IGCSE Accounting Paper-2: Specimen Questions with Answers 150 - 151 of 189

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Question 150

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Short Answer▾

Complete the extract below by filling the respective amounts in the blanks to show how Machinery appears in Suman՚s Balance Sheet as at 30 June 2020. (Marks 3)

Extract from Balance Sheet as at 30 June 2020

Extract from Balance Sheet as at 30 June 2020
Assets$
Fixed Assets:
Machinery at Cost ________
Less: Accumulated Depreciation ________________

Explanation

Extract from Balance Sheet as at 30 June 2020

Extract from Balance Sheet as at 30 June 2020
Assets$
Fixed Assets:
Machinery at Cost 120000
Less: Accumulated Depreciation 3015089850

Passage

Pihu Jaiswal opened a laptop shop on 1 Jan 2020 with the following assets:

Pihu Jaiswal Opened a Laptop Shop on 1 Jan 2020
$
Freehold shop premises45000
Stock of laptop10000
Cash (paid into a business bank account)4000

Pihu obtained a loan of $ 12000 from her friend, Komal on the same date and paid this into the bank account.

Question 151 (1 of 5 Based on Passage)

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Write in Brief

One Liner▾

If error (I) above is not corrected, what are the effects on: (Marks 2)

(I) Polly՚s Trading and Profit and Loss Account,

(Marks 2)

Explanation

Purchases will be overstated and it will lead to understatement of the Gross Profit as well as the Net Profit.

In error I, a capital expenditure is treated as a revenue expenditure. When a capital expenditure is treated as a revenue expenditure, two things happen-

  • Profits are understated because of increased revenue expenditure and Assets are also understated because these are only recorded in Trading & Profit & Loss A/c and not in the balance sheet.
  • Depreciation is not charged on the asset purchased.

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