Ce Principles of Accounts 2000 Paper
SECTION A
Answer any FOUR questions from this section. Each question carries 10 marks.
1. For each of the independent situations described below, list the accounting principle or concept that has been violated and give your explanation. (10 marks) i. Raymond Company has been adopting different methods to calculate depreciation on its motor vehicles for the past 4 years. ii. In estimating the provision for doubtful debts, the accountant of Peter Limited prefers to have a provision that is slightly too small rather than slightly too large. iii. The current liabilities of Reliable Store are much bigger than its current assets. In order to present a better liquidity position, the owner decides to include his personal bank account in the Store’s balance sheet. iv. Luxury Hotel recognises hotel room rental income on the date that a reservation is received. For the year 2001, many overseas visitors make reservations one year in advance.
2. “Although the totals of debit and credit balances agree in a trial balance, it does not mean that the books are correct as there are various situations that give rise to errors.” Elaborate on the above statement with examples. (10 marks)
3. Mandy Limited has an authorised share capital consisting of 500000 ordinary shares of $2.50 each and 50000 8% preference shares of $10 each. An extract of the share capital and reserves section of its balance sheet at 31 December 1999 is shown below:
| |$ |$ |
|Issued and fully paid share capital | | |
|19000 8% preference shares | |? |
|? Ordinary shares |
Answer any FOUR questions from this section. Each question carries 10 marks.
1. For each of the independent situations described below, list the accounting principle or concept that has been violated and give your explanation. (10 marks) i. Raymond Company has been adopting different methods to calculate depreciation on its motor vehicles for the past 4 years. ii. In estimating the provision for doubtful debts, the accountant of Peter Limited prefers to have a provision that is slightly too small rather than slightly too large. iii. The current liabilities of Reliable Store are much bigger than its current assets. In order to present a better liquidity position, the owner decides to include his personal bank account in the Store’s balance sheet. iv. Luxury Hotel recognises hotel room rental income on the date that a reservation is received. For the year 2001, many overseas visitors make reservations one year in advance.
2. “Although the totals of debit and credit balances agree in a trial balance, it does not mean that the books are correct as there are various situations that give rise to errors.” Elaborate on the above statement with examples. (10 marks)
3. Mandy Limited has an authorised share capital consisting of 500000 ordinary shares of $2.50 each and 50000 8% preference shares of $10 each. An extract of the share capital and reserves section of its balance sheet at 31 December 1999 is shown below:
| |$ |$ |
|Issued and fully paid share capital | | |
|19000 8% preference shares | |? |
|? Ordinary shares |