Incomplete Records

Incomplete Records

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Key Learning Outcomes


  • Know the layout of the Trading, Profit and Loss Account and Balance Sheet.
  • Know the exact location of each item in Trading, Profit and Loss Account and Balance Sheet.
  • Learn the theory which could be examined in this topic.

Introduction


Incomplete Records is one of a number of topics which could be asked in either Section 1 or Section 2.

When asked in Section 1 the question is worth 60 marks (15%) and should take 27 minutes maximum.

When asked in Section 2 the question is worth 100 marks (25%) and should take 45 minutes maximum.

This topic has appeared in Section 1 of the paper in the following years:  11, 16, 18.

It has appeared in Section 2 of the paper in the following years:  97, 00, 01, 03, 05, 07, 09, 13, 15.

The years stated above are listed solely to assist revision ‒ See Practical Matters 5.

The choice in both Section 1 and Section 2 is to answer two questions from the three asked.

Types of Question:  Two types of 100 mark Incomplete Records can be asked.

(a)   Type 1:  Work forward through the Trading, Profit and Loss Account to find the Net Profit and then forward through the Balance Sheet to find the Balance Sheet total.

 (b)   Type 2:  Work backwards through a Statement/Balance Sheet to find the Net Profit and then backwards through the Trading, Profit and Loss Account to find the Purchases figure.

Note:  We will look at a Type 2 Question using the Balance Sheet method.

Practical Matters:

(1)   Know the maximum time allowed for the question (see Introduction above).
(2)   Always do the question in the same way ‒ this will increase speed and confidence.
(3)   Use only one pen colour and do not underline headings or totals ‒ to improve speed.
(4)   Show the work on the LHS and RHS of a double page ‒ to improve speed and accuracy.
(5)   Do not try to predict the examination paper ‒ study all possible questions in all sections.

Sample Exam Q&A


 Question

On 01/01/2019, N. Cole purchased a business for €520,000 which included the following tangible assets and liabilities: Premises €360,000; Stock €39,000; Debtors €31,500; 8 months Rates Prepaid €7,200; Equipment €30,000; Trade Creditors €37,100; Wages due €2,300; 2% Investments €70,000.

During 2019, Cole did not keep a full set of accounts but estimates that the gross profit was 25% of sales and was able to supply the following information on 31/12/2019.

(i)      Each week Cole took goods from stock to the value of €110 and cash €180 for household expenses.

(ii)     On 01/09/2019 Cole borrowed €140,000 which, together with €40,000 of Cole’s personal funds, was used to purchase an adjoining premises.  It was agreed that the sum borrowed would be repaid in 20 equal installments over a ten year period commencing on 01/06/2020.  Interest was to be charged at the rate of 6% per annum to be paid monthly at the end of each month.

(iii)    During the year, Cole lodged to the business bank account, EU Capital Grant €20,000 and Investment Interest €1,200.

Cole also made the following payments from the business bank account during the year:
Light and Heat €8,400, Interest €1,800, Equipment (purchased on 01/11/2019) €15,000,
Delivery Vans (purchased on 01/08/2019) €36,000, Wages and General Expenses €85,000, Rates for 12 months €11,700.  The payment for wages and general expenses includes €4,200 petrol bill for Flynn’s private use.

(iv)    Cole estimated that 20% of the following: rates payable for the year, light and heat used and interest payable for the year should be attributed to the private section of the premises.

(v)     Cole has decided to set up a Provision for Bad Debts amounting to 4% of debtors and to charge depreciation at 20% per annum on delivery vans and 10% per annum on equipment held on 31/12/2019.

(vi)        Included in the assets and liabilities of the firm on 31/12/2019: Stock €31,700 (which includes a stock of heating oil €400), Debtors €32,000, Trade Creditors €34,900, Bank Overdraft €11,500, and Electricity due €650.

You are required to:

(a)   Prepare a Statement/Balance Sheet showing Cole’s profit or loss for the year ended 31/12/2019.          (Show your workings).

(50 Marks)

(b)  Prepare, a Trading, Profit and Loss Account, in as much detail as possible, for the year ended 31/12/2019.   (Show your workings)

(40 Marks)

(c) 
(i)      Explain what is meant by an ‘Accounting Concept’.
(ii)     Explain what is meant by the ‘Prudence Concept’.
(iii)    Name the three other fundamental accounting concepts.

(10 Marks)

Sample Answers (a) – Statement/Balance Sheet showing Cole’s profit or loss for the year ended 31/12/2019

IncompleteAccounts_01

Sample Answers (b) – Trading, Profit and Loss Account for the year ended 31/12/2019

IncompleteAccounts_02

Sample Answers (c) 

(i)   Accounting Concept:
An accounting practice or rule applied in the preparation of financial statements.(ii)   Prudence Concept:
Financial statements only show realised income and profits but all expenses and losses.This caution ensures that profit will not be overstated.

(iii)  Three Other Fundamental Accounting Concepts:

  (1)  Accruals Concept
  (2)  Consistency Concept
  (3)  Going Concern Concept

Workings

IncompleteAccounts_03

Student Activity 1

Q1 State how each of the following are dealt with in the accounts:
(a) Purchase price includes the following tangible assets and liabilities
(b) Rates prepaid 1/1 (8 months)
(c) Wages due 1/1
(d) Goods taken from the business
(e) Cash taken from the business
(f) Personal funds used to purchase premises
(g) Loan due 31/12 (h) Loan installments due 31/12
(i) EU Capital Grant
(j) Investment interest due 31/12
(k) Loan interest due 31/12
(l) Rates for 12 months
(m) Drawings based on rates, light and heat and interest for the year
(n) Set up a provision for bad debts
(o) Charge depreciation on a fixed asset
(p) Stock (which includes a stock of heating oil €400)
(q) Electricity due 31/12
Q2 State how to work backwards through the Trading, Profit and Loss Account.
Q3 What advice would you give in relation to the information given above?
Q4 What advice would you give in relation to record keeping?
Q5 What additional information would be available if the ‘double entry’ system was used to record financial transactions?
Q6 Explain the importance of double entry bookkeeping.
Q7 (i)  Explain the ‘Accruals Concept’ and why it is fundamental to Accounting practice                                                                (ii)   Explain the
(a) ‘Consistency Concept’
(b) ‘Going Concern Concept’
Q8 Explain why records should keep be kept of the amounts taken out as drawings.

Student Activity 1 Answers


You can download/view the answers to the above questions here