IGCSE Accounting Paper-2: Specimen Questions with Answers 160 - 162 of 189

Passage

Mohan Bhagwat’s is a businessman who closes his accounts on 30 June every year. He does not maintain a full set of accounting records.

All goods are bought and sold on credit terms.

He provided the following information.

Businessman Who Closes His Accounts on 30 June Every Year
$

For the year ended 30 June 2,019:

Payments to Trade creditors

42,300

Receipts from Trade debtors

55,200

Discount allowed to Trade debtors

700

Purchases Returns

1,400

Bad debts written off

70

Carriage inwards

3,000

On 1 July 2,018:

Trade Creditors

1,600

Trade Debtors

3,500

Inventory

1,100

On 30 June 2,019:

Trade Creditors

2,200

Trade Debtors

4,130

Question 160 (3 of 3 Based on Passage)

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Short Answer▾

Calculate the credit purchases for the year ended 30 June 2,019 (Marks 6)

Explanation

Calculation of Credit Purchases for the year:

Calculation of Credit Purchases for the Year
$

Closing Trade Creditors

2,200

Add: Payments to Trade Creditors

42,300

Purchases Returns

1,400

45,900

Less: Opening Trade Creditors

(1,600)

Credit Purchases

44,300

Question 161

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Short Answer▾

Amrita bought the business of Kareena for $ 345,000. However, the net assets of Kareena were worth $ 360,000. State one reason why Amrita paid lesser for the business than its net assets. (Marks 1)

Explanation

Amrita paid lesser for the business than its net assets because of Negative Goodwill of Kareena’s business.

Explanation:

  • Negative Goodwill arises when the price paid for the acquisition of a business is less than its net tangible assets.

  • This may happen when the concerned business witnesses a significant fall in the demand of its product due to sudden industry disruption.

  • For the purchaser, the negative goodwill is a capital profit and as such it is transferred to the Capital Reserve A/c.

Question 162

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Short Answer▾

Asim bought goods on credit from Siddharth. In Siddharth ledger, this transaction was entered on the credit side of Asim’s account. (Marks 1)

(i) Name the type of error committed by Siddharth.

Explanation

Error of Commission

  • Error of Commission is made when a transaction is entered on the wrong side of an account or on the right side but with a wrong amount.

  • In the given example, Asim is Siddharth’s debtor. So, under Siddharth ledger, the given transaction should be entered on the DEBIT side of Asim’s account.

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