Company ABC’s bookkeeping system is not computerised, and at 31 st December 2005. William , the bookkeeper was unable to balance the accounts. The trial balance totals were as follows:

Debit $ 2,024,100
Credit $ 2,080,817

Nevertheless, William proceeded to prepare draft financial statements, inserting the difference as a balancing figure in the balance sheet. The draft profit and loss account showed a profit of $141,280 for the year ended 31 December 2005

William opened a suspense account is opened for the difference and go through the accounting records to find the difference.

He found the following errors and omissions:

1. $8,980 -the total of the sales returns book for December 2005, had been credited to the purchases returns account.
2. $9,600 paid for an item of plant purchased on 1 July 2005 had been debited to plant repairs account. The company depreciates its plant at 20% per annum on a straight line basis, with proportional depreciation in the year of purchase.
3. The cash discount totals for the month of September 2005 had not been posted to the nominal ledger accounts. The figures were:
   Discount allowed $836
   Discount received $919
4. $580 insurance prepaid at 31December 2004 had not been brought down as an opening balance
5. The balance of $38,260 on the telephone expense account had been omitted from the trial balance
6. A car held as a fixed asset had been sold during the year for $4,800. The proceeds of sale were entered in the cash book but had been credited to the sales account in the nominal ledger. The original cost of the car $12,000, and the accumulated depreciation to date $8,000, were included in the motor vehicles account and the accumulated depreciation account. The company depreciates motor vehicles at 25% per annum on a straight line basis with proportionate depreciation in the year of purchase but none in the year of sale.

Required:

(a) Open a suspense account for the difference between the trial balance totals. Prepare the journal entries necessary to correct the errors and eliminate the balance on the suspense account. Narratives are not required. (10 marks)

(b) Draw up a statement showing the revised profit after correcting the above errors.(6 marks)

[ Refer Answer ]