Section A: Theory of Financial Accounting
Question 1
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Observation
Candidates’ performance in this question which was on errors and accounting terminologies were below average. Some of the expected responses were:
(a)(i) Trade discount:It is a reduction in the catalogue price of goods in order to encourage buyers to buy in large quantities.
(ii) Cash discount: It is a reduction in the invoice price of goods to encourage prompt payment.
(iii)Bad debts: These are debts which are deemed irrecoverable.
(iv) Provision for doubtful debts: These are estimates of the debts at a point in time which arenot likely to be recovered.
(v)Bad debts recovered:These are debts previously written-off but which have subsequently been retrieved or paid by the debtors.
(b) Errors that do not affect the agreement of the trial balance are:
- Error of omission;
- Error of original entry;
- Error of commission;
- Error of principle;
- Complete reversal of entries;
- Error of compensation/compensating error;
- Error of transposition/transposition error;
- Error of duplication.