Financial Accounting and Audit

Financial Accounting
and Audit

Table of Content
QUESTION 1...................................................................................................................................2
(a) Preparing journal entries to deal with all necessary adjustments......................................2
(b) Income statement and statement of financial position......................................................3
QUESTION 2...................................................................................................................................4
Describing clearly two advantages and two disadvantages that might be faced by Mr Wyke if
he converted his business into a limited company.................................................................4
QUESTION 3...................................................................................................................................6
How could you use the financial statements of a listed company to make a decision as to
whether you should invest in that company’s shares?............................................................6
List 3 other sources of information that would help you to make the right decision.............6
QUESTION 4...................................................................................................................................7
(a)............................................................................................................................................7
(b)...........................................................................................................................................7
QUESTION 5...................................................................................................................................7
Describing the work that an auditor of a company should carry out to verify the figure in the
financial statements for trade receivables...............................................................................7
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QUESTION 1
(a) Preparing journal entries to deal with all necessary adjustments.
Particulars Debit Credit
Depreciation Expense - building Dr. 50000
To Accumulated depreciation account 50000
Depreciation Expense - shop fittings Dr. 141000
To Accumulated depreciation account 141000
Depreciation Expense - Machinery Dr. 200000
To Accumulated depreciation account 200000
Drawings account Dr. 12000
To Inventory - Raw materials 12000
Insurance account Dr. 56000
To prepaid insurance account 56000
Heat and light account Dr. 220000
To administration account 73333
To production account 146667
Inventory - raw material Dr. 640000
Cost of goods sold Dr. 12000
Drawings account Dr. 28000
To Inventory - raw material (beginning) 680000
Inventory - Work in progress (ending) Dr. 380000
To Inventory - Work in progress (beginning) 360000
To purchases 20000
2