1
Thomas Smith, a retail trader, has very limited accounting knowledge. In the absence of
his accounting technician, he extracted the following trial balance as at 31 March 2008 from his
business’s accounting records:
£ £
Stock in trade at 1 April 2007 10,700
Stock in trade at 31 March 2008 7,800
Discounts allowed 310
Discounts received 450
Provision for doubtful debts 960
Purchases 94,000
Purchases returns 1,400
Sales 132,100
Sales returns 1,100
Freehold property: at cost 70,000
Provision for depreciation 3,500
Motor vehicles: at cost 15,000
Provision for depreciation 4,500
Capital – Thomas Smith 84,600
Balance at bank 7,100
Trade debtors 11,300
Trade creditors 7,600
Establishment and administrative expenditure 16,600
Drawings 9,000
£239,010 £239,010
Required:
(a) Prepare a corrected trial balance as at 31 March 2008.
After the preparation of the above trial balance, but before the completion of the final
accounts for the year ended 31 March 2008, the following discoveries were made:
(i
) The correct valuation of the stock in trade at 1 April 2007 is £12,000; apparently some
stock lists had been mislaid.
(ii
) A credit note for £210 has now been received from J Hardwell Limited; this relates to
goods returned in December 2007 by Thomas Smith. However, up to now J Hardwell
Limited had not accepted that the goods were not of merchantable quality and Thomas
Smith’s accounting records did not record the return of the goods.
(iii
) Trade sample goods were sent to John Grey in February 2008. These were free samples,
but were charged wrongly at £1,000 to John Grey. A credit note is now being prepared to
rectify the error.
(iv) In March 2008, Thomas Smith painted the inside walls of his stockroom using materials
costing £150 which were included in the purchases figure in the above trial balance.
Thomas Smith estimates that he saved £800 by doing all the painting himself.
(b) Prepare the journal entries necessary to amend the accounts for the above discoveries.
Note:
narratives are required.
(Association of Accounting Technicians)