2001 Principle of Account Question
SECTION A
Answer any FOUR questions from this section. Each question carries 10 marks.
1. a. Explain the following accounting concepts and illustrate each with an example: i. Historical cost ii. Stable monetary measures (5 marks) b. For each of the independent situations described below, list the accounting principle or concept that has been violated and give your explanation: i. Andy Company accrued interest expense on the personal bank loan of the owner at year end. ii. Perfect Repairs adopts a policy of charging hand tools with small unit costs to expense when purchased, even though the tools have a useful life of several years. During the year, Perfect Repairs recorded revenue of $600000 and a hand tools expense of $150000 in its profit and loss account. (5 marks)
2. The cash book of Ronald Limited showed a favourable bank balance of $98777 at 30 April 2001. An examination of the bank column in the cash book and the bank statement disclosed the following: iii. Dividends amounting to $752 had been credited by the bank but not entered in the cash book. iv. The bank had credited the company’s account with $3725 being the proceeds of a bill receivable. This amount was recorded as a payment in the cash book. v. Bankings amounting to $8127 had been entered in the cash book but not credited by the bank until 1 May 2001. vi. A dishonoured cheque for $920 was identified in the bank statement. vii. Being allowed a cash discount of $15, a customer settled his account with a cheque of $300. However, an amount of $315 was entered in the bank column of the cash book. viii. Cheques issued amounting to $2647 had not been presented to the bank for payment. ix. The company had instructed the bank to transfer $5000 from the fixed deposit account to the current account. The bank had made the transfer in reverse. x. The company had recorded a payment by standing order of a sum of $1025 for the management fee
Answer any FOUR questions from this section. Each question carries 10 marks.
1. a. Explain the following accounting concepts and illustrate each with an example: i. Historical cost ii. Stable monetary measures (5 marks) b. For each of the independent situations described below, list the accounting principle or concept that has been violated and give your explanation: i. Andy Company accrued interest expense on the personal bank loan of the owner at year end. ii. Perfect Repairs adopts a policy of charging hand tools with small unit costs to expense when purchased, even though the tools have a useful life of several years. During the year, Perfect Repairs recorded revenue of $600000 and a hand tools expense of $150000 in its profit and loss account. (5 marks)
2. The cash book of Ronald Limited showed a favourable bank balance of $98777 at 30 April 2001. An examination of the bank column in the cash book and the bank statement disclosed the following: iii. Dividends amounting to $752 had been credited by the bank but not entered in the cash book. iv. The bank had credited the company’s account with $3725 being the proceeds of a bill receivable. This amount was recorded as a payment in the cash book. v. Bankings amounting to $8127 had been entered in the cash book but not credited by the bank until 1 May 2001. vi. A dishonoured cheque for $920 was identified in the bank statement. vii. Being allowed a cash discount of $15, a customer settled his account with a cheque of $300. However, an amount of $315 was entered in the bank column of the cash book. viii. Cheques issued amounting to $2647 had not been presented to the bank for payment. ix. The company had instructed the bank to transfer $5000 from the fixed deposit account to the current account. The bank had made the transfer in reverse. x. The company had recorded a payment by standing order of a sum of $1025 for the management fee