4 SUSPENSE ACCOUNTS
Question 5 The Trial Balance of Dundee Ltd, a car dealership, failed to agree on 31/12/2012. The difference was entered in a Suspense Account and the final accounts were prepared which showed a net profit of €155,000.
On checking the books, the following errors and omissions were discovered: (i) Dundee Ltd had a positive bank balance of €450. This has been brought down on the incorrect side of the nominal ledger thus having been entered in the incorrect side of the Trial Balance.
(ii) €1,600 received from the sale of an old display cabinet (book value €1,400), which was used by Dundee Ltd to store private materials, had not been entered in the books.
(iii) Dundee Ltd made cash payments of €150 for repairs to the business computer and €50 for repairs to a privately-owned computer. These had both been entered on the credit side of the cash and repairs accounts.
(iv) A debtor who owed Dundee Ltd €750 sent a cheque for €400 and €300 in cash in full settlement. This was correctly entered in the books. However, the cheque bounced and no subsequent entry was made. The debtor was also declared bankrupt and no entry had been made for this.
(v) A private debt for €980, owed by Dundee Ltd, had been offset against a business debt of €850 owed to the firm from sales earlier in the year. No entry had been made in the books in respect of this offset.
You are required to: (a) Journalise the necessary corrections. (b) Prepare a Statement showing correct net profit.
Check whether a profit or loss was made on the disposal of the cabinet.
Question 6 The Trial Balance of Handy Harriet’s Ltd, a hardware store, failed to agree on 31/12/2012. The difference was entered in a Suspense Account and the final accounts were prepared which showed a net profit of €98,000.
On checking the books, the following errors and omissions were discovered: (i) Hardware purchased on credit from J. Downey for €6,500 had been entered as €5,500 on the incorrect side of J. Downey’s account and credited as €6,000 in the equipment account.
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(ii) Handy Harriet’s Ltd made a cash payment of €150 for repairs to the business motor vehicle and €60 for repairs to a privately-owned vehicle. These had both been entered on the credit side of the creditors and motor vehicles accounts.
(iii) An overdraft of €200 in the bank account had been brought down on the incorrect side of the nominal ledger and thus was also entered on the incorrect side of the Trial Balance.
(iv) Hardware previously sold on credit for €5,000 had been returned. This had been incorrectly entered in the books as €500 on the credit side of the equipment account and as €550 on the credit side of the purchases account.
(v) A debtor who owed Handy Harriet’s Ltd €550 sent a cheque for €400 and €100 in cash in full settlement. This was correctly entered in the books. However, the cheque bounced and no subsequent entry was made. The debtor also was declared bankrupt and no entry had been made for this.
You are required to: (a) Journalise the necessary corrections. (b) Prepare a Statement showing correct net profit.
If a debtor is declared bankrupt, write off what he owes as a bad debt.
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