IGCSE Accounting Paper-2: Specimen Questions with Answers 61 - 64 of 189

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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 61 (4 of 5 Based on Passage)

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Essay▾

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
LIABILITIESAMOUNTAMOUNTASSETSAMOUNTAMOUNT
Sundry debtors164000
Less: Bad debts2000
162000
Less: Provision for bad & doubtful debts@5 %8100
153900
Less: Provision for discount on debtors@2 %3078150822

Question 62 (5 of 5 Based on Passage)

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Essay▾

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 63 (1 of 6 Based on Passage)

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Short Answer▾

Calculate the following ratios of Micromax Ltd

(ii) Debt equity ratio

Explanation

(iii)

(ii)

Question 64 (2 of 6 Based on Passage)

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Short Answer▾

Why does Micromax Ltd need to know its debt equity ratio?

Explanation

The debt equity ratio shows the relationship between the long term debt and shareholder s funds. It is important for Micromax Ltd to calculate this ratio, as it will enable the firm to know the measure of debt and equity utilized to finance the assets for the firm. The benchmark debt equity ratio for any firm is 2: 1

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