Business Accounting Assignment: Detailed Solutions for Questions 1-10

This document presents a comprehensive solution to a business accounting assignment, addressing ten key questions. The solution includes calculations and explanations for fundamental accounting concepts. It starts with basic accounting equations, followed by the preparation of T-accounts, an...Read More

BUSINESS ACCOUNTING

Table of Contents
Question: 1.......................................................................................................................................3
Question: 2.......................................................................................................................................4
Preparation of T-accounts............................................................................................................4
Question: 3.......................................................................................................................................6
Question: 4.......................................................................................................................................6
Question: 5.......................................................................................................................................7
Question: 6.......................................................................................................................................8
Question: 7.......................................................................................................................................8
Question: 8.....................................................................................................................................10
Question: 9.....................................................................................................................................10
Question: 10...................................................................................................................................11
REFERENCES..............................................................................................................................13

Question: 1
(i) Assets = liabilities + capital
a. Assets = 20000, liabilities = 0, capital = x
20000 = 0 + x
x (capital) = 20000.
b. Assets = 15000, liabilities = 5000, capital =?
Capital + liabilities = Assets
Capital + 5000 = 15000
Capital = 15000 – 5000 = 10000.
c. Assets = 16400, liabilities =? Capital = 8850
Liabilities = Assets – capital
Liabilities = 16400 – 8850 = 7550.
d. Assets =? Liabilities = 3850, Capital = 10250
Assets = 10250 + 3850 = 14100.
e. Assets = 25380, liabilities =? Capital = 6950
Liabilities = Assets – Capital
Liabilities = 25380 – 6950 = 18430.
(ii)
S.no
.
Particular of
transactions
Assets = Liabilities + Capital
Bank + Computer + Van – A Abela = Loan +
Capital
1. Introduction of
capital in the
bank for
starting
business
8000 8000
8000 =
8000
2. Bought
computer
through
Cheque
(4000) 4000
4000 4000 =
8000

3. Acquisition of
loan through
Cheque
3000 = 3000
7000 4000 = 3000
8000
4. Bought van
through
Cheque
(6000) 6000
1000 4000 6000 = 3000
8000
5. Received
payment from
account
receivable
250 (250)
1250 + 4000 + 6000 - 250 = 3000 +
8000
Question: 2
Preparation of T-accounts
Capital Account
Date Particulars Amoun
t
Date Particulars Amoun
t
1/1/2021 By Bank Account 25000
31/1/21 To Balance c/d 25000
1/2/2021 By Balance b/d 25000
Business Bank
Account
Date Particulars Amoun
t
Date Particulars Amoun
t
1/1/2021 To Capital account 25000 2/1/202
1
By Rent account 2000
10/1/202
1
To Sales account 6000 31/1/21 By Balance c/d 29000
1/2/2021 To Balance b/d 29000
Rent Account
Date Particulars Amount Date Particulars Amoun
t
2/1/202
1
To Bank account 2000

31/1/21 By Balance c/d 2000
1/2/202
1
To Balance b/d 2000
Purchase
Account
Date Particulars Amount Date Particulars Amoun
t
3/1/202
1
To Linda Account 5000 30/1/21 By Linda Account 2000
5/1/202
1
To Sydney Account 3000 31/1/21 By Balance c/d 6000
1/2/202
1
To Balance b/d 6000
Linda Account
Date Particulars Amoun
t
Date Particulars Amoun
t
30/1/21 To Purchase
account
2000 3/1/2021 By Purchase
account
5000
31/1/21 To Balance c/d 3000
1/2/2021 By Balance b/d 3000
Motor Car
account
Date Particulars Amount Date Particulars Amoun
t
4/1/202
1
To Savoy Motors 4000
31/1/21 By Balance c/d 4000
1/2/202
1
To Balance b/d 4000
Savoy Motors
account
Date Particulars Amoun
t
Date Particulars Amoun
t
4/1/2021 By Motor car
account
4000
31/1/21 To Balance c/d 4000
1/2/2021 By Balance b/d 4000

Sydney Account
Date Particulars Amoun
t
Date Particulars Amoun
t
5/1/2021 By Purchase
account
3000
31/1/21 To Balance c/d 3000
1/2/2021 By Balance b/d 3000
Sales Account
10/1/2021 By Bank account 6000
31/1/21 To Balance c/d 1400
0
18/1/2021 By Ann account 8000
1/2/2021 By Balance b/d 14000
Ann Account
18/1/21 To Sales account 8000
31/1/21 By Balance c/d 8000
1/2/202
1
To Balance b/d 8000
Question: 3
Trial balance of Jane Green as at 31st December 2020
Particulars Debit Credit
Capital 139200
Sales 146400
Purchases 108600
Drawings 9400
Machinery 135800
Sales Returns 800
Wages And salaries 9800
Purchase returns 300
Bank Overdraft 6200
Motor Vehicles 25900
Rent Payable 3700
Water and electricity 1800
Trade payables 19600
Trade receivables 15900
TOTAL 311700 311700

Question: 4
Statement of Profit or Loss for Tikolo Sultana for the year ended 31 December 2020
Particulars Amount
Sales 204000
Less: Sales return (3600)
200400
Less: Cost of Goods sold
COGS
Opening stock 18000
+ Purchases 120000
- Drawings (2000)
- Purchase returns (4440)
+ Carriage Inwards 5000
+ Wages 36800
- Closing Stock (20000)
153360
Gross Profit 47040
Less:
Carriage outwards 3724
Discounts allowed 5020
Rent – Prepaid Rent (8000 - 500) 7500
Electricity + Electricity outstanding (6450 + 550) 7000
Sundry Expenses 1143
Depriciation on fixtures and fittings 900
Depriciation on office furniture 200
Provision for Bad debts 125
25612
Add:
Discount received
3160
Net Profit 24588
Statement of Financial Position of Tikolo Sultana as at 31st December 2020
Particulars Amount
ASSETS
Non – current Assets
Fixtures and fittings 8100
Office furniture 1800
Current Assets
Stock 20000
Trade Receivables 2500
Less: Provision for Bad debts (125)
2375
Bank 2496
Prepaid Rent 500
TOTAL 35271

EQUITY and LIABILITIES
Equity
Capital 30000
Less: Drawings + Withdrew from purchases (20527 + 2000) 22527
Add: Net profit of the year 24588
32061
Current Liabilities
Trade Payables 2660
Electricity payable 550
TOTAL 35271
Question: 5
S. no. Capital Expenditure Revenue Expenditure
a. 29000 cost incurred on extending
factory building (Mulenga and Bhatia,
2018).
1000 repairs expenses incurred on
existing factory.
b. Plot of Land purchased for 20750. NA
c. Material used and wages paid for
installing air conditioner amounting to
2500.
NA
d. NA Being a running expenses, both repairs
and redecoration expenses will be
classified as revenue expenditure which
is amounted to 1250 (Ellington and
Williams, 2017).
e. Cost of new machine along with
installation and setting up cost
amounted to 10250.
NA
Question: 6
a. Sales Ledger Control Account
Particulars Amount Particulars Amount
To Balance b/d 32600 By Balance b/d 450
To Credit Sales 99600 By Cash received from trade
receivables
54200
To Dishonored Cheque 200 By Bad debts written off 3200
By Sales returns 1800
By Discount allowed 2200
To balance C/d 300 By balance C/d 70850
b. Purchase Ledger Control Account

Particulars Amount Particulars Amount
To Balance b/d 250 By Balance b/d 22200
To Cash paid to trade payables 53800 By Credit purchases 65500
To purchase return 950
To discount received 1750
To transferred to sales ledger 350
To Balance c/d 31150 By Balance C/d 550
Question: 7
a) Calculation of ratios for Kyoor Ltd.
(i) Gross profit percentage = Gross profit / Sales and fees *100 = 105000 / 350000 * 100 = 30%
(ii) Net Profit percentage = Net profit / Sales and fees * 100 = 45850 / 350000 * 100 = 13.1%
(iii) Current ratio = Current assets / Current liabilities = 88000 / 47150 = 1.87:1
(iv) Liquid Ratio = Current assets – Inventories / Current Liabilities
= 88000 – 66500 / 47150 = 0.45:1
(v) Inventory turnover ratio = Cost of goods sold / inventory = 245000 / 66500 = 3.68 times.
(vi) Non - current assets to sales = Non – current assets / Sales and fees
= 160000 / 350000 * 100 = 45.71%
(vii) Return on total assets (ROTA) = Earnings before interest and tax (EBIT) / Total Assets
EBIT = Net profit + Interest Due = 45850 + 7200 = 53050
ROTA = 53050 / 248000 * 100 = 21.39%
(viii) Return on Net Assets (ROCE)
= Earnings before interest and tax / Net assets (Total assets - current liabilities)
= 53050 / (248000 - 47150) = 53050 / 200850 * 100 = 26.41%
(ix) Receivables Collection period = Account receivables / Sales * 365 = 21500 / 350000 * 365
= 22.42 days
(x) Payables payment period = Accounts payables / Purchases * 365 = 21000 / 280000 * 365
= 27.38 days
b) Comparing Kyoor’s performance as against the industry’s performance
Type of ratio Comparative ratios
Kyoor Ltd. ratios Industry average ratios
Gross Profit percentage 30% 30.00%

Net Profit percentage 13.1% 18.07%
Current ratio 1.87:1 2.21:1
Liquid ratio 0.45:1 1.02:1
Inventory Turnover ratio 3.68 times 8 times
Non-Current Assets to
Sales
45.71% 50.18%
Return on Total Assets 21.39% 25.37%
Return on Net Assets
(ROCE)
26.41% 34.93%
Receivables’ Collection
Period
22.42 days 25 days
Payables’ Payment Period 27.38 days 30 days
Profitability analysis: Kyoor’s profitability is equal to what other businesses in the industry are
making. But in terms of net profits which indicates business’s overall performance is low as
compared to industry’s performance (Usenko and et.al., 2018). Kyoor’s non-operating and
indirect expenses are higher than other businesses in the same sector which is affecting its
performance.
Liquidity analysis: Current ratio of Kyoor’s is lower than both industry’s average and ideal ratio
required that is 2:1, also the quick ratio is below both of industry’s average and ideal
requirement (Ramli and et.al., 2017). Therefore below average ratio of Kyoor’s indicate that it is
not capable of meeting its short term obligations whenever it will arise.
Efficiency analysis: All the four ratios that is, Inventory turnover ratio, non-current assets to
sales ratio, return in total assets and return on net assets of Kyoor’s is below the industry’s
average. This indicate that Kyoor is comparatively less efficient as compared to other businesses
in the similar industry in utilizing its current and non-current assets towards generating sales for
the company.
But efficiency in terms of collecting dues of the company and making payment to its creditors,
Kyoor is more efficient than its other businesses in the industry (Caruana and et.al., 2018). The
lower period in which Kyoor met its obligations along with collecting dues from its customers
indicates its efficiency.
Question: 8
a) Payback period
Year Cash
flows
Cumulative cash
flows
1 40000 40000
2 40000 80000
3 60000 140000
4 30000 170000

In the third year the project is having higher cumulative cash flows than the initial amount of
investment that is, 120000. So the payback period is as follows:
2 years + 120000 – 80000 / 60000 * 12 = 2 years and 8 months.
b) Net present value
Year Cash
flows
Discounting factor Discounted cash
flows
0 -120000 1 -120000
1 40000 0.909 36360
2 40000 0.826 33040
3 60000 0.751 45060
4 30000 0.683 20490
Net present value 14950
In the above case as the net present value of the cash flows obtained from the investment made in
machinery is positive, so the investment in machinery would be a profitable avenue for the
company.
Question: 9
a) Appointing a team of accountant is necessary for the company due to many reasons such as:
- They aids in making appropriate decisions related to the finances of the business.
- They helps in forecasting future financial position of the business along with budgeting
for financial performance of the company (Katz and Green, 2018).
- Aids in assessing the financial performance of the company for the period in which
business has its operations and also determine the financial position of the company at a
given date.
b) The firms of external auditors are required to be engaged by limited liability company due to
the demand raise for such engagement by bankers, creditors and other finance providers to the
company in order to assess the level of financial risk associated with the company and to ensure
that the same should remain under control during the period of their lending (Dahal, 2019). So
that there would be no scope of any kind of fraud carried out against them.
c) Non - accountants study accounting in order to understand the financial reports of the
company with the help of establishment of the basic knowledge of the accounting processes and
procedures, so that all the managerial decisions can be taken in a better and informed manner
(Engel, 2020). Non – accountants gain understanding of the working of their organisation which
helps them in establishing higher control and also enhance their confidence.
d) IFRS and Generally Accepted Accounting principles are some of the statutory obligations that
is needed to be met by management accountant while preparing management accounts. The laws,
rules, regulations and procedures advised these statutory obligations must be adhered to by

management accountant (Keong, Pengb and Lengc, 2019). It is required in order to assist
management in making wise decisions for the business, so that standards set during planning
stage can be easily fulfilled.
e) The nature of accounting can be understood in two ways that is, the first way is understanding
it from qualitative perspective which describes the characteristics of accounting information as
reliable, comparable, understandable, relevant and faithful representation (Ellington and
Williams, 2017). While the second way is understanding it from quantitative aspect which
describes the features of creation of accounting information as an art or science, concerned with
only financial transactions, records transactions in terms of money, classifies, summarize,
analyze, interpret and communicate the final results to the parties interested in the accounting
information associated with the company.
So, the very purpose of accounting is the accumulation of financial information of the company
in order to communicate the financial performance and financial position of the company
(Mulenga and Bhatia, 2018). It is also used for assessing the liquidity of the company which
helps in making decisions of the business in order to manage it efficiently and effectively.
Question: 10
a) Depriciation: Depriciation is the charge against the assets of the business in order to reduce
the value of the asset as per its utilization. So, at the time of disposal of the assets, its value can
be brought down to zero.
b) Allowance for bad and doubtful debts: It is the amount which is reduced as a certain
percentage of trade receivables of the business from whom the amount has become doubtful to
be recovered (Howcroft, 2017). It is a charge against profit of the business to provide for
probable losses in the future.
c) Debentures: Debentures are the source through which business used to borrow from external
sources. It forms part of the debt capital of the business (Schaltegger, Etxeberria and Ortas,
2017). It is an instrument which may secured or unsecured both. So, it is long term source of
financing for the company arranged through the issuance of debentures on which regular interest
has been paid the by the issuer.
d) Preference shares: It is an instrument through which finance can be sourced by the business
where small units known as shares are issued to the shareholders who got benefit of being paid
of dividend before equity shareholders of the company (Yurchenko, 2017). And because of this
preference, they are known as preference shareholders. They have no ownership and voting
rights in the company.
e) Ordinary shares: It consists of the equity capital of the company where shareholders got the
right to vote in the affairs of the company and also represents the ownership of the company to
the extent of their holding out of the total equity share capital of the company. They got paid of
the company’s profit in the form of dividend after all the other obligations due to the company
for that period are met out.

REFERENCES
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