IGCSE Accounting Paper-2: Specimen Questions with Answers 140 - 141 of 189

Question 140

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Short Answer▾

Explain with an example what is meant by error of principle (Marks 2)

Explanation

  • Error of Principle is that error which is made because of violating any accounting principle or concept. For Ex- Purchase of machinery entered in purchase journal is an error of principle as it violates the matching concept which says that revenue of one accounting years should be matched with the corresponding expenses of that accounting year alone.
  • Treating a capital expenditure (purchase of machinery) as revenue expenditure (purchase of goods) will lead to understatement of profits. Only a part of the cost of machinery should be debited to profit & loss A/c as depreciation.

Question 141

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For the financial year ended 31st March 2019, Insurance A/c of ABC Ltd. showed the following-

For the financial year ended 31st March 2019, Insurance A/c of ABC LtdFor the financial year ended 31st March 2019, Insurance A/c of ABC Ltd
$
1st April 2018Balance b/d5000
4th July 2019Paid premium for 12 months20,000

Calculate the amount of the charge for insurance shown in the Profit and Loss Account for the year ended 31st March 2019. Show your workings

Explanation

For the financial year ended 31st March 2019, Insurance A/c of ABC LtdFor the financial year ended 31st March 2019, Insurance A/c of ABC Ltd
$
Opening Balance of Insurance A/c5000
Add: Premium paid on 4th July 2019 for 12 months20000 25000
Less: Prepaid Insurance 5000
Premium charged to P&L A/c20000

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