1 Seok buys and sells goods on credit.

He has three credit customers and allows one of them,

Naomi, trade discount of 10%. All customers pay Seok by bank transfer.

The following balances were extracted from Seok’s sales ledger at 1 August 2023.

$
Naomi 450
Siena 155
Bwana 386
991

The following transactions took place in August 2023.

Aug 3 Sold goods on credit, to Naomi, list price $410

5 Sold goods on credit, $89, to Bwana

10 Naomi returned goods, list price $20

11 Naomi paid $423 in full settlement of the amount she owed at 1 August

19 Sold goods on credit, $180, to Bwana

22 Sold goods on credit, to Naomi, list price $230

27 Bwana returned goods, $19

29 Bwana paid $400

REQUIRED

(a) Prepare the sales journal for August 2023.

Total the journal and indicate the ledger account where the total would be posted.

Seok
Sales journal

Date Details $ $

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[4]
(b) Prepare the sales returns journal for August 2023.
Total the journal and indicate the ledger account where the total would be posted.

Seok
Sales returns journal

Date Details $ $

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[3]

(c) Prepare the account for Naomi for August 2023 as it would appear in the books of Seok.
Balance the account and bring down the balance at 1 September 2023.

Seok
Naomi account

Date Details $ Date Details $

.......... ....................................... ............... .......... ...................................... ...............

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[6]
On 31 August Seok decided to write off the amount owing by Siena as an irrecoverable debt.

REQUIRED

(d) Prepare Seok’s sales ledger control account for August 2023. Balance the account and bring
down the balance at 1 September 2023.

Seok
Sales ledger control account

Date Details $ Date Details $

.......... ....................................... ............... .......... ...................................... ...............

.......... ....................................... ............... .......... ...................................... ...............

.......... ....................................... ............... .......... ...................................... ...............

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[7]

[Total: 20]
2 MC is a trader who maintains a full set of accounting records and prepares control accounts at the
end of each month.

REQUIRED

(a) Complete the table to name the book of prime entry which MC would use to obtain information
when preparing control accounts.

Item Book of prime entry

Discount received from credit suppliers

Purchases returns

Contra entries

Interest charged by credit suppliers

[4]

(b) Explain how a contra entry is treated in the ledger accounts.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [2]

MC has provided the following information for the month of July 2022.

$
On 1 July 2022
Purchases ledger control account credit balance b/d 21 400
Purchases ledger control account debit balance b/d 130

Totals for the month

Credit purchases 259 600
Credit purchases returns 9 800
Cash purchases 240
Cheques paid to credit suppliers 228 200
Discount received 12 900
Cash paid to credit suppliers 500
Interest charges by credit suppliers 150
Contra sales ledger 2 260

At 31 July 2022 the purchases ledger control account had a credit balance c/d of $180.
REQUIRED

(c) Prepare the purchases ledger control account for the month of July 2022. Balance the account
and bring down the balances on 1 August 2022.

MC
Purchases ledger control account

Date Details $ Date Details $

.......... ..................................... ............... .......... ..................................... ...............

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.......... ..................................... ............... .......... ..................................... ...............

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[9]
Currently MC purchases all goods from a local supplier. He has been offered a monthly price
reduction of $2000 if he changes to an annual contract purchasing all goods from a new overseas
supplier.

REQUIRED

(d) Advise MC whether he should change to the new overseas supplier. Justify your answer.

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[Total: 20]
1 Ayesha is a trader who maintains a full set of accounting records and prepares control accounts at
the end of each month.

She provided the following information for the month of August 2021.

$
On 1 August
Sales ledger control account debit balance 9 800
Sales ledger control account credit balance 420
Purchases ledger control account credit balance 7 700

Totals for the month

Credit sales 88 850
Credit purchases 55 400
Cash purchases 1 860
Receipts from customers 82 100
Payments to credit suppliers 50 600
Discount received 600
Discount allowed 900
Irrecoverable debt written off 300
Provision for doubtful debts 450
Sales returns 2 400
Interest charged to customer on overdue account 90
Contra between sales ledger and purchases ledger 2 920

The sales ledger control account credit balance brought down on 1 September 2021 was $350.

REQUIRED

(a) Prepare the sales ledger control account and the purchases ledger control account for August
2021.

Balance the accounts and bring down the balances on 1 September 2021.
 Ayesha
Sales ledger control account

Date Details $ Date Details $

2021 2021

.......... ..................................... ............... .......... ..................................... ...............

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.......... ..................................... ............... .......... ..................................... ...............

.......... ..................................... ............... .......... ..................................... ...............

Purchases ledger control account

Date Details $ Date Details $

2021 2021

.......... ..................................... ............... .......... ..................................... ...............

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[14]
(b) Name the book of prime entry which Ayesha would use to obtain the following information
when preparing her sales ledger control account.

Item Book of prime entry

Returns

Discount allowed

Interest charged to customer on overdue

account

Contra entry

[4]

(c) Suggest two reasons why the sales ledger control account had a credit balance of $420 on
1 August 2021.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

[Total: 20]
1 Addo is a trader who only sells on credit.

His trade receivables at 1 April 2024 were as follows:

Nuru 920

Mahia 1145

Ava 1378

Rachel 215

3658

During April 2024, the following transactions took place:

April 2 Sold goods to Ava, list price $150, less 6% trade discount

9 Received telephone transfer from Ava, $689

12 Sold goods to Nuru, $165

13 Received cheque, $627, from Mahia, in full settlement of an invoice for $660

19 Received $760 from Nuru by electronic transfer. Nuru had deducted 5% cash
discount

20 Nuru returned goods $30

21 Sold goods to Mahia, list price $480, trade discount 5%, cash discount 5% if invoice
paid within 30 days

30 Rachel has become bankrupt and Addo decides to write off the amount owing from
her, as irrecoverable

REQUIRED

(a) Prepare the sales journal for April 2024.

Total the sales journal and indicate the ledger account to which the total would be posted.

Addo
Sales journal
Date Details $ $

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[3]
(b) Prepare the journal entry to write off the amount owing by Rachel. A narrative is required.

Addo
Journal
Date Details $ $

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[3]

(c) Calculate:

(i) the total amount of money which Addo received from trade receivables during April 2024.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [1]

(ii) the total amount of cash discount which Addo allowed in April 2024.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [2]
(d) Prepare Addo’s sales ledger control account for April 2024.

Addo
Sales ledger control account
Date Details $ Date Details $

............. ................................. ............ ............ ................................. ............

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[6]

Addo is considering changing his credit terms. He would introduce more credit checks on new
customers and would increase cash discount to 7½% for payment within 30 days.

REQUIRED

(e) Advise Addo whether or not he should make these changes to his credit terms. Justify your
answer by providing two advantages and two disadvantages of changing his credit terms.

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............................................................................................................................................. [5]

[Total: 20]
2 Samir buys and sells on credit. He has provided the following information.

2023 $
1 January Total trade receivables 10 115

31 December Totals for the year:

Cash sales 136 900

Credit sales 124 670
Returns from credit customers 5 234
Bank transfers received from credit customers 98 620
Cash received from credit customers 11 470
Interest charged on overdue sales ledger accounts 139
Contra entries 1 833
Discount allowed to credit customers 3 125

In addition, one of Samir’s trade receivables, Ria, has become bankrupt and Samir will not receive
the $178 which she owes to him. Samir thinks he will receive most of the other amounts due to
him from his trade receivables.

REQUIRED

(a) (i) Prepare the journal entry to write off the amount owed by Ria. A narrative is required.

Samir
Journal

Date Details Debit Credit

$ $

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[3]

(ii) State two reasons why Samir should use a provision for doubtful debts account.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [2]
(b) Prepare Samir’s sales ledger control account for the year ended 31 December 2023.
Balance the account and bring down the balance at 1 January 2024.

Samir
Sales ledger control account

Date Details $ Date Details $

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[9]
Samir is concerned about his ability to pay his trade payables. He is considering whether to stop
allowing cash discount to his credit customers so that he will have more cash coming in and can
pay his trade payables more easily.

REQUIRED

(c) (i) Advise Samir whether or not to stop allowing cash discount. Justify your answer
by providing advantages and disadvantages of stopping cash discount to his credit
customers.

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..................................................................................................................................... [5]

(ii) Suggest one other action which Samir could take to ensure that he has sufficient cash to
pay his trade payables.

...........................................................................................................................................

..................................................................................................................................... [1]

[Total: 20]
3 Lucas is a trader. He has provided the following information.

$
Balances at 1 January 2023

Sales ledger control account 14 940 debit

Purchases ledger control account 8 450 credit

Totals for January 2023

Credit sales 12 736

Cash sales 3 992

Credit purchases 7 325

Returns to credit suppliers 463

Returns from credit customers 920

Cash received from credit customers 685

Bank transfers received from credit customers 10 620

Bank payments to credit suppliers 6 675

Irrecoverable debts written off 140

Discount received 210

Contra entries 180

Interest charged on overdue purchases ledger accounts 166

REQUIRED

(a) Prepare the sales ledger control account for January 2023. Balance the account and bring
down the balance at 1 February 2023.
 Lucas
Sales ledger control
Date Details $ Date Details $

............. .................................. ............. ............. .................................. .............

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[6]

(b) Prepare the purchases ledger control account for January 2023. Balance the account and
bring down the balance at 1 February 2023.

Lucas
Purchases ledger control
Date Details $ Date Details $

............. .................................. ............. ............. .................................. .............

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[7]
(c) State two advantages of preparing control accounts.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

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[2]

One of Lucas’s suppliers has demanded immediate payment of the $3900 due to him. Lucas
does not have sufficient cash to pay this amount. He is considering selling some office equipment
which had cost $6000 and has been fully depreciated. Lucas has been offered $2500 cash for this
equipment.

REQUIRED

(d) Advise Lucas whether he should sell this office equipment in order to pay the supplier. Justify
your answer.

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[Total: 20]
2 Ravi is a trader. He provided the following information.

2021 $
1 February Sales ledger control account debit balance 12 510
Sales ledger control account credit balance 1 245
2022
31 January Totals for the year:
Credit sales 134 000
Cash sales 4 625
Bank transfers received from credit customers 96 250
Cash received from credit customers 12 890
Returns from credit customers 4 000
Irrecoverable debts written off 9 100
Contra entries 1 677
Discount allowed 4 643
Discount received 2 119
Interest charged on overdue sales ledger accounts 1 104

Sales ledger control account debit balance ?

Sales ledger control account credit balance nil

REQUIRED

(a) Prepare Ravi’s sales ledger control account for the year ended 31 January 2022.
Balance the account and bring down the balance on 1 February 2022.

Ravi
Sales ledger control account
Date Details $ Date Details $

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[10]
(b) State the accounting principle which is being applied when irrecoverable debts are written off.

............................................................................................................................................. [1]

(c) Explain why the following interested parties want to know the level of Ravi’s trade receivables.

(i) Bank manager

...........................................................................................................................................

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...........................................................................................................................................

..................................................................................................................................... [2]

(ii) Trade payables

...........................................................................................................................................

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..................................................................................................................................... [2]

Ravi sends out statements of account to credit customers and charges interest on overdue
accounts. He is concerned about the loss caused to his business by irrecoverable debts. He is
considering employing a part-time credit controller to contact credit customers by telephone and
to start legal action on overdue accounts if necessary. The credit controller would be paid $6800
per annum.

REQUIRED

(d) Advise Ravi whether or not he should employ the credit controller. Justify your answer.

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[Total: 20]
2 GHB Limited maintains a full set of accounting records and prepares monthly control accounts.

The following information was provided for November 2019.

$
Purchases ledger control account balance at 1 November ?

Totals for November:

Purchases journal 14 200
Purchases returns journal 1 160
Cash purchases 5 390
Commission receivable 2 110
Cash discount received 650
Cash discount allowed 710
Cheques paid to trade payables 11 420
Sales ledger contras 250
Interest charged by trade payables 95
Cheque refunds from trade payables 330
Purchases ledger control account balance at 30 November 13 195

REQUIRED

(a) Prepare the purchases ledger control account for GHB Limited for November 2019.

Balance the account on 30 November 2019 and bring down the balance on 1 December
2019.

GHB Limited
Purchases ledger control account

Date Details $ Date Details $

……….... …………………………………… ………..... ……….... …………………………………… ……….....

……….... …………………………………… ………..... ……….... …………………………………… ……….....

……….... …………………………………… ………..... ……….... …………………………………… ……….....

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[9]
A delivery vehicle was purchased by cheque during November 2019.

REQUIRED

(b) State two reasons why the purchase of the delivery vehicle was not recorded in the purchases
ledger control account.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

.............................................................................................................................................. [2]

(c) (i) State the most appropriate method of depreciation for the new delivery vehicle.

...................................................................................................................................... [1]

(ii) State three reasons for your answer to (c) (i).

1 .........................................................................................................................................

...........................................................................................................................................

2 .........................................................................................................................................

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3 .........................................................................................................................................

...................................................................................................................................... [3]
The directors of GHB Limited are planning to finance a major expansion of the fleet of delivery
vehicles. $250 000 will be required for this expansion. The directors are considering whether to
issue additional ordinary shares or to obtain a long-term bank loan.

REQUIRED

(d) Advise the directors which of these two methods of finance is more appropriate.

Justify your answer with one advantage and one disadvantage of each option.

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[Total: 20]