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accounting principles

Accounting Principles And Practice 1st Edition S. Hall, N. Skene Smith - Solutions

=+3. ÍBrisk Limited has an authorised share capital of £150,000 in shares of£1 each of which 100,000 shares have been issued on which 15/- per share has been called up.After making some of the closing entries, the following is the Trial Balance as on 31st December, 1962:£ £Share Capital —
=+Creditors and accrued expenses — 10,100 Stock-in-trade, at or under cost 39,276 —Share Premium Account — 4,000 General Reserve — 10,000 Interest on 6 % Notes (net) 368 —White Bank Limited, overdraft — 5,400 Trade Investments, at cost 10,000 —Debtors 25,030 —
=+Marketable Investments, at cost 9,260 —Depreciation, 31st December, 1961:On Freehold Buildings — 9,140 On Plant and Machinery — 37,580 Interest on Trade Investments (net) — 1,225 Interest on Marketable Investments (net) — 490 Balance at Green's Bank Ltd. 15,260 —Cash in hand 1,202
=+The profit for the year 1962 is after charging £3,000 salary of the factory manager, who is also a director, and writing off £1,800 to reduce the stock-in-trade to market value. Owing to a rise in raw material prices, the directors decide to set aside to set aside £4,000 as a replacement
=+Provision is to be made for: depreciation on buildings at 5 % on cost and on plant and machinery at 8% on cost, directors' fees £1,000, auditors'remuneration, fixed by the directors, £630, doubtful debts £380, six months interest on the 6% notes (which were repaid on 1st January, 1963) and
=+The liability for income tax 1962/3, Case 1, Schedule D, has been finally agreed at £18,526; on the profit of the year 1962, it is estimated to be£20,500. Profits tax for the year 1961 has been agreed and paid and an Overprovision of £474 has been included in the profit of the year 1962;for
=+The Directors decide to appropriate £5,000 to General Reserve and to recommend a dividend of 20%, less income tax, on the paid up share capital, the calls in arrear having since been received.You are required to prepare in a form suitable for publication the Balance Sheet of Brisk Ltd. as on
=+4. On 30th September, 1960, the Arconia Co. Ltd. issued £30,000 4%debentures, interest bemg payable on 31st March and 30th September.Give the Debenture Interest Account including the entry for income tax for the period ending 31st March, 1961. Prepare another account on the assumption that the
=+5. Give the Journal entries for the "grossing up" of the following payments:(a) Interest paid net on £50,000 6% Debentures for the year 1961.(b) Net income from investments during 1961-£690. (Tax is 7/9 in the £).
=+6. For some years, the Adjo Trading Company Ltd. has made provision in its books for taxation based on all profits earned to the Balance Sheet date. On the 1st October, 1959, the following balances appeared on the Income Tax account:Schedule D 1959-60 £6,100 Schedule D 1960-61 £9,000.
=+The 1959-60 assessment was paid on the due date. The 1960-61 assessment was finally agreed at £8,100. Give the Income Tax Account for the year to 30th September, 1960 and the relevant entries in the Profit& Loss Account and Balance Sheet at that date. The 1961-2 assessment was estimated at
=+7. HMegas Ltd. has an issued share capital of £50,000 ordinary shares and 10,000 7i per cent preference shares of £1 each. In addition, it has issued 10 per cent unsecured loan stock of £15,000 and £8,000 in 6 per cent debentures. The interest on these latter two items is payable in equal
=+The preference share dividends are payable in equal instalments on 1st April and 1st October and a final dividend on the ordinary shares of 8 per cent was paid on 15th April, 1962, in respect of the previous year, with an interim dividend of 7 per cent paid on 19th October, 1962.The company's
=+By 31st December the income tax 1962/3 was agreed at £38,129. The profits tax for the accounting period to 31st December, 1962, was estimated at £2,917 and the income tax 1963/4 was estimated at £27,648.You are required to set out the Taxation Account in the company's books for 1962 and to
=+8. The Balance Sheets of R. Wüliams for 31st December, 1960 and 1961 are summarised below:Capital 1960£3,416 Current Liabilities 2,132 1961£3,834 Fixed Assets (cost)Less Depreciation 3,261 Current Assets:Stock Debtors Bank£5,548 £7,095 1960£3,418 1,204 1,411 1,349 574 1961£4,810 1,612
=+Prepare a Funds Statement and also a Statement of Working Capital Changes.
=+9. From the following accounts, prepare a Statement of Working Capital and a Source and Application of Funds Statement:Share Capital Share Premium General Reserve Profit & Loss Account Future Income Tax Current Liabilities:Creditors Proposed Dividend 1961 1962£ £50,000 60,000 10,000 10,000
=+Fixed Assets at cost less depreciation Stock Debtors Cash at Bank The Profit & Loss Account for 1962 was:Taxation Transfer to Reserve Proposed Dividend Balance carried forward£5,710 6,000 4,800 4,016£20,526£48,000 21,019 10,962 4,668£50,400 24,136 14,119 287£84,649 £88,942 Net Trading
=+At 31st December, 1962, the Reserve was used to issue Bonus Shares on the basis of one for every five held.The depreciation of Fixed Assets was £3,022 in 1962.1. *A, Β and C were three companies engaged in the same trade and all preparing accounts annually to 31st March; the following statement
=+Goodwill Fixed Assets Investment:1,000 Β Ltd. Ordinary Shares at cost Bank Other Current Assets A£Β£c£200,000 50,000 30,000 10,000 50,000 8,000 27,000 7,000 30,000 11,000 6,000£280,000 £102,000 £47,000 111,000 57,000 5,000 7,000 12,000 25,000 132,000 6,000 39,000 35,000£280,000 £102,000
=+As regards B, A should make an offer to buy the whole of its shares from the existing members. As regards C, the company should be wound up and A should buy all its assets from the Liquidator.
=+These proposals were duly approved and put into effect. A offered to the ordinary shareholders of Β ten of its own shares taken as valued at 22/6d each and £4 in cash for each ten shares of B, and this offer was accepted in respect of all except 5,000 shares of B. The liquidator of C sold all
=+2. *The following is the Balance Sheet Manufacturing Co. Ltd.:at 31st March, 1962, of the Irish Nominal Capital Issued Capital—100,800 6% Pref. Shares of 10/- each 117,600 Ordy. Shares of 5/- each 5% Debentures Creditors£100,000 Buildings Plant and Machinery Stock in Trade Debtors 50,400 Cash
=+The company has, until recently, made trading losses. Debenture Interest is a year in arrears. Buildings and Plant are old, and fresh capital is required to set the business on a sound footing.A scheme of reduction is agreed as follows:
=+(a) The Ordinary Shares to be consolidated into 23,520 Shares of 10/-each.(b) The rate of interest on the Preference Shares is to be reduced to 5 %and the 100,800 Preference Shares will then be consolidated into 33,600 shares of £1 each.(c) The Debenture holders, in view of interest due, will
=+(d) A further 52,880 Ordinary Shares will be issued for cash to the directors and their friends.(e) Buildings and Plant are to be reduced to £35,000 and £25,000 respectively.
=+(f) The Share Capital is to be reduced by cancelling as unrepresented by assets 3/4d per share of the Preference Shares and 3/- per share of the Ordinary Shares. The Profit & Loss Account Balance is to be wiped out.The scheme is carried out and the issue for cash is all subscribed.Show Journal
=+3. The Balance Sheets of A. Ltd. and its subsidiaries B. Ltd. and C. Ltd.at 31st December, 1961, are summarised as follows:A, Ltd. B. Ltd. C. Ltd.£ £ £Capital—£1 shares fully paid 100,000 50,000 25,000 Profit & Loss Accounts:A. Ltd. (profit for year £30,000) 40,000 B. Ltd. (profit for year
=+4. HA, Β and C are three companies with issued share capitals of £200,000,£150,000 and £60,000 respectively. A holds 75% of the shares of Βand 80% of the shares in C at a cost of £120,000 and £48,000 respectively. A has a balance at the bank of £10,000.The following information is
=+Liabilities £ £Debentures 50,000 15,000 Loan from A 10,000 25,000 Sundry Creditors 30,000 20,000 For all companies, the Profit & Loss Account Balance is the only figure omitted in the above information.When the shares in the subsidiaries were acquired the balances on the Profit & Loss Accounts
=+5. Alpha Ltd. owns 75% of the shares of Beta Ltd. The Profit & Loss Accounts of the two companies for the year ended 31st October, 1961, were as follows:Alpha Ltd. Beta Ltd.Net Profit from Trading Add Investment Income Less Income Tax Add Balances brought forward Less Interim Dividend paid
=+Proposed Transfers to Reserve Recommended Final Dividend Balance carried forward£ £16,500 6,960 4,216 20,716 6,960 7,110 3,010 13,606 3,950 14,312 2,162 27,918 6,112 8,000£19,918 £6,112 10,000 3,000 8,000 2,000 1,918 1,112£19,918 £6,112
=+The balance on Profit & Loss Account of Beta Ltd. when Alpha Ltd.acquired its shares was £960.Prepare a Group Profit & Loss Account.
=+6. Some years ago, Parent Ltd. acquired 60% of the shares of Child Ltd.On 31st December, 1962, the Balance Sheets of the two companies were as follows:Parent Child Parent Child£ £ £ £Share Capital 200,000 80,000 Fixed Assets 180,000 64,000 Revenue Reserves 41,000 5,000 Investment in Profit &
=+£364,000 £123,000 £364,000 £123,000 For 1962, the Profit & Loss Accounts were:Parent Child Parent Child£ £ £ £Income Tax 12,000 9,000 Balances 1st January 33,000 10,000 Proposed Dividends 20,000 10,000 Net Trading Balances carried forward 24,000 9,000 Profits for Year 23,000
=+When the shares were acquired, the Revenue Reserve of Child Ltd. was£5,000 and the balance on Profit & Loss Account, £6,000. No dividends have been credited to the Investment Account in the books of Parent Ltd.
=+Prepare a Group Balance Sheet at 31st December, 1962, and a Group Profit and Loss Account for the year.
=+1.* A business friend of yours who does not know much about accountancy has a holding of 1,000 ordinary shares in a pubhc company and asks you to explain certain points in connection with the company's last balance sheet, a copy of which he has just received. The following is a summarised copy of
=+Revenue Reserves 650 Provisions 60 Current Liabilities 290£2,250 Fixed Assets Less Depreciation Current Assets 1,000s of £s 1,090 420 670 1,580£2,250 The questions your friend wants answered are the following:
=+1. On the assumption that the ordinary shares of a well-managed company of this size, engaged in the industry in question, should have a market quotation such that the ratio of the balance of the company's annual earnings, after paying the preference dividend, to the total market value of the
=+Assuming that the company's profit for the last year did in fact amount to the figure you calculate, what is the ratio of net profit to total capital employed in earning that profit as disclosed by the balance sheet?
=+2.2.* The balance sheet of a limited company as on 31st December, 1958, was as follows:Issued Capital Reserves Debentures Current Liabilities£100,000 20,000 50,000 5,500£175,500 Fixed Assets Stock Debtors and Prepayments Bank£72,300 72,500 22,400 8,300£175,500
=+(a) What was the amount of the company's working capital at that date?
=+(b) During the year ended 31st December, 1959, the company earned a net profit of £19,700 after charging £4,800 for depreciation of the fixed assets, new fixed assets were brought at a cost of £18,600 and old ones sold for £1,300. Calculate the amount of working capital at the end of the year.
=+(c) The following appropriations are proposed out of the profit for 1959:the transfer of £5,000 to General Reserve and the declaration of dividends amounting to £7,500. What effect will each of these have on the working capital, and why ?
=+3. Comment upon the following results:(Figures in thousands of £).Sales Gross Profit Average Stock Net Profit (before tax) Capital Employed: 6% Preference Shares Ordinary Shares 5% Debentures Reserves Ordinary Dividend 4,000 5,000 5,300 5,400 5,320 5,250 860 890 910 900 890 875 950 1,050 1,080
=+You are required to show the necessary Journal entries and to prepare a Balance Sheet after the completion of the transactions which took place on 1st April, 1962.
=+It was decided to issue a further 3,000 Ordinary Shares at a premium of 10/- per share for cash and to redeem at par the Redeemable Preference Shares.
=+4. The following was the Balance Sheet of A. Ltd. at 31st March, 1962:Share Capital Authorised and £Issued 10,000 Ordinary Shares of£1 each 10,000 10,000 6% Redeemable Preference Shares of£1 each 10,000 Fixed Assets Plant etc.at Cost Less:Depreciation 11,000 5,000 6,000 Revenue Reserves Profit
=+The company is now exercising its option to redeem the rest of the Debentures at 102 and the remaining investments are sold for £488,419.Set out and close off the ledger accounts in which these transactions should be recorded.
=+3. lIKarnatic Ltd. has issued £500,000 of Debentures at par on the condition that it opens up and invests a Sinking Fund. During the life of the fund the annual contributions have amounted to £485,000 and interest and dividends on the investments have totalled £9,975. Under the terms of the
=+2. A company's Debenture Redemption Account shows a balance of£19,000 represented by £20,000 (nominal) invested in securities. The balance on the Debentures Account is £25,000 and the company sells£15,000 (nominal) securities at par to redeem £12,500 (nominal)debentures at 101. Show the
=+1. On 1st January, 1956, the XY Trading Company Limited issued debentures to the value of £50,000 repayable in twenty years. It was decided to create a Sinking Fund to prepare for the repayment. The rate of interest estimated as receivable was 3 %. Give the entries in the books of account of
=+5. Having purchased a 10-year lease of his premises for £5,000, Mr. A. Ross asks advice regarding the amortisation of the lease. You are asked to give the annual Amortisation charge under the Annuity method taking interest at 5 % and to prepare a table contrasting the net charge to Profit & Loss
=+4. On 1st January, 1958, the Argos Co. purchased a lease for £10,000.The lease was for 20 years. It was decided to use the Annuity method of amortisation taking interest at 3 %. Give the Lease Account for the first four years.
=+2. The revised Balance Sheet as at 31st March, 1962.
=+1. The Fixed Asset Accounts for the year ended 31st March, 1962, as they would appear in the books of the firm, and
=+After making the necessary adjustments arising from the above, you are required to show:
=+(e) As a result of an examination of the Sales Ledger balances it was decided that a debit of £73 should be specifically reserved in addition to the general reserve for bad debits of £200.
=+(d) Weekly drawings of £25 by each partner had been debited to Wages Account.
=+(c) The Motor Car Account has been debited during the year with 9 monthly instahnents of £60 each in respect of a new motor van, which has been purchased under a hire-purchase agreement. An exammation of the agreement revealed that the cash price was£960, and the hire-purchase price was
=+(b) A machine costing £420 in December, 1954, had been sold in December, 1961, and the proceeds of sale £275 have been credited to Sales Account.
=+(a) A small building costing £50 erected in the year to 31st March, 1954, has been demohshed. No adjustment has been made to the Asset Account except that depreciation has not been charged on the £50 in the year to 31st March, 1962.
=+In the course of your examination of the books and accounts of the firm for the year ended 31st March, 1962, you discover the following:
=+Less Provision for Bad Debts Cash at Bank and in hand 5,350 200 5,150 685 8,935£25,835 £25,835 On each of the fixed asset accounts in the books of the firm the "cost"is brought down at the end of the year as a debit balance, and the "total depreciation to date" is brought down as a credit
=+Freehold Buildings Less depreciation to date Plant and Machinery at cost Less depreciation to date Motor cars at cost Less depreciation to date Current Assets Stock Sundry Debtors£ £6,000 8,000 800 7,200 4,500 2,000 2,500 5,000 3,800 1,200 16,900 3,100
=+A draft Profit & Loss Account for the year ended 31st March, 1962, and a Balance Sheet at that date have been prepared. The Balance Sheet was as follows:Capital Accounts £ £SmithAs at 31st March, 1961 9,510 Add share of Profit 2,55012,060 Thompson—As at 31st March, 1961 6,200 Add share of
=+3. ItSmith and Thompson are partners in a Manufacturing Business sharing profits and losses in the following proportions:Smith: three-fifths. Thompson: two-fifths.
=+On 31st December, 1962, one machine was sold for £420 and on the same day was replaced by a new machine which cost £1,200.You are asked to give all the accounts necessary to record these matters, including transfers to Profit & Loss Account, for each of the years 1960, 1961 and 1962 and to show
=+2. *A company was incorporated on 1st January, 1960, and on that date purchased two machines, each costing £1,000.Depreciation is provided at the rate of 20 per cent per annum by the straight line method. Each year the amount so provided is credited to an account called "Provision for
=+The Machinery had been depreciated annually at 31st December, at the rate of 5 per cent per aimum calculated on the original cost over the period of its use.Show the accounts recording these transactions for the four years ended 31st December, 1959, 1960, 1961 and 1962.
=+1, *On 1st January, 1959, a firm bought Machinery at a cost of £2,000 and on 1st July, 1960, additional Machinery costing £500. On 1st January, 1961, Machinery which cost £300 on 1st January, 1959, was sold for£160. Additional Machinery was purchased on 1st April, 1961, at a cost of £400.
=+Which gives the most equitable apportionment of the cost of an asset over its years of service?
=+At Balance Sheet dates, stocks are valued at 5/- each.Write up the Ledger Accounts for the year ended 30th June, 1962, from the following information:No. of Crates Purchases 3,000 Sent to Customers 7,000 Returned by Customers 5,200 In hands of Customers—return period unexpired at 1st July, 1961
=+6. tGoods are sold by a firm in crates, purchased at 7/6d each. Customers of the firm are charged 10/- and allowed 6/- for each crate returned within a specific period.
=+New cases cost 20/- each; they are charged out to customers at 24/-each and credited on return at 18/- each. They are valued for stocktaking at 15/-each.Show the accounts in the books of the company for the year 1962 to record the above transactions, and the balances of cases, in quantities and
=+At the commencement of the year there were 10,500 cases in stock at the company's warehouse and 4,900 in the hands of customers supplied within the previous three months; the company purchased 15,000 new cases during the year and, following a dispute with a supplier, returned 3,000 new cases for
=+During the year 1962, 50,800 cases were sent to customers and 46,400 returned by them; the company scrapped 4,200 damaged cases and sold the proceeds for £20. A physical check of cases in stock at 31st December, 1962, revealed an unaccounted deficit of 640 cases.
=+5. t A company makes a charge to its customers for cases in which its product is delivered; if they are returned in good condition within three months a refund is made.
=+Assuming that all payments were duly made, and excesses of minimum payments over royalties were considered recoverable, show the ledger accounts recording the transactions in the books of P. Reynolds The books were closed on 31st December each year.
=+(c) In any year in which the minimum sum was in excess of the royalty, Reynolds to have the right to recoup such sums out of the royalties due in excess of the minimum in any subsequent year.The numbers of devices sold were:1958 3,600 1959 5,800 1960 8,500 1961 5,200
=+(b) Reynolds to pay a minimum sum of £1,500 per annum, merging into a royalty of 5/- per device sold; the sum to be paid on 31st December in each year.
=+4. •Automatics Ltd. granted a licence to P. Reynolds to manufacture and sell an automatic device on the following terms:(a) the licence to commence on 1st January, 1958, and to operate for four years.
=+The amounts due to the landlord in respect of each year were paid on 31st January in the year following.You are required to write up in the company's books the necessary ledger accounts to record its relations with the landlord during the three years to 31st December, 1958.
=+(3) The recovery of short workings within a period of five years from the end of the year in which they occurred.The amounts of sand removed during the first three years were:1956 200 tons 1957 225 tons 1958 300 tons
=+3. A sand and gravel company are engaged in working a sand pit. On 1st January, 1956, it entered into an agreement with the owner of the land in which the sand pit was situated providing for:(1) A royalty of £2 per ton of sand removed.(2) A minimum rent of £500 per annum.
=+(2) "B" Government 4% Stock (Interest payable 1st May and 1st November).Purchases Sales 1960 Oct. 1 £10,000 @ 72 ex. div.1961 1961 Feb. 1 £2,000 @ 80 Jan. 1 £6,000 @ 80 All transactions are cum div. except where otherwise stated. Write up the two Investment Accounts.
=+(1) "A" Government 6% Stock (Interest payable 1st March and 1st September).Purchases Sales 1960 1960 April 1 £2,000 ® 98 Oct. 1 £3,000 @ 94 July 1 £1,800 @ 96 Dec. 1 £3,800 @ 98 Aug. 1 £3,000 @ 90 ex div.1961 1961 Jan. 1 £6,000 @ 95 Feb. 1 £4,000 @ 94 ex div.
=+2. A. James whose accounting period ends on 31st March each year has the following transactions in Government Stocks.
=+Both the sales were cum interest.Interest is payable on 1st June and 1st December, without deduction of tax.Record the above transactions in the Company's ledger. The close of the Company's trading year is 31st March.
=+1. HA company purchases £10,000 3i% War Loan at 88 cum interest on 1st April, 1958. Brokerage and Stamp Duties amounted to £4. On 1st May, 1958, it purchased £6,000 3i% War Loan at 87i ex interest. Brokerage and Stamp Duty amounted to £3. It made the following sales of its holding: 1958 Oct.
=+Prepare the revised Trading Account, and show by Journal entries how the adjustments in respect of the hire-purchase transactions for the year should be made in the books of the firm.
=+Instalments actually received during the year amount to £2,046. The returns £770 represent unpaid instalments on goods returned, which have been included in the closing stock at a valuation of £500 compared with their original cost of £600.
=+The firm has asked you to re-draw the account taking credit only for such proportion of the profit and additional 10% as the instalments actually received bear to the total payable under the agreements, excluding agreements cancelled during the year which are separately considered.
=+Stock, 1st July, 1953 2,155 Sales (Cash) 19,160 Purchases 23,140 „ (Hire Purchase) 10,560 Returns (Hire-Purchase) 770 Stock, 30 June, 1954 4,225 Gross Profit for year 7,880£33,945 £33,945
=+6. tJ. Smith and Co. are retailers of electrical applicances. As from 1st July, 1953, they have sold goods on hire-purchase terms as well as for cash.The cash selling price of all their goods shows a gross profit of 33Í%on the cost price and 10% is added to the cash price to arrive at the
=+The first instalment was due one month after the date of the contract:all instalments were paid when due Prepare the Hire Purchase Trading Account for the two years.
=+5. Attractive Purchases Ltd. started to sell goods on H.P. terms in 1961 and made the following sales:Date Sale Cost of Purchase Deposit Monthly No. of No. Goods Price Instalments Instalmen 1961 £ £ £ £17 Aug. 1 120 240 24 12 18 20 Sept. 2 90 180 24 13 12 12 Dec. 3 160 320 32 24 12 1962 3
=+washer on 31st January, 1961 ? How much profit from this transaction is included in the accounts for the year to this date? The cost of the washer was £90.
=+4. On 14th June, 1960, the Easy Terms Company sold an electric washer to Mrs. Ready for the Hire Purchase price of £140. The price was payable by a deposit of £60 and 16 monthly instahnents of £5, the first instalment being paid one month after the sale. The Company prepares its accounts to

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