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:
| $ | |
| Freehold shop premises | 45000 |
| Stock of laptop | 10000 |
| 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)
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
| Date | Dr $ | Cr $ | |
| 2020 Jan 1 |
Explanation
Pihu
Journal
| Date | Dr $ | Cr $ | |
| 2020 Jan 1 | Shop Premises | 45000 | |
| Stock | 10000 | ||
| Bank (II) | 16000 | ||
| Capital (III) | 59000 | ||
| Komal՚s Loan | 12000 |
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