THE ASSOCIATION OF ACCOUNTING TECHNICIANS OF SRI LANKA

AA1 EXAMINATION - JULY 2019

(AA11) FINANCIAL ACCOUNTING BASICS

1. Sajith started a retail shop on 01st January 2011, depositing Rs.10,000/- into a bank
account. Rs.60,000/- worth of furniture and equipment were brought to the business by
Sajith on the same day. The following information was extracted from her records for the
three-month period ended 31st March 2011:

Cash payments
Telephone 7,000
Electricity 6,000
Transport 4,000
Sundry expenses 3,000
Suppliers 40,000
Expenses on Business opening day 5,000

Cheque payments
Suppliers 120,000
Motor bicycle (could use for 4 years and can be sold for Rs.12,000/- after 4 years)
36,000
Rent (2,000 per month) 24,000
Settlement of part of the loan - Namal 15,000
Painting work of the shop 4,000
Machinery (could use for 3 years and can be sold for Rs.,3000/- after 3 years 24,000
Cash deposited in bank 240,000
Loan from Namal (cash) 40,000

The following additional information is provided:

i. All sales were on cash basis, Sajith has deposited receipts from sales keeping a cash in
hand balance of Rs.5,000/-. He has started to withdraw Rs.500/- each daily from the
collection (for private use) with effect from 01st March to 31st March 2010.
ii. Furniture and equipment should be replaced after 4 years, the saleable value of these
assets after 4 years would be Rs.12,000/-.
iii. The trade payables as at 31st March 2010 were Rs. 13,000/-.
iv. The stock on 31st March 2010 was valued at Rs.23,000/-.
v. Outstanding bills payable as at 31st March 2010 were:
i. Electricity Rs.2,000/-
ii. Water Rs.1,000/-
vi. Prepaid telephone bill Rs. 1,500

You are required to prepare:

(a) Trading, Profit/Loss account for the three months period ended 31st March 2010,
(b) Balance Sheet as at 31st March 2010, of the business of Sajith
2. The below transactions given of an organization
i. Owner invests Rs 200,000 for the business.
ii. Drawing Rs 2,000.
iii. Owner settled for a business creditor Rs 75,000.
iv. Owner collected money from a business debtor R s 10,000.
v. Brought goods for Rs 200,000 on credits.
vi. Sold it to Rs 300,000.
vii. Sales return for the debtors Rs 10,000(cost is 8,000)
viii. Receive for the debtors Rs 100,000
ix. Discount given Rs 10,000
x. Bad debts Rs 10,000
xi. Provision for doubtful debts Rs 5,000
xii. Provision for doubtful debts Rs 5,000, opening balance was Rs 1,000
xiii. 13. Opening balance of provision of doubtful debt Rs 8,000 & this year’s
doubtful debt is Rs 5,000.
xiv. Payment for the creditors Rs 70,000
xv. Discount received Rs 10,000
xvi. Purchase return to creditors Rs 20,000
xvii. Brought stationary Rs 50,000
xviii. Used stationary Rs 30,000
xix. Paid electricity bill of Rs 8,000
xx. Receive an electricity bill of Rs 8,000
xxi. prepaid insurance Rs 10,000
xxii. Paid financial expenses of Rs 70,000 & prepaid expense is include Rs 20,000,
year-end accrued expenses Rs 5,000.
xxiii. Motor vehicle deprecation Rs 10,000
xxiv. Bank loan Rs 300,000
xxv. Paid bank interest Rs 10,000

 Apply the above transactions to

a. Assets = Capital + income- expenses + liabilities

3. The below information for year 2007/01/01,

Balances
Equipment 200,000
Provision of depreciation (equipment) 50,000
Stock 50,000
Debtors 80,000
Provision for doubtful debts 8,000
Creditors 300,000
Transactions,

01. Brought an equipment on 2007/06/30,& the depreciation 10%(straight line method)

02. Credit purchase Rs 200,000,trade discount 10%
03. Contributed stock worth Rs 1,000
04. Credit sales for Rs 300,000 on profit ratio of 33 3/1 in cost
05. Sales return Rs 18,000
06. Bad debts Rs 20,000
07. Receive from the debtors Rs 297,000, discount given 10%
08. Owner invest Rs 10,000 for the business
09. Drawing Rs 2,000
10. Paid expenses Rs 10,000 prepaid amount of Rs 2,000 include in it, year-end accrued
expenses Rs 5,000

 Wanted,
1. Apply for the below equation,
-Assets + Expenses = Capital + Income + liabilities
2. Find the profit.
- Find the profit using an income statement

4. Briefly explain the following accounting concepts and give examples

 Separate entity
 money measurement
 stable value of money
 going concern
 Time interval (periodicity)
 accruals
 matching
 realization
 historical cost rule
 Materiality
 Objectivity
 Prudence
 Consistency
 Substance over form
5. The cash balances of PQR Ltd as at 01.01.2010 as follow.
Cash in hand Rs. 22,500
Bank (Over drawn) Rs. 14,200

Following transactions have taken place during first two weeks of January.
Prepare the cash book and post in relevant ledger accounts.

January 01 Deposited in bank account Rs. 5000. Cash sales Rs. 32,000 (Received a cheque
received from debtors Rs. 8300 and discounts given is Rs. 700.
January 02 Salaries Rs 4500 and rent Rs. 3000 paid by cash.
January 03 Obtained a bank loan Rs. 50,000.
January 04 Deposited in bank account Rs. 12,000. Paid to creditors Rs. 8200 by a cheque
and discounts received Rs. 800.
January 05 Purchase of equipment Rs. 3500 by a cheque.
Purchase of investment Rs. 5000.
January 06 Previously received cheques deposited.
January 07 Rental income Rs. 8200 received.
January 09 Debtors have directly deposited in the bank Rs. 4200.
January 10 Settled Rs. 5000 of bank loan by a cheque.
January 11 Received Rs. 7250 cheque from a debtor.and paid to a creditor Rs. 1200 by
cheque.
January 12 While keeping only Rs. 3000 in cash deposited all other cash and cheque in the
bank.
January 13 Received a cheque for Rs. 5000 from a debtor and transferred that to a
creditor.
January 14 Received from debtors Rs. 6400 and discounts given is Rs. 600.
Paid to a creditor Rs. 4800 by a cheque and discounts received is Rs. 1200.

6. Following transactions have extracted from DEF Ltd. For the month of September. Prepare
petty cash book. and record in ledger accounts.
September 01 Received cash Rs. 500 as petty cash float from cashier.
Bus fare (V.N. – 01) Rs. 10
Office cleaning (V.N. – 02) Rs. 60
September 07 Posted (V.N. – 03) Rs. 62
Traveling (V.N. – 04) Rs. 125
September 10 Taxi cost (V.N. – 05) Rs. 150
Stationery (V.N. – 06) Rs. 15
Distribution Cost (V.N. 07) Rs. 75
September 11 Reimbursed the float. It is decided to increase the float to Rs. 1000 and
cash received to match the new float.
September 12 Telegraph (V.N. 08) Rs. 15
September 15 Bus fare (V.N. – 10) Rs. 70
September 20 Office cleaning (V.N. – 11) Rs. 175
Telephone cost (V.N. – 12) Rs. 25
September 25 Distribution cost (V.N. – 13) Rs. 250
Stamp (V.N. – 14) Rs. 18
September 30 Petty cash float is reimbursed by main cashier
7. You have extracted a trial Balance from the books of Account of ‘X’ Company as at
31.03.2011 and found that it is not balancing. A suspense account was opened for the
difference. Later, scrutinizing the accounts has revealed the following:

(1) Sales Account had been overcast by Rs. 7,800/-

(2) Purchase day book had been undercast by Rs. 1,500/-
(3) Office rent account had been undercast by Rs. 800/-
(4) Rs. 3,400/- cash received from a trade Accounts Receivable (debtor) was entered in
the cash book only (not posted to the respective ledger account)
(5) A cash purchase of Rs. 95,000/- was entered in the cash book as Rs. 59,000/-.

You are required to:

(a) Prepare journal entries necessary to correct the errors.
(b) If the net profit had, previously been calculated at RS. 85,000/- for the year ended 31st
march 2011calculate the correct profit for the year after correcting the errors.

8. The following information was extracted trial balance was extracted from the “Sun"
Manufacturing Ltd as at. 31/03/2010.

Dr Cr
Capital 730,000
Cost
Machinery 800,000
Tools & Equipment 350,000
Furniture & Fittings 270,000
Vehicles 760,000
Provision for depreciation(1/4/2009)
Machinery 160,000
Tools & Equipment 35,000
Furniture & Fittings 54,000
Vehicles 152,000
Purchases – Raw material 424,600
Carriage inwards 56,700
Handling Charges 35,400
Custom Duties 12,370
Returns outwards 14,600
Factory wages 137,900
Electricity 96,200
Insurance 74,000
Telephone 43,200
Stationary 26,250
Vehicle maintenance 12,400
Machinery maintenance 13,700
Tools & equipment maintenance 17,300
Distribution expenses 7,800
Opening stocks
Raw material 46,700
 Work in progress 63,000
Finished goods 148,500
Creditors 479,270
Vehicle running charges 16,470
Discounts allowed 73,700
Worker charges 110,600
Bank overdraft 800,700
Bank charges & interest 12,760
Establishment expenses 21,000
Officer salaries 12,300
Discount received 36,500
Sales 1,381,400
Debtors 200,620
3,843,470 3,843,470

The stock of the business as at. 31.03.2010. Were as follows.

Raw materials 67,900
Work in progress 211,540
Finished goods. 55,000
Stationery 8,150

The following expenses are agreed at the end of the year.

Electricity 8,500
Telephone 10,800
Insurance 6,000

The following expenses should be apportioned as follows:

Factory office
Electricity 80% 20%
Telephone 10% 90%
Stationery 15% 85%
Insurance 60% 40%

The depreciation should be provided for on the following bases.

Machinery (on cost) 20%
Tools & equipment (on cost) 5%
Furniture and fitting (on cost) 20%
Motor vehicles 20%

A bad debt provision has been made on debts at 5%.

Motor vehicle is entirely used for the distribution of finished goods to customer.

You are required to prepare the manufacturing trading profit and loss account and the
balance sheet as at 31.3.2010.