IGCSE Accounting Paper-2: Specimen Questions with Answers 152 - 153 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 152 (2 of 5 Based on Passage)

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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 153 (3 of 5 Based on Passage)

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Short Answer▾

Which two of the above errors are of the same type? (Marks 1)

Explanation

Both are errors of commission. Recording transaction in a wrong account or in a right account but with a wrong amount, both are errors of commission.

Error of Commission constitutes the following-

  • Recording wrong amount in books of prime entry
  • Wrong totaling of the books
  • Posting wrong amount in ledger accounts
  • Wrong totaling of the ledger accounts
  • Posting at the wrong side of ledger accounts

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