Accounting 0452/22 February/March 2022: question paper and mark scheme

Question

Nazmeen started in business as a hairdresser on 1 January 2022. She purchases her hairdressing supplies on credit and uses the imprest system for her petty cash. Nazmeen’s assets and liabilities at 1 January 2022 were as follows: $ Motor vehicle 11 000 Balance at bank 2 300 Petty cash 200 Bank loan 2 500 REQUIRED (a) (i) Prepare the general journal entry to record the opening assets and liabilities at 1 January 2022. A narrative is required. Nazmeen General journal Date Details $ $ [4] (ii) State one other use of the general journal. …… [1] Nazmeen makes all payments of less than $100 by petty cash. The imprest amount, which is $200, is restored on the first day of each month from the bank account. Nazmeen provided the following information for January 2022. January 3 Paid for petrol, $35. 8 Paid for magazines for the reception area, $14. 17 Paid $60 to GL Limited, a trade payable. 26 Paid for vehicle cleaning, $9. 29 Paid $38 to Alim, a trade payable. REQUIRED (b) (i) Complete Nazmeen’s petty cash book on the following page. Balance the petty cash book, bring down the balance on 1 February 2022 and restore the imprest. Nazmeen Petty Cash Book Total Date Details Total Motor Sundry Ledger received paid expenses expenses accounts $ $ $ $ $ 2022 3 [10] (ii) State one advantage of using the imprest system for petty cash. …… [1] Nazmeen receives business documents from her credit suppliers. REQUIRED (c) Complete the table below by placing a tick (3) to indicate which document(s) each item appears on. The first one is completed for you. Invoice Credit note Statement of account A credit purchase 3 3 The balance owing by Nazmeen to a supplier at the end of the month A purchases return Trade discount deducted from list price Payment made to a credit supplier [4] [Total: 20]

Question

Ravi is a trader. He provided the following information. 2021 $ 1 February Sales ledger control account debit balance 12 510 Sales ledger control account credit balance 1 245 2022 31 January Totals for the year: Credit sales 134 000 Cash sales 4 625 Bank transfers received from credit customers 96 250 Cash received from credit customers 12 890 Returns from credit customers 4 000 Irrecoverable debts written off 9 100 Contra entries 1 677 Discount allowed 4 643 Discount received 2 119 Interest charged on overdue sales ledger accounts 1 104 Sales ledger control account debit balance ? Sales ledger control account credit balance nil REQUIRED (a) Prepare Ravi’s sales ledger control account for the year ended 31 January 2022. Balance the account and bring down the balance on 1 February 2022. Ravi Sales ledger control account Date Details $ Date Details $ [10] (b) State the accounting principle which is being applied when irrecoverable debts are written off. …… [1] (c) Explain why the following interested parties want to know the level of Ravi’s trade receivables. (i) Bank manager …… [2] (ii) Trade payables …… [2] Ravi sends out statements of account to credit customers and charges interest on overdue accounts. He is concerned about the loss caused to his business by irrecoverable debts. He is considering employing a part-time credit controller to contact credit customers by telephone and to start legal action on overdue accounts if necessary. The credit controller would be paid $6800 per annum. REQUIRED (d) Advise Ravi whether or not he should employ the credit controller. Justify your answer. …… [5] [Total: 20]

Question

Pari owns a clothing factory. Her year end is 31 December. At 31 December 2021, her ledger account balances included the following. $ Inventory at 1 January 2021 Raw materials 6 100 Work in progress 9 420 Finished goods 11 350 Revenue 230 020 Purchases of raw materials 84 200 Wages Factory operatives 33 000 Factory supervisor 26 000 Office and sales staff 45 000 Rates and insurance 14 000 General factory expenses 11 500 Factory equipment – at cost 100 000 Factory equipment – provision for depreciation 36 000 Additional information 1. Inventory at 31 December 2021 Raw materials 6 840 Work in progress 9 885 Finished goods 12 630 2. Rates and insurance are to be apportioned equally between the factory and the office. 3. At 31 December 2021, general factory expenses of $500 were unpaid. 4. Factory equipment is depreciated at 20% per annum using the reducing balance method. REQUIRED (a) Prepare Pari’s manufacturing account for the year ended 31 December 2021. Pari Manufacturing Account for the year ended 31 December 2021 $ $ [9] (b) Prepare Pari’s income statement (trading section) for the year ended 31 December 2021. Pari Income Statement (trading section) for the year ended 31 December 2021 $ $ [4] (c) Calculate Pari’s gross margin. Your answer should be correct to two decimal places. Gross margin working answer [2] Pari is disappointed in her cost of production and gross profit. She is considering buying in her products instead of producing them in her factory. REQUIRED (d) Advise Pari whether or not she should start to buy in her products. Justify your answer. …… [5] [Total: 20]

Question

Demis is a trader. His financial year ends on 31 December. He prepared the following trial balance which contains errors. Demis Trial balance at 31 December 2021 Debit Credit $ $ Sales 90 052 Purchases 52 420 Purchases 52 420 Rates and insurance 11 500 General expenses 1 092 Property 92 500 Fixtures at cost 34 000 Provision for depreciation of fixtures 21 760 Trade receivables 7 410 Trade payables 4 665 Inventory 9 600 Cash at bank 8 095 Capital at 1 January 2021 109 940 Drawings 11 320 Suspense 60 770 283 772 283 772 Additional information 1. There was $80 in the petty cash box at 31 December 2021. 2. The value of inventory on 31 December 2021 was included in the trial balance. The inventory valuation had increased by 20% since 31 December 2020. REQUIRED (a) Prepare a corrected trial balance at 31 December 2021. Demis Corrected Trial Balance at 31 December 2021 Debit Credit $ $ Sales …… …… Purchases …… …… Rates and insurance …… …… General expenses …… …… Property …… …… Fixtures at cost …… …… Provision for depreciation of fixtures …… …… Trade receivables …… …… Trade payables …… …… Inventory …… …… Cash at bank …… …… Capital at 1 January 2021 …… …… Drawings …… …… [6] Demis has received a bank statement which shows that there were unpresented cheques of $437 at 31 December 2021. There were no outstanding lodgements. REQUIRED (b) Calculate the bank balance shown on the bank statement at 31 December 2021. Indicate whether this balance is a debit or a credit balance. …… [2] Demis later discovered the following errors. 1 Drawings of goods for own use, $317, had been omitted from the books of account. 2 Purchases returns, $93, had been credited to the sales account. 3 A payment for property insurance, $500, had been debited to the property account. 4 A credit purchase, $315, from Erin, had been recorded as $135. 5 A credit sale, $191, to Harvinder, had been debited to the sales account and credited to Harvinder’s account. REQUIRED (c) Complete the following table to show the entries required to correct each error. Entries required to correct the error Error Debit Credit Account $ Account $ 1. Drawings of goods for own use, $317, had been omitted from the books of account. …… …… …… …… 2. Purchases returns, $93, had been credited to the sales account. …… …… …… …… 3. A payment for property insurance, $500, had been debited to the property account. …… …… …… …… 4. A credit purchase, $315, from Erin, had been recorded as $135. …… …… …… …… 5. A credit sale, $191, to Harvinder, had been debited to the sales account and credited to Harvinder’s account. …… …… …… …… [10] (d) Identify the following error types from the table above. (i) error 2 …… [1] (ii) error 4 …… [1] [Total: 20]

Question

Priti and Paisley are in partnership renting out properties. Paisley manages the office and maintains the bookkeeping records for the partnership. The partnership agreement provides for Interest on drawings 5% per annum Interest on capital 4% per annum Salary to Paisley $6000 per annum Residual profits and losses to be shared 75% to Priti and 25% to Paisley. The partners provided the following list of balances. $ Capital accounts at 1 February 2021 Priti 100 000 Paisley 20 000 Current accounts at 1 February 2021 Priti 7 932 credit Paisley 2 350 credit Drawings for the year ended 31 January 2022 Priti 15 000 Paisley 13 000 The profit for the year ended 31 January 2022 was $33 100. REQUIRED (a) Prepare the appropriation account for Priti and Paisley for the year ended 31 January 2022. Priti and Paisley Appropriation Account for the year ended 31 January 2022 $ $ [6] (b) Prepare Paisley’s current account for the year ended 31 January 2022. Balance the account and bring down the balance on 1 February 2022. Paisley Current account Date Details $ Date Details $ [6] (c) Suggest three reasons why Paisley may not be satisfied with his overall share of the profit for the year to 31 January 2022. 1 …… 2 …… 3 …… …… [3] Priti and Paisley are planning to purchase more properties to rent out. They are considering forming a limited company as they believe this would make it easier for them to raise the finance for the purchase of the properties. REQUIRED (d) Advise Priti and Paisley whether or not they should form a limited company. Justify your answer with two advantages and two disadvantages. …… [5] [Total: 20]