

120000

Add Sales

160000

Add Car

20000

280000

140000

Capital

200000

7

Cash

278000

Add Profit

40000

Less: Mobile phone

20000

240000

258000

Stock

200000

Capital

237600

Less Sales

120000

Less: Phone Personal use

20000

80000

217600

4

Cash

280000

Less Rent paid

2000

8

Cash

258000

278000

Less: Land

80000

178000

Capital

240000

Less: Expense Rent

2000

238000