Question 1: After having extracted the balances appearing in the books of GIGGS Plc. as at 30th November 2012, the Trial Balance failed to agree. In order not to holdup the preparation of the Financial Statements, a ‘Suspense Account’ was opened and the difference was entered in that Account and carried forward to the Draft Balance Sheet.
Thereafter on investigations, the given errors were discovered:
a) The Purchase Book had been undercast by Rs 1,000.
b) Goods bought on credit from A. Johnson for Rs.60 was posted in his account as Rs 600.
c) A New Computer costing Rs 12,000 had been posted to the debit of ‘Repairs and Maintenance Account’.
d) R. Rolo, a customer, returned goods valued at Rs.105.Although this was entered in the Returns Inwards Day Book, it was posted to the debit of the customer’s account.
e) Some pieces of furniture with a book value of Rs 4,000 were sold on credit. These were recorded in Sales Day Book.
f) Mr. Steeve, a customer owed Rs.750. This had been omitted from the Schedule of Trade Receivables.
g) A Cash Discount of Rs 250 was allowed to Miss Mary, a customer. This was properly entered in the Cash Book however no entry was made in her personal account.
h) Advertising Expenses amounting to Rs 1,500 paid in advance in the previous Accounting period had not been brought down to this year’s Advertising Expenses Account. Rather, it was again treated as a Prepayment in the Balance Sheet.
i) M. Paul, a Debtor, paid Rs.800 in settlement of his account however though entered in the Cash Book correctly; the account of M. Paula was credited rather.
When the errors were corrected, the balance on the ‘Suspense Account’ was decreased to zero.
Required:
a) Write up the ‘Suspense Account’ comprising the initial entry made by Mr. GIGGS and give the Journal Entries essential to correct such errors.
b) Make a Statement of the corrected Net Profit for the year ended 30th November 2012 following corrections of the illustrated accounting errors.
Suppose that the computed Net Profit figure was Rs 45,200.
Question 2: Qualitative Characteristics are the attributes which make information given in Financial Statements helpful to others.
What are those Qualitative Characteristics?
Question 3: What do you mean by the term Conceptual Framework in Accounting?