Accounting 0452/11 May/June 2019: question paper and mark scheme

Question

(a) The employees of a business are highly skilled but this is not recorded in the financial statements of the business. Which accounting principle is being applied? A going concern B money measurement C prudence D realisation [1] (b) Khalid started a business on 1 April 2018 with a capital of $90 000. He provided the following information on 31 March 2019. $ non-current assets 75 000 current assets 32 000 current liabilities 24 000 drawings during the year 19 000 What was the profit or loss for the year ended 31 March 2019? A $12 000 loss B $12 000 profit C $26 000 loss D $26 000 profit [1] (c) How is cost of production calculated? A direct materials + direct labour + direct expenses B direct materials + direct labour + direct expenses + factory overheads C direct materials + direct labour + direct expenses + factory overheads + decrease in work in progress D direct materials + direct labour + direct expenses + factory overheads – decrease in work in progress [1] (d) Lisa returned goods previously purchased from Tara. How did Tara record this? account debited account credited A Lisa purchases returns B Lisa sales returns C purchases returns Lisa D sales returns Lisa [1] (e) When preparing his financial statements for the year ended 30 April 2019 Tebogo recorded his opening inventory of $6400 as $4600 in error. What was the effect of this error? effect on gross profit for effect on profit for the effect on capital at the year year 30 April 2019 overstated understated overstated understated overstated understated A 3 3 3 B 3 3 3 C 3 3 3 D 3 3 3 [1] (f) Amrik started a business on 1 January 2017 and purchased a machine costing $18 000. He decided to depreciate the machine at 20% per annum using the reducing (diminishing) balance method. No depreciation was to be charged in the year of disposal. The machine was sold for $13 300 on 1 July 2018. What was the profit or loss on the sale of the machine? A loss $1100 B loss $4700 C profit $1780 D profit $2500 [1] (g) ‘Financial information must be free from errors and bias.’ To which accounting objective does this refer? A comparability B relevance C reliability D understandability [1] (h) Amelia rented premises to a tenant. At the end of Amelia’s financial year the tenant had paid 2 months’ rent in advance. Which entries would Amelia make in her ledger? A credit the rent payable account and carry down as a debit balance B debit the rent payable account and carry down as a credit balance C credit the rent receivable account and carry down as a debit balance D debit the rent receivable account and carry down as a credit balance [1] (i) John paid Tahir, a credit supplier, $200 by cheque. This was credited to the account of Tarek, another credit supplier. Which journal entry corrects this error? debit credit $ $ suspense 400 A Tahir 200 Tarek 200 Tahir 200 B Tarek 200 Tahir 200 C Tarek 200 suspense 400 Tarek 200 D Tahir 200 [1] (j) A business provided the following information. $ opening inventory 36 000 closing inventory 24 000 purchases 360 000 revenue 480 000 What was the rate of inventory turnover? A 12.0 times B 12.4 times C 15.5 times D 16.0 times [1] [Total: 10]

Question

Olivia is a trader. Sales and purchases are made on both cash and credit terms. Olivia maintains a full set of accounting records and prepares control accounts at the end of each month. REQUIRED (a) Name the book of prime (original) entry which Olivia would use to obtain the following information when preparing her control accounts. book of prime (original) entry returns to credit suppliers cheques received from credit customers contra entry bad debts written off [4] (b) Complete the table by placing a tick (3) in the correct column to indicate where each item would appear in Olivia’s sales ledger control account. If the item does not appear place a tick (3) in the ‘no entry’ column. debit credit no entry credit sales cash sales cash refund to credit customer cash discount allowed by credit suppliers contra entry trade discount allowed to credit customers interest charged on credit customer’s overdue account [7] (c) State the meaning of the following terms. (i) Bad debt …… [1] (ii) Bad debt recovered …… [1] (iii) Provision for doubtful debts …… [1] Olivia’s financial year ends on 30 April. On 30 April 2019 Olivia received $200 in cash from Ben, a credit customer, in final settlement of the amount he owed. The balance of Ben’s account was written off as irrecoverable. REQUIRED (d) Complete the following accounts in Olivia’s ledger for the year ended 30 April 2019. Show any necessary year-end transfer. Olivia Ben account Date Details $ Date Details $ 2019 2019 Jan 2 Sales 360 …… …… …… Bad debts account Date Details $ Date Details $ 2019 2019 April 30 Total to date 384 …… …… …… [4] Olivia maintains a provision for doubtful debts of 3% of the trade receivables at the end of each financial year. On 30 April 2018 the trade receivables amounted to $13 500. On 30 April 2019 the trade receivables amounted to $12 800 after writing off Ben’s account. REQUIRED (e) Prepare the provision for doubtful debts account for the year ended 30 April 2019. Balance the account and bring down the balance on 1 May 2019. Olivia Provision for doubtful debts account Date Details $ Date Details $ [4] [Total: 22]

Question

Kadar is a food wholesaler. He maintains a full set of accounting records and prepares a trial balance at the end of each financial year. REQUIRED (a) State two reasons why a trial balance is prepared. 1 …… 2 …… [2] (b) Name three types of error which are not revealed by a trial balance. Give an example of each. 1 Type of error …… Example …… 2 Type of error …… Example …… 3 Type of error …… Example …… [6] Kadar provided the following information at the end of his financial year on 31 March 2019. $ Revenue 146 000 Purchases 137 300 Sales returns 1 400 Carriage outwards 2 970 Fixtures and fittings (at cost) 45 000 Provision for depreciation of fixtures and fittings 18 000 Motor vehicle (at cost) 16 850 Discount allowed 190 Discount received 230 Trade payables 14 600 Trade receivables 12 900 Operating expenses 17 190 Rent payable 5 200 Commission receivable 2 000 Bank overdraft 5 170 Capital 65 000 Inventory 1 April 2018 12 000 Inventory 31 March 2019 10 950 (c) Prepare the trial balance of Kadar at 31 March 2019. Kadar Trial Balance at 31 March 2019 Debit Credit $ $ Revenue …… …… Purchases …… …… Sales returns …… …… Carriage outwards …… …… Fixtures and fittings (at cost) …… …… Provision for depreciation of fixtures and fittings …… …… Motor vehicle (at cost) …… …… Discount allowed …… …… Discount received …… …… Trade payables …… …… Trade receivables …… …… Operating expenses …… …… Rent payable …… …… Commission receivable …… …… Bank overdraft …… …… Capital …… …… Inventory …… …… [9] Kadar purchased the motor vehicle on 30 March 2019. He entered the total amount paid in the motor vehicle account. The total paid consisted of the following. $ cost of motor vehicle 16 000 1 year’s insurance 420 delivery charge 350 fuel 80 16 850 REQUIRED (d) State whether each cost is capital expenditure or revenue expenditure. Give a reason for your answers. The first item has been completed as an example. cost type of expenditure reason cost of motor vehicle capital This is the cost of purchasing a non-current asset which will be kept for over 12 months 1 year’s insurance delivery charge fuel [6] [Total: 23]

Question

The YK Club was formed some years ago. In addition to providing sporting facilities for members, the club also has a shop selling sports clothing. The following information was available for the year ended 31 January 2019. $ On 1 February 2018 Shop inventory 896 Amount owing for shop supplies 420 For the year ended 31 January 2019 Payments for shop supplies 4150 On 31 January 2019 Shop inventory 960 Amount owing for shop supplies 470 All goods are marked up by 25%. REQUIRED (a) Prepare the shop income statement for the year ended 31 January 2019 showing the revenue for the year. YK Club Shop Income Statement for the year ended 31 January 2019 $ $ [5] (b) Complete the table to indicate how the following items would be recorded in the financial statements of the YK Club for the year ended 31 January 2019. Some items may appear in more than one financial statement. The first one has been completed as an example. receipts and income and statement payments expenditure of financial account account position $ $ $ $ balance at bank on 1 February 2018 460 460 insurance paid on 1 February 2018 for 18 months to 31 July 2019 1080 purchase of new sports equipment by cheque on 31 December 2018 3500 subscriptions received in January 2019 for the year ending 31 January 2020 350 accumulated depreciation of sports equipment at 31 January 2019 850 cost of sports equipment at 31 January 2019 8500 profit from club shop for the year ended 31 January 2019 (calculated in (a)) ? bank overdraft on 31 January 2019 1250 [11] The treasurer is concerned that the overdraft of the YK Club is increasing each year. He has recommended that the club should hold fund-raising activities to reduce the club’s bank overdraft. REQUIRED (c) Suggest two other ways in which the bank overdraft of the club could be reduced. 1 …… 2 …… [2] [Total: 18] PLEASE TURN OVER

Question

Krishna has a secretarial agency. Her financial year ends on 30 April. She provided the following information for the year ended 30 April 2019. $ Fees received from clients 35 270 Wages 24 300 Operating expenses 4 260 Rent and rates 7 750 Motor expenses 720 Commission receivable 1 820 Office fixtures and equipment at valuation 1 May 2018 18 900 Motor vehicle at cost 17 500 Provision for depreciation of motor vehicle 6 300 Additional information 1 At 30 April 2019 Clients owed fees totalling $2150. Commission receivable accrued amounted to $60. Rent, $1200, was accrued. Rates prepaid amounted to $550. 2 Krishna lives in an apartment above the business premises. One quarter of the rent and rates relates to Krishna’s apartment. 3 The office fixtures and equipment were valued at $17 320 on 30 April 2019. No office fixtures and equipment were purchased or sold during the year. 4 The motor vehicle is to be depreciated at 20% per annum using the reducing (diminishing) balance method. REQUIRED (a) Prepare Krishna’s income statement for the year ended 30 April 2019. Krishna Income Statement for the year ended 30 April 2019 $ $ [13] (b) Complete the following accounts in Krishna’s ledger for the year ended 30 April 2019. Close the accounts by balancing or by making an appropriate year-end transfer. Krishna Drawings account Date Details $ Date Details $ 2019 April 30 Total cash drawings 9 150 …… …… …… Capital account Date Details $ Date Details $ 2018 …… …… …… May 1 Balance b/d 38 000 [5] Krishna is considering purchasing business premises costing $80 000. She could invest a further $40 000 as capital. The remaining $40 000 would have to come from a 6% bank loan repayable after 5 years. REQUIRED (c) Explain three factors Krishna should consider when making a decision about purchasing these business premises. 1 …… 2 …… 3 …… [6] [Total: 24]

Question

ML Limited was formed some years ago. The company’s share capital consists entirely of ordinary shares. REQUIRED (a) Complete the table by placing a tick (3) in the correct column to indicate whether each statement is true or false. The first one has been completed as an example. True False The reward given to ordinary shareholders for investing in the 3 company is known as a dividend. The amount of issued shares for which payment has been received by the company from shareholders is known as paid-up share capital. Ordinary shareholders receive a fixed percentage of the profit each year. In the event of the company being wound up the ordinary shares are the last to be repaid. Ordinary shareholders are personally liable for the debts of the company. Any ordinary share dividend paid during the financial year is entered in the statement of changes of equity irrespective of the year to which it relates. [5] The financial year of ML Limited ends on 31 December. The following information is available. $ At 1 January 2018 Ordinary share capital 200 000 Retained earnings 16 500 General reserve 8 000 Dividends paid during the year ended 31 December 2018 Final dividend for the year ended 31 December 2017 8 000 Interim dividend for the year ended 31 December 2018 6 000 Profit for the year ended 31 December 2018 28 000 On 31 December 2018 it was decided to make a transfer to general reserve of $3000. REQUIRED (b) Prepare a statement of changes in equity for the year ended 31 December 2018. ML Limited Statement of Changes in Equity for the year ended 31 December 2018 Ordinary Retained General Total share earnings reserve capital $ $ $ $ On 1 January 2018 …… …… …… …… Profit for the year …… …… …… …… Dividend paid – final …… …… …… …… interim …… …… …… …… Transfer to general reserve …… …… …… …… On 31 December 2018 …… …… …… …… [6] (c) Calculate the percentage (%) total ordinary share dividend for the year ended 31 December 2018. …… [2] The directors of ML Limited want to expand the company and need to raise $100 000. They are considering issuing either 6% preference shares or 5% debentures. REQUIRED (d) State three features of preference shares. 1 …… 2 …… 3 …… [3] (e) State three features of debentures. 1 …… 2 …… 3 …… [3] (f) Complete the table to indicate the effect of raising the funds from an issue of 5% debentures on 1 January 2019. Where there is no effect place a tick (3) in the ‘no effect’ column. The first one has been completed as an example. increase decrease no effect $ $ effect on balance at bank 100 000 effect on non-current liabilities effect on working capital effect on equity at 1 January 2019 effect on annual profits [4] [Total: 23]