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School of Business & Leisure

PROGRAMME: ACCOUNTING AND FINANCE

Module: FINANCIAL ACCOUNTING 1

Module code: AAF- 101
PHASE TEST

DATE: 07 April 2022

TIME ALLOWED: 2 hours

TOTAL MARKS: 50

Instructions to Candidates:

The paper contains Section A and Section B. Answer ALL questions in each
section.

Do NOT open this paper until instructed by the supervisor.

This question paper must not be removed from the examination hall.

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This examination contains 6 printed pages including cover page.

ANSWER ALL QUESTIONS

SECTION A (10 MARKS)

QUESTION 1
What does the accrual concept highlight?

A. That transactions are recorded at the cost when they are incurred or occurred
B. That asset, income is not overstated
C. That accounts should deal with items to which monetary value can be attached
D. That all materials should be included in the financial statement

QUESTION 2
A credit note is a document:
A. Acknowledging purchase on credit
B. Giving a preference from an agency detailing the creditworthiness of a new
customer
C. Issued when a deposit is paid on goods
D. Which cancels out all or part of a sales invoice

QUESTION 3
In which day book, are credit purchases recorded?
A. Sales Returns
B. Purchases daybook
C. Returns outwards
D. Cash book

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QUESTION 4
Which from the following represents the Accounting Equation?

A. Assets=Equity+ Liabilities
B. Liabilities + Assets = Equity
C. Equity + Assets = Liability
D. None of the above

QUESTION 5

A trade receivable is an example of……

A. An Asset
B. A Liability
C. An expense
D. An income

QUESTION 6
A credit balance on a ledger account indicates:

A. an asset or an expense
B. a liability or an expense
C. an amount owing to the organisation
D. a liability or a revenue

QUESTION 7
Which of the following describes the separate entity principle?

A. The non-current assets of a business are a separate entity from the current
assets
B. The drawings of a business are a separate entity from the profit of the
business
C. The business is a separate entity from the owner of the business
D. The owner of the business must be a separate entity from the lender to the
business

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QUESTION 8
Which of the following statements are true regarding Financial Accounting?

i. Generally required by law.

ii. Reflects past performance.
iii. Includes budgets and forecast of future activities.
iv. Prepared normally for external users.
v. Presented in accordance with strict legal and accounting requirements.

A. All statements are correct

B. All except statement (i) are correct
C. All except statement (iii) are correct
D. All except statement (iv) are correct

QUESTION 9
Which of the following best explains the term ‘current asset’?

A. An asset currently in use by a business

B. A resource that a business has or uses, which is likely to be held only for a
short time
C. An amount owed to somebody else which is due for repayment soon
D. Money which the business currently has in its bank account

QUESTION 10

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What is the main purpose of an accounting system in a business?

A. To generate the business accounts

B. To calculate the tax payable by a business
C. To record, summarise and present information from documentation
generated by business transactions
D. To enable the owner to know if the business is trading profitably

SECTION B (40 MARKS)

ANSWER ALL QUESTIONS

QUESTION 1: (20 MARKS)

At his year end of 30 December 2021, Nametso’s cash book showed that he had an
overdraft of P800 on his current account at the bank. A bank statement as at 30
December 2021 showed that Nametso has an overdraft of P350.

On checking the cash book and the bank statement you find the following.

i. On instructions from Nametso on 30 December 2021 the bank had

transferred P50 interest received on his savings account to his current
account, but it only recorded the transfer on 5 January 2022. This amount
was credited in the cash book on 30 December 2021.

ii. Dividends received of P100 had been paid direct into the bank and not
entered in the cash book.

iii. Cheques drawn, amounting to P1 145 had been entered in the cash book but
had not yet been presented.

iv. Cheques received, amounting to P500 had been entered in the cash book
but had not yet been credited by the bank

v. Bank charges of P40 shown in the bank statement had not been entered in
the cash book.

vi. The payments side of the cash book had been undercast by P100.

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vii. A cheque of P50 from Ame was recorded and banked on 24 December. This
was returned unpaid on 30 December and then shown as a debit on the bank
statement. No entry has been made in the cash book for the unpaid cheque.

viii. A cheque issued to Jones for P45 was replaced when it was more than six
months old, at which time it had become ‘out of date’ and the bank would
have refused to pay it. It was entered again in the cash book, no other entry
being made. Both cheques were included in the total of unpresented cheques
shown above.

REQUIRED

a) Make the appropriate adjustments in the cash book. (12 marks)

b) Prepare the bank reconciliation statement. (8 marks)

Nametso's Updated cashbookf

Dr (P) Cr (P)
Interest received 100 Balance b/f 800
Dividents received 100 Bank charges 40
Cancelled cheque 45 Payment undercast 100
Dishonored cheques 50
Bal c/d 745
990 990
Bal b/d 745

Reconcilliation statement as at 30 december 2022

Bal b/f (350)

Add

Bank lodgements 500

Interestnot yet credited 50 550

Less

Less unpresented CHQs 1145

Less cancelled cheque 45 (1100)

Page 6 of 9
 Balance as per cashbook (900)

QUESTION 2 (20 MARKS)

A new trainee made the following errors in the books of Tshepiso Ltd.

i. A sale of goods worth P678 to J Harris had been entered to J. Harts account.

Error commission

J. Harris 678

J. Harts 678

Being correction of error of commission

ii. The sale of P59 worth of goods to R. Ncube has been completely omitted
from the books.

Error of Ommission

R. Ncube 59

sale 59

Being correction of error of omission

iii. The purchase of a machine for P200 is debited to purchases account instead
of being debited to machinery account.

Error of principle

Machinery A/C 200

Purchases 200

Being correction of error of principle

iv. In the cash book, the amount of cash sales transferred to the sales account
was overstated by P20 and the amount transferred to the wages account was
also overstated by P20.

Compensating error

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Sales 20

Wages 20

Being correction of compensating error

v. A sale of P38 to A Smiles was entered in the books as P28.

Error of original entry

A. Smiles 10

Sales 10

Being correction of error of original entry

REQUIRED

a) State the type of error made in each of the above transactions. (5

marks)
b) Prepare journal entry to correct each of the above error. (5
marks)
c) Explain how classifying capital expenditure as revenue expenditure will affect
the net profit for both the year in which the error is made and the following year
if the error is not corrected. (3
marks)

Profit of the year in which the error is made will be understated as the
expenses are overstated.

d) The profit of the following year will be overstated as the exclusion of the
item from non current assets will mean that no depreciation will be
charged. This will understate expenses and overstate profit of the year.

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e) Explain why a suspense account should be cleared before final accounts are
prepared. (3 marks)

f) Explain any two (2) limitations of a trial balance. (4

marks)

I) Error of commission

END OF PAPER

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