BPP revision & practice kit question

Q16.4 The BPP answer is correct. The unpresented cheque will increase the bank overdraft to 880. The dishonoured cheque will have already been dealt within the bank statement (even though the bank has not informed us and therefore we have not yet dealt with it in the cash account). Q17.11: The BPP answer is correct. Purchases appear in the trading account and therefore the 50,000 means the the gross profit is understated by 50,000 and the net profit is also understated by 50,000. Stationery has been included in raw material inventory which reduces cost of sales and therefore both gross profit and net profit have been overstated by 10,000. In addition the stationery should be shown as an expense (after gross profit) and therefore the fact that it has not been shown as an expense means that net profit has been overstated by an extra 10,000. Q18.10 The BPP answer is correct. I think you are confusing the sales (receivables) ledger with the sale account. The sales ledger is not usually part of the double entry at all (and if not would not therefore affect the suspense account). Even if it was used as part of the double entry, committing a sale in the ledger would mean lower receivables, which would mean the debit balances on the trial balance would be lower than the credit balances.

Thank you for your clarification, that helps me a lot and I can understand better now. By the way, I have few more question that I need a hand and I would appreciate if you could clear my mind of doubt, Thank You! Q20.9 A sole trader’s business made a profit of $32,500 during the year ended 31 March 20x8.This figure was after deducting $100 per week wages for himself.In addition,he put his home telephone bill through the business books,amounting to $400 plus sales tax at 17.5%.He is registered for sales tax and therefore has charged only the net amount to his statement of profit or loss and other comprehensive income. His capital at 1 April 20x7 was $6500.What was his capital at 31 March 20x8? A $33,730 B $33,800 C $38,930 D $39,000 Answer is C ·····`From the question owner put his home telephone bill through the business book is it same concept with “Drawing”?Thus we need to calculate full/gross amount that have include sale tax?I don’t understand this as it is go against the business entity concept. Q32.18 A payables ledger control account showed a credit balance of $768,420.The payables ledger balances totaled $781,200 Which one of the following possible errors could account in full for the difference? A A contra against a receivables ledger debit balance of $6,390 has been entered on the credit side of the payables ledger control account. B The total of discount allowed $28,400 was entered to the debit of the payables ledger control account instead of the correct figure for discount received of $15,620 C $12,780 cash paid to a supplier was entered on the credit side of the supplier’s account in the payable ledeger D The total of discount received $6,390 has been entered on the credit side of the payable ledger control account Answer is B `Why answer C isn’t correct? Q35.13 An electrical store and a cake shop both have the same mark up on cost . However , the gross profit margin of the electrical store is significantly higher than that of the cake shop. Which of the following is a possible reason for this? A The cake shop has a higher turnover of inventory than the electrical store. B The electrical store takes advantage of trade discounts for bulk buying. C The cake shop has a higher level of wastage of inventory than the electrical store. D The cake shop’s revenue is increasing ,while that of the electrical store is decreasing. Answer is C `For Answer B, if electrical store taking the trade discounts for bulk buying,the cost of purchase will be lower and therefore cost of sale will lower too hence gross profit will higher ,why the answer is C?

20.9 The capital will increase by the profit less the drawings. Because the bill was put through the company (which it should not have been) an expense of 400 will have been charged in arriving at the profit (because they are registered for sales tax) - so the profit needs increasing by 400 to correct that. The whole of the bill (including tax) should have been treated as drawings, so the drawings increase by 470. So the net effect is to reduce by 70. (The amount of sales tax owing to the state by the business will also need adjusting by the 70, but this does not affect the profit.) 32.18 The 12,780 should have been entered on the debit side of the payables ledger instead of the credit side, so the total error is 2 x 12,780 = 25,520 and will make the total of the balances on the payables ledger 25,520. (2 x 12,780 because 12,780 needs removing from the credit side, and then it also needs entering on the debit side.) 35.13 The cost is always the cost after any trade discounts. So if they add the same mark-up to the cost they will have the same gross profit margin.