IGCSE Accounting Paper-2: Specimen Questions with Answers 153 - 154 of 189

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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 153 (3 of 5 Based on Passage)

Edit

Write in Brief

One Liner▾

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

Polly՚s Balance Sheet?

Explanation

It will lead to understatement of assets as well as Capital (because of reduced 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.

Question 154 (4 of 5 Based on Passage)

Write in Short

Short Answer▾

Pass Journal entries of the above transactions (without narratives) . (Marks 7)

Pihu

Journal

Pass Journal Entries of the Above Transactions
DateDr

$

Cr

$

2020

Jan 1

Explanation

Pihu

Journal

Pass Journal Entries of the Above Transactions
DateDr

$

Cr

$

2020

Jan 1

Shop Premises45000
Stock10000
Bank (II)16000
Capital (III)59000
Komal՚s Loan12000

Working Notes-

(I) When Assets and Liabilities are brought in a business, Respective Assets Accounts are debited and the liabilities are credited, the balance remaining on the credit is the amount of Capital and the same is credited to the Capital A/c.

(I) Bank A/c will include cash paid by Pihu into the bank as well as loan amount from Komal i.e..

(II)

During Jan 2020 Pihu found the following matters.

(I) The purchase of a laptop for shop՚s use $ 4000 had been entered in the Purchases account.

(II) Goods bought on credit from Rehan, $ 3000, had been entered in

Rohan՚s A/c.

(III) A sale on credit to Sanyukta, $ 240 had been entered in the Sales account and in Sanyukta՚s account as $ 420.

(IV) New shop fittings had been purchased on credit from Gautam Supplies for $ 8500, but no entry had been made in Pihu՚s books

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