Identify the books of prime entry for each of the following: (i) discounts allowed (ii) irrecoverable debts written off.
Answer: (i) For Discounts allowed book of prime entry is Cashbook
(ii) For Irecoverable debts written off Book of prime entry is General Journal.
State three benefits of maintaining a control account.
Answer: The following are the benefits of maintaining a control account;
(i) Provides a check on the arithmetical accuracy of the purchases and sales ledgers
(ii) Can help to reduce the chance of fraud.
(iii) Provides details of total trade payables and total trade receivables and makes it easier to prepare financial statements.
State two features of revenue reserves that do not apply to capital reserves.
Answer: (i) Revenue reserves can be used to finance dividend payments.
(ii) Revenue reserves arise from the everyday activities of a business.
State two causes of under-absorption of overheads.
Answer: (i) Actual overheads exceed budgeted overheads.
(ii) Actual production is less than planned production.
State reasons why the directors of a company might decide to make a bonus issue.
Answer: The issue of bonus shares may be for the following reasons;
(i) To reward/satisfy shareholders.
(ii) The Company might have insufficient liquid funds to pay off dividends.
(iii) To utilise the capital reserves of the company.
Explain reasons why trade payables and potential lenders might approve of a company making a bonus issue.
Answer: A bonus issue is a non-cash expenditure hence, it will not affect the repayment of liabilities.
Identify the points the directors should consider when deciding whether to pay a dividend.
Answer: The amount of profits/retained earnings available for distribution. Liquid funds are available to pay dividends. Shareholders’ expectations and previous dividend payments trend.
State three reasons why it is important for a business to prepare bank reconciliation statements at regular intervals.
Following are the reasons why a business prepares bank reconciliation statements;
To identify errors in the cash book or in the bank statement.
To help reduce the chance of fraud and assist in the discovery of fraud.
To identify un-presented cheques or outstanding lodgements or dishonoured cheques.
To ensure accurate bank balance in the financial statements.
