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Which of the following is correct relating to taxation in Choc Co's
financial statements as at the end of the current year?
Statement of financial Tax expenses
position
liability
($)
($)
A
257,000
265,000
B
273,000
265,000
C
265,000
257,000
D
265,000
257,000
Chapter 13
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Chapter summary
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Test your understanding answers
Test your understanding 1
Cash
$
$
Share capital/share
premium
350,000
Share capital
$
$
Cash
50,000
Share premium
$
$
Cash
300,00
Working
Nominal value: 200,000 × $0.25 = $50,000
Funds raised: 200,000 × $1.75 = $350,000
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Test your understanding 2
20X4 Dr
Cash
$500
Cr Share capital
$500
20X5 For every five shares a shareholder owns, he or she is entitled
to buy another one. The offer is fully taken up, meaning that
200 new shares are issued (1,000 shares/5 × 1).
Dr Cash (200 × $0.75)
$150
Cr Share capital (200 × $0.50)
$100
Cr Share premium
$50
Statement of financial position
Equity:
$
Share capital – 50c ordinary shares
600
Share premium
50
Accumulated profit
X
Test your understanding 3
The correct answer is B
•
For every four shares held, a new share is issued.
•
Therefore 5,000 new shares are issued (20,000 shares/4 × 1)
Dr Share premium (5,000 × 50c)
$2,500
Cr Share capital
$2,500
Statement of financial position
Equity:
$
Share capital – 50c ordinary shares (20,000 × $0.5) + $2,500
12,500
Share premium (20,000 × ($1.25 – $0.5)) – $2,500
12,500
Accumulated profit
X
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Test your understanding 4
The correct answer is D
Share capital
$
$
Balance
b/f
50,000
Rights issue (cash)
20,000
Balance c/f
77,000 Bonus issue
7,000
––––––
––––––
77,000
77,000
––––––
––––––
Balance
b/f
77,000
Share premium
$
$
Balance
b/f
75,000
Bonus issue (SC)
7,000 Rights issue (cash)
124,000
Balance c/f
192,000
––––––
––––––
199,000
199,000
––––––
Balance
b/f
192,000
Statement of financial position
Equity:
$
Share capital – 25c ordinary shares
77,000
Share premium
192,000
Retained earnings
X
Working
Rights issue: (200,000/5) × 2 = 80,000 new shares
Proceeds: 80,000 × $1.80 = $144,000
Nominal value: 80,000 × 25c = $20,000
Bonus issue: (280,000/10) × 1 = 28,000 new shares
Nominal value: 28,000 × 25c = $7,000
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Test your understanding 5
1 March 20X5 Dr Cash
$150,000
Cr 10% Loan notes
$150,000
31 August 20X5 Dr Finance cost
$7,500
Cr Cash
$7,500
$150,000 × 10% × 6/12 = $7,500
31 December 20X5 Dr Finance cost
$5,000
Cr Interest accrual
$5,000
$150,000 × 10% × 4/12 = $5,000
Statement of financial position
Non-current liabilities
$
10% Loan notes
150,000
Current liabilities
Trade payables
X
Loan note interest payable
5,000
Test your understanding 6
The correct answer is B
No. of ordinary shares = $200,000/50c = 400,000
Interim ordinary dividend:
400,000 × 12.5c = $50,000
Preference dividend:
50,000 × 8% = $4,000
Statement of changes in equity
$
Retained earnings at start of year
X
dividends ($50,000 + $4,000)
(54,000)
––––––
At end of year
X
Note:
The final dividend cannot be accounted for until approved at the
AGM and therefore cannot be a liability at the year-end.
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Test your understanding 7
Tax payable (statement of financial position)
$
$
20X4
20X4
Balance c/f
150,000 Profit or loss
150,000
––––––
––––––
150,000
150,000
––––––
––––––
Sept X5 Bank
163,000 20X5 Balance b/f
150,000
Under-provision
b/f
13,000
Balance c/f
165,000 20X5 Profit or loss
165,000
––––––
––––––
328,000
328,000
––––––
––––––
20X6
Balance
b/f
165,000
Tax charge (statement of profit or loss)
$
$
20X4 tax payable
150,000 Profit or loss
150,000
––––––
––––––
150,000
150,000
––––––
––––––
20X5 Under-provision
13,000
Tax payable
165,000 Profit or loss
178,000
––––––
––––––
178,000
178,000
––––––
––––––
The tax charge in 20X5 is increased to reflect the under-provision made
in 20X4.
Statement of financial position
20X4
20X5
$000
$000
Income tax liability
150
Statement of profit or loss
Tax expense
150
178
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Test your understanding 8
The correct answer is C
•
The liability in the statement of financial position = the estimated
amount payable for the current year.
•
The tax charge in the statement of profit or loss = the estimated
amount payable for the current year – last year’s overprovision.
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Control account
reconciliations
Chapter learning objectives
Upon completion of this chapter you will be able to:
•
understand the purpose of, and prepare, control accounts for
receivables and payables
•
perform control account reconciliations and identify which
errors would be highlighted by such a control
•
identify and correct errors in control accounts.
Chapter
14
PER
One of the PER performance objectives (PO6)
is to record and process transactions and
events. Working through this chapter should
help you understand how to demonstrate that
objective.
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1 Overview
Introduction
This chapter deals with the manner in which trade receivables and trade
payables accounts are maintained in the accounting records, and how
account balances are reconciled to confirm the reliability.
Much of the content of this chapter is new. However, it is an important
foundation for your future ACCA studies, in particular Financial
Reporting.
2 Control
accounts
Control accounts are general ledger accounts that summarise a large number of
transactions. As such they are part of the double entry system. Control
accounts are used to prove the accuracy of the ledger accounting system. They
are mainly used with regard to receivables’ and payables’ balances.
When an entity transfers the daily total of the sales book into the general ledger
the double entry is:
Dr Receivables’ ledger control account
$X
Cr Sales revenue.
$X
When it transfers the total of the purchase day book the double entry is:
Dr Purchases
$X
Cr Payables’ ledger control account
$X
At the same time most business entities will maintain what is referred to as a
'memorandum.' This is a separate list of individual receivable and payable
amounts due from each customer and to each supplier, respectively. This
simple 'list of balances' is used as a record so that an entity knows how much
each customer is due to pay and how much it is due to pay each supplier. This
assists with credit control and cash flow management.
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