ECOM058 Principles of Accounting Online Exam

ECOM058 PRINCIPLES OF
ACCOUNTING ONLINE
EXAM

TABLE OF CONTENTS
QUESTION- 1.................................................................................................................................1
Adjusted trial balance as at 31st December, 2020.......................................................................1
QUESTION- 2.................................................................................................................................2
a) Inventory valuation by FIFO method......................................................................................2
b) Inventory valuation by LIFO method......................................................................................3
c) Cost of goods sold and closing inventory are different in FIFO and LIFO methods..............5
QUESTION 3...................................................................................................................................6
QUESTION 4...................................................................................................................................9
REFERENCES..............................................................................................................................11

QUESTION- 1
Adjusted trial balance as at 31st December, 2020
S.NO PARTICULARS DEBIT CREDIT
1 Share Capital 30000
2 Cash 16000
3 Trade Receivables 16000
4 Building at cost 65000
5 Accumulated depreciation on building 40000
6 Sales Return 2000
7 Inventory 12000
8 Retained profits 32500
9 Discount received 1500
10 Provision for bad and doubtful debts 800
11 Purchase 35000
12 Sales 76000
13 Rent 13000
14 Prepaid Rent 6000
15 Electricity 4500
16 Electricity outstanding 600
17 Machinery 30000
18 Accumulated depreciation on machinery 17400
19 Bad debts written off 1000
20 Indirect income 2000
21 provision expenses 300
200800 200800
Working Note:-
1) Depreciation on building based on the straight line method:-
Building at cost= 65000
Residual value= 15000
Useful life= 25 years
Straight line method= Cost – Residual value / Useful life
= 65000 – 15000 / 25
= 2000
2) Depreciation on machinery based on the reducing balance method:-
Machinery at cost= 30000
Accumulated depreciation= 12000
Reduced value of machine= 30000 – 12000= 18000
1

Reducing balance method= Reduced balance of machine * rate of depreciation
= 18000 * 30% = 5400
3) Prepaid rent account = 4000
4) Outstanding electricity bill= 600
5) Bad debts written off= 1000
6) Provision for bad and doubtful debts= Trade receivables – Bad debts written off * % of
provision for the doubtful debts
= 17000 – 1000 * 5% = 800
7) The provision in respect of the defective goods is no longer required and this is the reason
that the provisioning shall be reversed and the liability shall be cancelled booking it as an
indirect income for the company (Amir, 2021).
8) Closing inventory for the company is 12000.
The following adjustments are made in the trial balance above that is prepared for the
year ending 31 December, 2020. The trial balance shall be showing the closing balances of all
the accounts that are assets, liabilities, expenses and the incomes of the business. The matching
of both the sides of the trial balance shall be showing the arithmetic accuracy in the recording of
the business transactions in the books of accounts. This shall verify that the double entry book
keeping has been efficiently managed by the company.
QUESTION- 2
a) Inventory valuation by FIFO method
DATE PURCHASE SALES BALANCE
Units Cost Amount Units Cost Amount Units Cost Amount
01/01/20 300 20 6000
10/02/20 500 18 9000 300 20 6000
500 18 9000
03/03/20 300 20 6000
300 18 5400 200 18 3600
12/03/20 100 18 1800 200 18 3600
100 18 1800
24/05/20 700 16 11200 200 18 3600
100 18 1800
2