We are given some information from a bank statement and need to calculate the adjusted cash book balance as of 28/2/2021. We also need to interpret what that balance means. Additionally, we need to answer questions regarding partnership dissolution, the first stage of the accounting process, and the computation of gross profit.

1. Problem Description

We are given some information from a bank statement and need to calculate the adjusted cash book balance as of 28/2/

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1. We also need to interpret what that balance means. Additionally, we need to answer questions regarding partnership dissolution, the first stage of the accounting process, and the computation of gross profit.

2. Solution Steps

Question 1: The balance as per the adjusted cash book on 28/2/

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The bank statement shows an overdraft of $90,000$. This means the business owes the bank $90,000$.

Two sets of cheques were issued. Cheques of $30,000$ issued on 20/2/2021 presented for payment on 7/3/

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1. These cheques have not cleared the bank as of 28/2/

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1. Therefore, we will reduce the overdraft amount by $30,000$.

Cheques of $40,000$ issued on 22/2/2021 credited by the bank on 8/3/

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1. These cheques have not cleared the bank as of 28/2/

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1. Therefore, we will reduce the overdraft amount by $40,000$.

Since the initial balance is an overdraft, we need to deduct the amounts that have not been presented.

Adjusted Balance = $90,000 - 30,000 - 40,000$ = $20,000$ overdraft. However, since the options are DR/CR, it seems the question is asking for balance per books. Therefore we need to treat outstanding cheques differently.

The cheques of $30,000$ were issued but not yet presented, meaning the business thought they had less money but it has not yet been taken from the bank. Thus the cash book is overstated compared to the bank. We have to deduct $30,000$ from the bank balance to adjust the cash book (as per the bank statement). The cheques of $40,000$ issued and credited by the bank have already been accounted for in the bank statement, hence there is no need to adjust further.

Bank overdraft = $90,000$

Outstanding cheques = $30,000$ + $40,000$ = $70,000$

Balance as per cash book = Bank Balance - Deposits in Transit + Outstanding Cheques

We don't have information about deposits in transit, so we will ignore it for now. In this case the formula applies considering the overdraft

$90,000 + 70,000 = 160,000$.

Revised calculation:

The cheques of 30,000 are outstanding, meaning the bank statement balance does not yet reflect this deduction. Therefore, as per the cash book, the balance is 90,000 + 30,000 = 120,000 OD. The cheques of 40,000 have been credited which means the bank received them, hence that value should be deducted.

90,000 OD

+30,000 OD (outstanding cheque)

-40,000 DR credited to the bank account i.e. cheques issued from our account were lodged in the bank.

=80,000 OD

Now, converting overdraft to Debit or Credit: Overdraft implies that the cash balance is negative, therefore it is a credit balance since assets are normally debit and liabilities are credit. Therefore the correct answer is 80,000 CR.

Question 2: Interpretation of Adjusted Cash Book balance

The adjusted cash book balance of $80,000$ CR means that the bank is owing the business $80,000$.

Question 3: Partnership Dissolution

Bankruptcy, handicap, or death of a partner usually leads to dissolution of the partnership. However, a partner *retiring* may not necessarily lead to dissolution, depending on the partnership agreement. The remaining partners might continue the business.

Question 4: First Stage of Accounting Process

The first stage of the accounting process is to record transactions.

Question 5: Gross Profit Computation

Gross profit is calculated as sales less cost of sales.

3. Final Answer

1. D. ₦80,000 CR

2. C. bank is owing the business.

3. C. retires.

4. D. record transactions.

5. A. sales less cost of sales.