12-ACCA-FA2-Chp 12

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Maintaining Financial Record FA2
CHAPTER 12
Incomplete records
Textbook Reading:
FA2 Maintaining Financial Records , 2020 Edition, BPP, Chapter 12
Practice:
FA2 Maintaining Financial Records Practice & Revision Kit, 2020 Edition, BPP
Question 13.1 to 13.14
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Chapter 12: Incomplete records
Learning objectives:
At the end of this chapter, you should be able to:
• Describe the circumstances which lead to incomplete records.
• Describe the methods of constructing accounts from incomplete
records.
• Calculate sales, cost of sales, purchases and closing inventory
value using markups and margins.
• Calculate and account for inventory loss using markups and
margins.
• Prepare the final accounts or elements thereof using incomplete
record techniques (e.g. ledger accounts to derive missing figures
and manipulation of the accounting equation).
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Preparing accounts from incomplete records

Incomplete records questions may test your ability to prepare
accounts in the followings situations:
• A trader does not maintain a ledger and therefore has no
continuous double entry record of transactions.
• Accounting records are destroyed by accident, such as fire.
• Some essential figure is unknown and must be calculated
as a balancing figure.
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Items that might be complete records

a) The opening statement
b) Credit sales and trade account receivables
c) Purchases and trade account payables
d) Purchases, inventory and cost of sales
e) Stolen goods or goods destroyed
f) The cash day books
g) Accruals and prepayments
h) Drawings
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The opening statement

• The information about the assets and liabilities at the period
under review might be provided, but then leave the
balancing figure unspecified.
• Remember the use of accounting equation and business
equation to solve this kind of problem.
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Illustration 1
Suppose Joe Han's business has the following assets and liabilities as at 1 January 20X3.
$
Fixtures and fittings at cost 7,000
Accumulated depreciation, fixtures and fittings 4,000
Motor vehicles at cost 12,000
Accumulated depreciation, motor vehicles 6,800
Inventory 4,500
Trade receivables 5,200
Cash at bank and in hand 1,230
Trade payables 3,700
Prepayment 450
Accrued rent 2,000
You are required to prepare a statement of financial position for the business, inserting a balancing
figure for proprietor's capital.
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Credit sales and trade receivables

• If the business does not keep a record of its sales on credit,
the value of these sales can be derived from:
Payments from trade receivable (xxx)

Plus closing balance of trade receivables (xxx)
Less opening balance of trade receivables (xxx)
Credit sale during the period (xxx)
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Illustration 2
Suppose that Joe Han's business had trade receivables of
$1,750 on 1 April 20X4 and trade receivables of $3,140 on 31
March 20X5.
If payments received from receivables during the year to 31
March 20X5 were $28,490, and if there are no irrecoverable
debts, calculate the credit sales for the period.
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Purchase and trade payables

• We can calculate an unknown amount from purchases as
follows.
Payments to trade payables (xxx)

Plus closing balance of trade payables (xxx
Less opening balance of trade payables (xxx)
Purchase during the period (xxx
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Illustration 3
Suppose that Joe Han's business had trade payables of
$3,728 on 1 October 20X5 and trade payables of $2,645 on
30 September 20X6.
If payments to trade payables during the year to 30
September 20X6 were $31,479, calculate the purchases
during the year.
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Establishing cost of sales

• Other incomplete records problems revolve around the
relationship between sales, cost of sales and gross profit.
• Gross profit my be expressed either as a percentage of cost
of sales or as a percentage of sales.
• Mark-up is the gross profit as a percentage of cost.
• Gross profit margin is the gross profit as a percentage of
sales. This is often referred to margin on sale.
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Illustration 4
Suppose that the inventory of Joe Han's business on 1 July
20X6 has a statement of financial position value of $8,400,
and an inventory count at 30 June 20X7 showed inventory to
be valued at $9,350.
Sales for the year to 30 June 20X7 are $80,000, and the
business makes a mark-up of 331/3 % on cost for all the items
that it sells.
What were the purchases during the year?
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Goods stolen or destroyed

• The cost of goods stolen/destroyed can be calculated as follows.
$
COGS based on gross profit margin or mark up (A)
COGS calculated using standard formula (B)
Difference (lost/stolen inventory) (C)
• If no goods have been lost, A and B should be the same and

therefore C should be nil.
• If goods have been lost, B will larger than A, because some
goods which have been purchased were neither sold nor
remaining in inventory, i.e. they have been lost.
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Accounting for goods stolen or destroyed

• Stolen or lost inventory is accounted for in two ways
depending on whether the goods were insured.
• If insured:
Dr. Insurance claim (receivable)
Cr. Purchases
• If not insured:
Dr. Expenses (inventory losses)
Cr. Purchases
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Illustration 5
Orlean Flames is a shop which sells fashion clothes. On 1
January 20X5, it had trade inventory which cost $7,345.
During the 9 months to 30 September 20X5, the business
purchased goods from suppliers costing $106,420.
Sales during the same period were $154,000. The shop
makes a gross profit of 40% on cost for everything it sells.
On 30 September 20X5, there was a fire in the shop which
destroyed most of the inventory in it. Only a small amount of
inventory, known to l1ave cost $350, was undamaged and still
fit for sale.
How much of the inventory was lost in the fire?
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Accruals and prepayments

• When there is an accrued expense or prepayment, the
charge to statement of profit or loss can be calculated from
the opening balance, the cash movement and the closing
balance.
• Sometimes it helps to use a “T” account. The charge in the
statement of profit or loss is perhaps most easily found as
the balancing figure.
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Illustration 6
Suppose that on 1 April 20X6 a business had prepaid rent of
$700 which relates to the next accounting period.
During the year to 31 March 20X7 it pays $9,300 in rent, and
at 31 March 20X7 the prepayment of rent is $1,000.
Calculate the cost of rent in the l&E account for the year to 31
March 20X7.
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Illustration 7
A business has accrued telephone expenses as at 1 July
20X6 of $850.
During the year to 30 June 20X7, it pays $6,720 in telephone
bills, and has accrued telephone expenses of $1,140 as at 30
June 20X7.
Calculate the telephone expense to be shown in the
statement of profit or loss for the year to 30 June 20X7.
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Drawings
Note two tricky points about drawings.
1. Owner pays personal income into business bank account
Dr. Cash
Cr. Drawings
2. Owner pays personal expenses out of business bank

account
Dr. Drawings
Cr. Cash
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Practice Questions
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Question 1
Hengist, a sole trader, has calculated that his cost of sales for the year is
$144,000. His revenue figure for the year includes an amount of $2,016
being the amount paid by Hengist himself into the business bank account
for goods withdrawn for private use.
The figure of $2,016 was calculated by adding a mark-up of 12% to the

cost of the goods.
His gross profit margin on all other goods sold was 20%.
What is the total figure of revenue for the year?
A. $172,656
B. $177,750
C. $179,766
D. $180,000
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Question 2
Barry is a sole trader. He has calculated a cost of sales figure for the year,
which is $342,000.
Barry paid $8,030 into the business bank account for goods withdrawn for
private use and this amount has been included within revenue. The figure
of $8,030 was calculated by adding a mark-up of 10% to the cost of the
goods.
His gross profit margin on all other goods sold was 20% of revenue.
What is the total figure of revenue for the year?
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Question 3
Alfred does not keep full accounting records. He has calculated that his assets and liabilities at
30June20Xlwere:
$
Non-current assets 51,300
Inventory 7,770
Receivables 5,565
Payables 3,994
Bank overdraft 3,537
On reviewing his calculations, you note that there were no entries made in relation to rent for the
month of June 20X1 because rent is paid in arrears, with the payment for June having been made
on 1 July 20X1. Rent is $500 per month.
What is the value of Alfred's closing capital at 30 June 20X1?
A. $64,678
B. $56,604
C. $57,604
D. $63,678
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Question 4
Elizabeth is trying to work out her cost of sales for the year ended 31
December 20X9. She has the following details for supplier and inventory
balances:
At 1 January 20X9 At31December20X9
Suppliers $15,264 $16,812
Inventory $6,359 $4,919
In the year to 31 December 20X9, Elizabeth's payments to suppliers

totaled $141,324.
What was Elizabeth's cost of sales for the yearto 31 December 20X9?
A. $149,231
B. $144,312
C. $142,872
D. $141,432
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Maintaining Financial Record FA2

Preparing accounts from incomplete records

Items that might be complete records

The opening statement

Credit sales and trade receivables

Payments from trade receivable (xxx)

Purchase and trade payables

Payments to trade payables (xxx)

Establishing cost of sales

Goods stolen or destroyed

• If no goods have been lost, A and B should be the same and

Accounting for goods stolen or destroyed

Accruals and prepayments

2. Owner pays personal expenses out of business bank

The figure of $2,016 was calculated by adding a mark-up of 12% to the

What is the total figure of revenue for the year?

What is the total figure of revenue for the year?

What is the value of Alfred's closing capital at 30 June 20X1?

In the year to 31 December 20X9, Elizabeth's payments to suppliers

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