Accounting Questions Help

mousehouse

I need help answering these accouting questions, I have never studied accounting and my niece is looking for my help.....

1: What of the following is incorrect?
Assets Liabilities Capital
a 7850 1250 6600
b 8200 2800 5400
c 9550 1150 8200
d 6540 1120 5420

Which of the following is correct?
a) profit does not alter capital
b)profit reduces capital
c)capital can only come from profit
d)profit increases capital

To find the value of closing inventory at the end of a period we
a. do this physically counting the stock
b. look in the inventory account
c. deduct opening inventoty from the cost of goods sold
d) deduct cost of goods sold from sales

Which one of the following would result from a decrease in the allownace for doubtful debts?
a. an increase in gross profit
b. a reduction in gross profit
c. an increase in net profit
d. a reduction in net profit

From the following list, which items can be classified as capital expenditure
1. repairs to machinery
2 new tyres on van
3. sign writing on new shop front
4. cost of building new extension
5. carriage costs on purchases
6. carriage costs on bricks for extension
7 renewing sign writing on existing shop front

a) 3,4,6
b) 2,4
c) 1,2,5,7
d) 2,3,4

The total of the discount allowed coloumn in cash book is posted to

a) the debit of the discount allowed account
b) the debit of the discount received account
c) the credit of the discount allowed account
d) the credit of the discount received account

The Journal is:

a) part of the double entry system
b) a supplement to cashbook
c) not part of the double entry system
d) used when other journals have been mislaid

SBWife

You'll have to ask someone else about the final two bookkeeping questions.

mousehouse wrote: »

I need help answering these accouting questions, I have never studied accounting and my niece is looking for my help.....

1: What of the following is incorrect?
Assets Liabilities Capital
a 7850 1250 6600
b 8200 2800 5400
c 9550 1150 8200 Assets should equal Liabilities + Capital
d 6540 1120 5420

Which of the following is correct?
a) profit does not alter capital
b)profit reduces capital
c)capital can only come from profit
d)profit increases capital

To find the value of closing inventory at the end of a period we
a. do this physically counting the stock
b. look in the inventory account
c. deduct opening inventoty from the cost of goods sold
d) deduct cost of goods sold from sales

Which one of the following would result from a decrease in the allownace for doubtful debts?
a. an increase in gross profit
b. a reduction in gross profit
c. an increase in net profit
d. a reduction in net profit

From the following list, which items can be classified as capital expenditure
1. repairs to machinery
2 new tyres on van
3. sign writing on new shop front
4. cost of building new extension
5. carriage costs on purchases
6. carriage costs on bricks for extension
7 renewing sign writing on existing shop front

a) 3,4,6
b) 2,4
c) 1,2,5,7
d) 2,3,4

The total of the discount allowed coloumn in cash book is posted to

a) the debit of the discount allowed account
b) the debit of the discount received account
c) the credit of the discount allowed account
d) the credit of the discount received account

The Journal is:

a) part of the double entry system
b) a supplement to cashbook
c) not part of the double entry system
d) used when other journals have been mislaid

hivizman

mousehouse wrote: »

The total of the discount allowed column in cash book is posted to

a) the debit of the discount allowed account
b) the debit of the discount received account
c) the credit of the discount allowed account
d) the credit of the discount received account

[Reason: discount allowed is a cost to the business, as it reduces sales revenue, and costs are recorded as debits in the appropriate account.]

The Journal is:

a) part of the double entry system
b) a supplement to cashbook
c) not part of the double entry system
d) used when other journals have been mislaid

[But I'm not absolutely sure about this because it depends on definitions. The bookkeeping system that was first explained by Luca Pacioli as long ago as 1494 is known as the "double-entry system", and the Journal is part of that system, but on the other hand the Journal is separate from the accounts that form the double-entry ledger. You can have a double-entry ledger without maintaining a journal. If the entity's transactions are all for cash, then the journal could be regarded simply as a supplement to the cash book (there would be no need for sales or purchases day books), and would be used to record the small number of accounting entries that are not cash-based. The only answer that I'd consider definitely wrong is d).]

By the way, the question on how we find the value of inventory at the end of the year is also problematic in my view, as there are two main ways of doing this. One method involves maintaining an inventory account, which is debited with the cost of purchases and credited with the cost of sales - the balance on this account should at any time show the cost of inventory (although it may not do so if inventory is lost through theft, scrappage or otherwise). The other method involves carrying out a periodic physical count of inventory, and then determining cost according to some systematic method such as first-in-first-out (in which case inventory is valued at the cost of the most recent purchases). So either answer a) or answer b) could be correct.

Setting multiple choice questions is actually very difficult. I was told by one of the examiners for the Institute of Chartered Accountants in England and Wales that they rejected as many as 19 out of 20 draft multiple choice questions because of potential ambiguities in the wording of the question and/or the choices provided.

HeinekenTicket

In relation to the inventory question, the correct answer is to do the stocktake. At basic accounting level (for education purposes), there is no maintenance of an inventory account throughout a reporting period. The sales and purchases accounts respectively record outflows and inflows of inventory. The concept of maintaining book stock comes later when students have grasped the fundamentals. In any event, a stocktake is commonly undertaken to confirm the book stock.

The journal question should really have some context. In the context of day books, it is not part of the double-entry system of bookkeeping.

SBWife

The inventory question specifically asks for the inventory value then mentions a physical count hence my answer that the inventory account be used. Otherwise the answer would need to be, do a physical count, determine accounting policy for inventory, determine value of inventory items.

It's not a well phrased multiple choice question and the answer will depend on what the textbook says.

lomb

SBWife wrote: »

You'll have to ask someone else about the final two bookkeeping questions.

Would a new extension or carraige on bricks for an extension qualify for capital allowances though?
And also if an extension qualifies for captial allowances why not a new commercial but non industrial building.
Would air conditioning units qualify for capital allowances in a new building?
Thanks:)

SBWife

lomb wrote: »

Would a new extension or carraige on bricks for an extension qualify for capital allowances though?
And also if an extension qualifies for captial allowances why not a new commercial but non industrial building.
Would air conditioning units qualify for capital allowances in a new building?
Thanks:)

The question above asked about Capex which is a financial accounting measure (and includes all expenses associated with bringing the plant or equipment into use eg. the carriage) you are asking about capital allowances which are tax measures.

The capital allowances on commercial buildings and extension to them vary according to the purpose of the building and are detailed in the various finance acts. The AC depending on it's type and energy rating might even qualify for a 100% capital allowance in year 1.

lomb

SBWife wrote: »

The question above asked about Capex which is a financial accounting measure (and includes all expenses associated with bringing the plant or equipment into use eg. the carriage) you are asking about capital allowances which are tax measures.

The capital allowances on commercial buildings and extension to them vary according to the purpose of the building and are detailed in the various finance acts. The AC depending on it's type and energy rating might even qualify for a 100% capital allowance in year 1.

I think something like a shop/office in a non designated area and not an industrial building which is defined as a factory in the acts doesnt qualify for anything. Is that correct. My query was regarding the fact that in the UK, the hot water system is seen as optional in a shop so qualifies for capital allowances, likewise air conditioning and certain other elements. The roof or walls would not qualify. Therefore a chartered surveyor is needed to break down the cost in conjunction with an accountant allotting the price of the bits that can be allowanced and the bits that cannot( ie to break down the cost of the plumbing into hot and cold water etc).

In Ireland it all seems very unclear. My accountant thinks if its attached to the building and cant be easily removed and its new then it qualifies for nothing. Something like an airconditioning unit he thinks doesnt qualify whereas another accountant said it could be classed as plant? Where do I stand on this sort of thing?

Also new signage on a new building would this qualify for capital allowances?

I repaired my new hot water tank as it didnt work and was too big and stuck in a brand new smaller one, is that from tax allowable view a trading expense ,capital expense or not a deductable element?

I put in the air conditioning units myself an could easily remove them I would feel hard done by if they were classed as part of the building an not allowable!
Sorry for all the queries:)

ants09

lomb wrote: »

In Ireland it all seems very unclear. My accountant thinks if its attached to the building and cant be easily removed and its new then it qualifies for nothing. Something like an airconditioning unit he thinks doesnt qualify whereas another accountant said it could be classed as plant? Where do I stand on this sort of thing?

Capital Allowances on Items Integral to a Building or Structure.

The Revenue Commissioners are prepared to allow taxpayers, who incur capital expenditure on the provision of plant or machinery which is to be an integral part of an industrial building or a commercial building which qualifies for industrial buildings allowances,

The option of electing to claim capital allowances

on such expenditure either as part of the cost of the construction of the building (industria building allowance) or as plant and machinery.
The items of capital expenditured covered by this practice are set out hereunder:

· Lifts

· Heating systems

· Air-conditioning systems

· Electricity/Gas distribution services

· Water and Waste services

· Alarm and security systems

· Fire fighting/prevention systems

· Wiring associated with or ancillry to any of the above.

This practice applies to both owner-occupiers and lessors of such buildings

lomb wrote: »

Also new signage on a new building would this qualify for capital allowances?

it depends on whether if its replacing existing signage or not if it is then its repairs and if not then it may be capital allowances if it enhances the value of the building which i dont think it would so it be written off as a expense for tax purposes

lomb wrote: »

I repaired my new hot water tank as it didnt work and was too big and stuck in a brand new smaller one, is that from tax allowable view a trading expense ,capital expense or not a deductable element?

since you repaired the item its expensed and not capitalised for capital allowances purposes

lomb

[QUOTE=ants09;74917963... which is to be an integral part of an industrial building or a commercial building which qualifies for industrial buildings allowances,

The option of electing to claim capital allowances

on such expenditure


[/QUOTE]

But none of that long list is claimable on most buildings that are not industrial like say a shop used as say a newsagent or hairdresser. So say if new air conditioning units are installed in a newly built hairdresser I guess this would not be claimable, but why not if they can be removable?

lomb

[QUOTE=ants09;74917963... which is to be an integral part of an industrial building or a commercial building which qualifies for industrial buildings allowances,

The option of electing to claim capital allowances

on such expenditure


[/QUOTE]

But none of that long list is claimable on most buildings that are not industrial like say a shop used as say a newsagent or hairdresser. So say if new air conditioning units are installed in a newly built hairdresser I guess this would not be claimable, but why not if they can be removable?

ants09

lomb wrote: »

But none of that long list is claimable on most buildings that are not industrial like say a shop used as say a newsagent or hairdresser. So say if new air conditioning units are installed in a newly built hairdresser I guess this would not be claimable, but why not if they can be removable?

The Revenue Commissioners are prepared to allow taxpayers, who incur capital expenditure on the provision of plant or machinery which is to be an integral part of anindustrial building or a commercial building which qualifies for industrial buildings allowances,

if it aint industrial then its commerical

commerical covers shops, newagents, etc

barneystinson

ants09 wrote: »

The Revenue Commissioners are prepared to allow taxpayers, who incur capital expenditure on the provision of plant or machinery which is to be an integral part of anindustrial building or a commercial building which qualifies for industrial buildings allowances,

if it aint industrial then its commerical

commerical covers shops, newagents, etc

You've made the CLASSIC mistake of only using the part of the sentence that suits you...!

What happens if you take the rest of the sentence:
"or a commercial building which qualifies for industrial buildings allowances"

Yes, commercial covers shops, newsagents etc... but none of them are commercial buildings which qualifies for industrial buildings allowance.

The easiest example I can think of, of a commercial building which qualifies for IBA is a hotel - clearly not industrial but brought in by S.268 TCA 97.

barneystinson

ants09 wrote: »

The Revenue Commissioners are prepared to allow taxpayers, who incur capital expenditure on the provision of plant or machinery which is to be an integral part of anindustrial building or a commercial building which qualifies for industrial buildings allowances,

I think you've also missed the subtlety in the wording of the sentence:

It specifically talks about plant & machinery "which is to be an integral part" of a building. Lomb has repeatedly stressed that this air con is not an integral part of any building.

Therefore it is ordinary plant & machinery - therefore it can be capitalised and wear & tear claimed as normal. Simple really!

barneystinson

lomb wrote: »

In Ireland it all seems very unclear. My accountant thinks if its attached to the building and cant be easily removed and its new then it qualifies for nothing. Something like an airconditioning unit he thinks doesnt qualify whereas another accountant said it could be classed as plant? Where do I stand on this sort of thing?

Also new signage on a new building would this qualify for capital allowances?

I repaired my new hot water tank as it didnt work and was too big and stuck in a brand new smaller one, is that from tax allowable view a trading expense ,capital expense or not a deductable element?

I put in the air conditioning units myself an could easily remove them I would feel hard done by if they were classed as part of the building an not allowable!
Sorry for all the queries:)

Your accountant is correct about items that are fixed to a structure and can't be easily removed without damaging them.

The air con unit may be screwed in or whatever, but if it can be reasonably cheaply (i.e. it would be economical to do so) and easily unscrewed and put into use elsewhere, then it is clearly not a part of the structure (and therefore wear & tear can be claimed).

Not absolutely sure about signage, but I can't think of any reason why it wouldn't be allowable for wear & tear as a fitting (again assuming it hasn't become integral to the structure).

Ditto the hot water tank. The principle is about whether or not the item becomes part of the structure or not, and it's up to you to make a call on it in each case... it's not that it's unclear per sé, its just open to a degree of interpretation, although there is also a body of case law in the area as well, both UK and Irish.