CIMA Exam Practice Kit: Financial Accounting Fundamentals by Dak Patel

By Dak Patel

CIMA examination perform Kits consolidate studying by means of offering an in depth financial institution of perform questions. every one resolution offers a close research of the right kind resolution and highlights why the choices are flawed. CIMA examination perform Kits are perfect for scholars learning independently or attending a tutored revision direction. It vitamins the reputable CIMA examine structures and CIMA Revision playing cards with a wealth of extra questions and fabric concentrated merely on using what has been learnt to passing the examination. CIMA examination perform Kits aid scholars organize with self belief for examination day, and to go the hot syllabus first time. * comprises 2 hundred examination average a number of selection questions* organize to cross with broad extra query perform * presents labored solutions to totally clarify the right kind solution, and research of unsuitable solutions - assisting CIMA scholars steer clear of universal pitfalls

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To calculate the taxation due to the government. To calculate the amount of dividend to pay to the shareholders. 1 B Maintaining ledger accounts, preparing a trial balance and recording transactions are all part of the bookkeeping system. 4 D Management accounts would provide detailed costs and other information regarding manufacturing and trading. 5 A The Framework of Financial Accounts 11 2 Assets = Liabilities + An Entity’s obligation to transfer economic benefit as a result of past event or transaction A resource used by a business or other organisation to derive income in the future Capital Special kind of liability that exists between the owner and the entity Current liabilities Fixed assets Intangible Cannot see, smell, feel or touch – Goodwill – Patent – Trademark – Royalties – Research and development Tangible Can touch, see, feel – Land and building – Plant and machinery – Fixtures and fittings – Motor vehicles Short-term liabilities (one year) – Long-term loans – Debentures 12 Exam Practice Kit: Financial Accounting Fundamentals The Accounting Equation The Framework of Financial Accounts 13 The balance sheet should be presented using the vertical format, this would result in the above accounting equation to be arranged.

1 A A credit balance in the books of A Ltd indicates that it owes money; none of the distracters would result in a credit balance. 4 C When purchased When returned Dr Office equipment Cr Penny Dr Penny Cr Office equipment Hence C. 6 C The stock account is never used to record purchases. , wages debited with £200 in excess and sale credited with £200 in excess 34 Exam Practice Kit: Financial Accounting Fundamentals The following errors do not prevent the trial balance from agreeing From ledger accounts to final accounts Bank A /C 18 Dec 2001 SP A /C 31 Dec 2001 Bal c/d Trial balance as at 31 December 2002 30 16 Dec 2001 Rent 80 18 Dec 2001 Furniture 110 1 Jan 2002 Bal b/d 40 70 110 80 70 31 Dec 1 Jan 2002 Bal b/d 70 70 Bank A /C Bal c/d 70 SP A /C 70 Rent A /C prepare trial balance Cr £ 80 - Furniture A /C Furniture 18 Dec 2001 Bank Dr £ Trading and profit and loss account 70 30 40 110 110 Balance sheet SP A /C 30 18 Dec 2001 Bank 30 30 30 1 Jan 2002 Bal b/d 30 Rent A /C 16 Dec 2001 Bank 40 31 Dec 2001 Bal c/d 40 40 40 40 1 Jan 2002 Bal b/d Summarising the Ledger Accounts 35 31 Dec 2001 Bal c/d 36 Exam Practice Kit: Financial Accounting Fundamentals The trial balance It is a list of balances in a double entry accounting system.

2 A B and D are incorrect as they would give a lower debit side. C is incorrect because it would give a higher credit side. 3 D An error of principle occurs, where an entry is made in the wrong account, and that account is of a different category from the correct account – thus affecting the view given by the final accounts. Office equipment is a fixed asset, while stationery is an expense, so both profit and fixed assets will be incorrect. Further Aspects of Ledger Accounts 41 5 Cost of transportation of goods and services Cost is an expense hence it is always a DEBIT in accounts Types of carriage costs Carriage outwards Carriage inwards Extra cost a company incurs on purchases Cost incurred by company to deliver the goods or services to the customer Hence it is an expense in the Trading account Debit Debit Thus, Purchases Add: Carriage inwards Total cost of purchase X X X Hence it is an expense in the Profit and loss account expenses are always debit Thus which ever carriage cost they are, both are DEBITs one is in the Trading account (carriage inwards) and the other is in the Profit and loss account (carriage outwards) 42 Exam Practice Kit: Financial Accounting Fundamentals Carriage cost Discount Cash discount Trade discount Discounts on prompt payment of invoices or early settlement discount Discount given on bulk purchases to the customer, however this will only affect the selling price Discount received Discount allowed From supplier Hence, there is no double entry for trade discounts £ XX (XX) XX It is an expense to the seller, hence Credit Debit In the Profit and loss account Therefore, trade discount are in the Trading account It is an income to the purchaser, hence Dr Discount allowed Cr Debtor In the Profit and loss account Dr Supplier Cr Discount received Further Aspects of Ledger Accounts 43 Sales Less: Trade discount Net sales To customer 44 Exam Practice Kit: Financial Accounting Fundamentals Accounting for VAT When an organisation within the EU States including United Kingdom reaches a certain level of turnover then they are obliged to register (in the UK) with Her Majesty’s, Customs & Excise (HMC&E) There are three rates of VAT: • Standard rate of 171⁄2% • Zero rate • Exempt rate VAT on sales is classified as input tax.

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