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Incomplete Records On 01/01/2014, A - Leaving Cert Accounting - Question 7 - 2015
Question 7
Incomplete Records On 01/01/2014, A. Murphy purchased a business for €220,000 consisting of the following tangible assets and liabilities: Premises €180,000; Stoc... show full transcript
Worked Solution & Example Answer:Incomplete Records On 01/01/2014, A - Leaving Cert Accounting - Question 7 - 2015
Step 1
Trading and Profit and Loss Account for the year ended 31/12/2014 (Show workings)
Answer
The Trading and Profit and Loss Account for the year will start with the calculation of sales and cost of sales.
Sales Calculation
- Total sales = Debtors' lodgements + cash sales - goods withdrawn
- Sales = (€34,000 + €110,000) - €6,200 = €137,800
Cost of Sales Calculation
- Opening stock = €17,000
- Purchases = €86,200
- Closing stock (calculated from withdrawals) = €11,200
- Cost of Sales = Opening Stock + Purchases - Closing Stock
- Cost of Sales = €17,000 + €86,200 - €11,200 = €92,000
Gross Profit Calculation
- Gross Profit = Sales - Cost of Sales
- Gross Profit = €137,800 - €92,000 = €45,800
Administrative Expenses:
- Total General expenses = €45,800
Net Profit Calculation
- Net Profit = Gross Profit - General Expenses = €45,800 - €45,800 = €0
Step 2
Balance Sheet as at 31/12/2014 (Show workings)
Answer
The Balance Sheet represents the financial position on the date.
- Assets:
- Tangible Assets = Total fixed assets including Premises and stock, less depreciation.
- Current Assets: €32,600 (stock) + debtors and cash.
- Liabilities:
- Total creditors + loans etc.
- Ensure to match assets and liabilities appropriately to describe the financial health of the business.
Step 3
Explain the 'Accruals Concept' and why it is fundamental to Accounting practice.
Answer
The accruals concept states that expenses and revenues should be recognized when they occur, not necessarily when cash is exchanged.
Expenses incurred but not yet paid must be recorded in the current period to give an accurate view of financial performance. The same applies to income earned but not yet received. This ensures that the financial statements provide a true and fair view of the company's financial situation and performance over time.