Financial Accounting 1 Assignment: Detailed Solutions Provided

This assignment solution for Financial Accounting 1 encompasses three main questions addressing fundamental accounting principles and practices. Question 1 delves into the recording of transactions, the creation of ledger accounts (including capital, purchases, sales, and others), and the preparation and importance of a trial balance. Question 2 focuses on the preparation of financial statements, specifically the statement of profit or loss and the statement of financial position, adhering to IAS 1, and also explores key accounting concepts such as consistency and materiality. Question 3 provides a sales ledger control account and explores how control accounts support effective financial management. The solution provides detailed workings and explanations for each question, making it a valuable resource for students studying financial accounting.

Financial Accounting
1

Contents
Question 1........................................................................................................................................3
(a)............................................................................................................................................3
(b)...........................................................................................................................................3
(c)............................................................................................................................................4
(d) Trial Balance...................................................................................................................11
(e). Importance of preparing a trial balance:........................................................................11
Question 2......................................................................................................................................12
(a). Extended trial balance as at 30 June 2020:....................................................................12
(b). The Statement of profit or loss for the year ended 30 June 2020 as per IAS 1.............13
(c). Statement of financial position as at 30 June 2020 as per IAS 1...................................14
(d). Accounting concepts:.....................................................................................................15
Question 3......................................................................................................................................17
(a)..........................................................................................................................................17
(b).........................................................................................................................................17
(c)..........................................................................................................................................17
(d). How control accounts support effective financial management:...................................18
References......................................................................................................................................19
2

Question 1
(a).
The business started is trading in FMCG products and mainly selling grocery products.
(b).
01-Aug Started business with cash 600,000, cash at Bank of America 700,000, furniture
200,000.
02-Aug Purchased Plant & Machinery worth 250,000 by cheque.
03-Aug Purchased goods from ABC Ltd worth 800,000 @10% trade discount.
04-Aug Cash Sales 1,000,000 @5% trade discount to XYZ Traders
05-Aug Deposited cash with Bank of America 500,000.
06-Aug Paid ABC Ltd 300,000 in cash.
07-Aug Received commission 75,000 by cheque.
08-Aug Cash Purchases 250,000.
09-Aug Sold goods to XYZ Traders 475,000.
10-Aug Received 275,000 by cheque from XYZ Traders.
11-Aug Loan taken from Bank of America 200,000
12-Aug Purchased goods from ABC Ltd 50,000.
13-Aug Withdrew cash from bank 10,000.
14-Aug Received commission 55,000 in cash.
15-Aug Paid ABC Ltd 70,000 by cheque.
16-Aug Received 90,000 in cash from XYZ Traders.
17-Aug Bank loan repaid 50,000.
18-Aug Cash Purchases 25,000.
19-Aug Sold goods to XYZ Traders 47,000.
20-Aug Withdrew cash from bank 15,000.
21-Aug Received interest from bank 5,000.
22-Aug Purchased goods from ABC Ltd 75,000.
23-Aug Cash Sales 100,000.
24-Aug Deposited cash with Bank of America 35,000.
25-Aug Cash Purchases 450,000.
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26-Aug Office was taken on rent in the month of Feb. Office rent paid in cash 50,000.
27-Aug Employees were hired in the month of Feb. Paid salary by cheque 30,000 & cash
30,000 for the month of Feb 20x2.
28-Aug Sold goods to XYZ Traders 675,000.
29-Aug Paid office rent by cheque 50,000.
30-Aug Paid salary in cash 30,000 for the month of March 20x2.
(c).
Michael's Capital A/c
Date Particulars Amount Date Particulars Amount
By Cash A/c 6,00,00
0
By Bank of America A/c 7,00,00
0
By Furniture & Fixtures /c 2,00,00
0
To Balance c/d 15,00,00
0
Total 15,00,000 Total 15,00,00
0
Purchases A/c
Date Particulars Amount Date Particulars Amount
To ABC Ltd A/c 7,20,00
0
To Cash A/c 2,50,00
0
To ABC Ltd A/c 50,00
0
4

To Cash A/c 25,00
0
To ABC Ltd A/c 75,00
0
To Cash A/c 4,50,00
0
By Trading A/c 15,70,00
0
Total 15,70,000 Total 15,70,00
0
Sales A/c
Date Particulars Amount Date Particulars Amount
By Cash A/c 9,50,00
0
By XYZ Traders A/c 4,75,00
0
By XYZ Traders A/c 47,00
0
By Cash A/c 1,00,00
0
By XYZ Traders A/c 6,75,00
0
To Trading A/c 22,47,00
0
Total 22,47,000 Total 22,47,00
0
Furniture & Fixtures A/c
5

Date Particulars Amount Date Particulars Amount
To Michael's Capital A/c 2,00,00
0
By Balance c/d 2,00,00
0
Total 2,00,00
0
Total 2,00,00
0
Plant & Machinery A/c
Date Particulars Amount Date Particulars Amount
To Bank of America A/c 2,50,00
0
By Balance c/d 2,50,00
0
Total 2,50,00
0
Total 2,50,00
0
ABC Ltd (Creditor) A/c
Date Particulars Amount Date Particulars Amount
To Cash A/c 3,00,00
0
By Purchases A/c 7,20,00
0
To Bank of America A/c 70,00
0
By Purchases A/c 50,00
0
By Purchases A/c 75,00
0
To Balance c/d 4,75,00
0
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Total 8,45,00
0
Total 8,45,00
0
XYZ Traders (Debtor) A/c
Date Particulars Amount Date Particulars Amount
To Sales A/c 4,75,00
0
By Bank of America A/c 2,75,00
0
To Sales A/c 47,00
0
By Cash A/c 90,00
0
To Sales A/c 6,75,00
0
By Balance c/d 8,32,00
0
Total 11,97,000 Total 11,97,00
0
Bank Loan A/c
Date Particulars Amount Date Particulars Amount
To Bank of America A/c 50,00
0
By Bank of America A/c 2,00,00
0
To Balance c/d 1,50,00
0
Total 2,00,00
0
Total 2,00,00
0
Salary A/c
Date Particulars Amount Date Particulars Amount
To Bank of America A/c 30,00
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0
To Cash A/c 30,00
0
To Cash A/c 30,00
0
By Profit & Loss A/c 90,00
0
Total 90,00
0
Total 90,00
0
Office Rent A/c
Date Particulars Amount Date Particulars Amount
To Cash 50,00
0
To Bank of America A/c 50,00
0
By Profit & Loss A/c 1,00,00
0
Total 1,00,00
0
Total 1,00,00
0
Interest Received A/c
Date Particulars Amount Date Particulars Amount
By Bank of America A/c 5,00
0
To Profit & Loss A/c 5,00
0
Total 5,00 Total 5,00
8

0 0
Commission Received A/c
Date Particulars Amount Date Particulars Amount
By Bank of America A/c 75,00
0
By Cash 55,00
0
To Profit & Loss A/c 1,30,00
0
Total 1,30,00
0
Total 1,30,00
0
Cash A/c
Date Particulars Amount Date Particulars Amount
To Michael's Capital A/c 6,00,00
0
By Bank of America A/c 5,00,00
0
To Sales A/c 9,50,00
0
By ABC Ltd A/c 3,00,00
0
To Bank of America A/c 10,00
0
By Purchases A/c 2,50,00
0
To Commission Received A/c 55,00
0
By Purchases A/c 25,00
0
To XYZ Traders A/c 90,00
0
By Bank of America A/c 35,00
0
To Bank of America A/c 15,00
0
By Purchases A/c 4,50,00
0
To Sales A/c 1,00,00
0
By Office Rent A/c 50,00
0
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By Salary A/c 30,00
0
By Salary A/c 30,00
0
By Balance c/d 1,50,00
0
Total 18,20,00
0
Total 18,20,00
0
Bank of America A/c
Date Particulars Amount Date Particulars Amount
To Michael's Capital A/c 7,00,00
0
By Plant & Machinery
A/c
2,50,00
0
To Cash A/c 5,00,00
0
By Cash A/c 10,00
0
To Commission Received A/c 75,00
0
By ABC Ltd A/c 70,00
0
To XYZ Traders A/c 2,75,00
0
By Bank Loan A/c 50,00
0
To Bank Loan A/c 2,00,00
0
By Cash A/c 15,00
0
To Interest Received A/c 5,00
0
By Salary A/c 30,00
0
To Cash A/c 35,00
0
By Office Rent A/c 50,00
0
By Balance c/d 13,15,00
0
Total 17,90,00 Total 17,90,00
10

0 0
(d) Trial Balance
Trial Balance as on 31st March 20x2
Particulars Debit Credit
Michael's Capital 15,00,000
Purchases 15,70,000
Sales 22,47,000
Furniture & Fixtures 2,00,000
Plant & Machinery 2,50,000
ABC Ltd (Creditor) 4,75,000
XYZ Traders (Debtor) 8,32,000
Bank Loan 1,50,000
Salary 90,000
Office Rent 1,00,000
Commission Received 1,30,000
Interest Received 5,000
Cash in hand 1,50,000
Bank of America 13,15,000
Total 45,07,000 45,07,000
(e). Importance of preparing a trial balance:
Checking Arithmetical Accuracy: When migrating numbers from different ledger books such as
buy books, revenue books, cash journals and so forth, trial balance is being used to check exact
number entered on right side of current account. This apart from checking the consistency of
general ledger statements, Trial Balance of business is also beneficial for checking accuracy of
special-purpose financial statements.
Assist in the Financial Statement Preparation: At end of each financial year, an income
statement, balance sheet and cash flows statement must be compiled. Trial balance also
11

has balances of all ledger accounts required to compile financial statements. As a result, it
facilitates the planning and review of the financial statements.
Help in the correction of errors: Trial balance business debit limit must match trial balance's
credit sum. This verifies ledger postings' arithmetical precision. If this doesn't occur, the
accountant would be unable to locate and correct the mistake. As a result, accountants are
pleased when trial balance debit as well as credit totals align (Warren, Jonick and Schneider,
2020).
Aid in Adjustments: During trial balance planning, adjustment accounts such as prepaid costs,
outstanding obligations, closing stock and so forth must be packed. This makes it easier to make
changes that are only applicable to the present accounting period. Adjustment statements are
usually prepared by the conclusion of the financial year. There are no limitations on opening
these modification accounts when they arise.
Assist in Comparative Analysis: Preparing Trial Balance allows you to equate current period
balances to previous year balances, as well as perform peer analysis. This enables the company
to make critical decisions on revenue, expenditures, and manufacturing costs, among other things
(Schroeder, Clark and Cathey, 2019).
Question 2
(a). Extended trial balance as at 30 June 2020:
Trial balance as at 30 June 2020 $000 $000
Issued equity shares of $1 each 800.00
10% redeemable preference share of $1
each
200.00
Trade receivables 1805.00
Trade payables 1866.00
Bank 80.00
Inventory at 01.07.2019 2020.00
6% debentures 1000.00
Sales 9500.00
Rental income 200.00
Debenture interest 60.00
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