Accounting 0452/12 May/June 2019: question paper and mark scheme

Question

(a) An invoice for the purchase of goods on credit, $980, was incorrectly recorded in the purchases journal as $890. Which type of error was made? A commission B complete reversal C original entry D principle [1] (b) Which accounts would appear in a purchases ledger? 1 carriage inwards 2 purchases 3 purchases returns 4 Sadie, a credit supplier A 1, 2 and 3 B 2 and 3 only C 2 only D 4 only [1] (c) Bingwa purchased premises costing $85 000 in February 2018. Identical premises to those owned by Bingwa were sold in April 2019 for $98 000. No adjustment was made in Bingwa’s accounting records in April 2019. Which accounting principle did Bingwa apply? A business entity B materiality C money measurement D realisation [1] (d) Jason provided the following information. $ non-current assets 103 650 inventory 4 960 insurance prepaid 130 trade payables 5 380 petty cash 100 rent receivable prepaid 240 bank overdraft 2 900 trade receivables 5 120 How much was Jason’s capital? A $105 440 B $105 920 C $105 960 D $111 240 [1] (e) On 1 February Ahmed purchased goods on credit from Zaffar. He returned these goods on 8 February. How did Zaffar record the transaction of 8 February? account debited account credited A Ahmed purchases returns B Ahmed sales returns C purchases returns Ahmed D sales returns Ahmed [1] (f) Athena is both a customer and a supplier of Heidi. Athena’s account in Heidi’s sales ledger showed a debit balance of $340 and her account in Heidi’s purchases ledger showed a credit balance of $260. A contra between the two accounts was agreed. Which entry would Heidi make in her sales ledger control account? A credit $80 B credit $260 C debit $80 D debit $260 [1] (g) An advertising expenses account had a credit balance of $100 on 1 January 2018. During the year ended 31 December 2018 advertising expenses paid totalled $2830. This included $45 for the following financial year. Which journal entry is required to transfer the advertising expenses to the income statement on 31 December 2018? debit credit $ $ advertising expenses 2685 A income statement 2685 advertising expenses 2885 B income statement 2885 income statement 2685 C advertising expenses 2685 income statement 2885 D [1] advertising expenses 2885 (h) How is mark-up calculated? cost of sales A gross profit gross profit B cost of sales gross profit C revenue revenue D [1] gross profit (i) On 1 May 2018 Ben’s capital was $47 600. During the year ended 30 April 2019 he introduced his personal motor vehicle, $12 500, into the business. His drawings during the year ended 30 April 2019 were $7500. On 30 April 2019 Ben’s capital was $51 250. What was Ben’s profit or loss for the year? A loss $1350 B loss $8650 C profit $1350 D profit $8650 [1] (j) Amber updated her cash book after receiving her bank statement. The updated cash book balance was an overdraft of $250. The bank statement did not include cheques not presented, $96, and amounts not credited, $183. What was the balance shown on the bank statement? A $163 credit B $163 debit C $337 credit D $337 debit [1] [Total: 10]

Question

Nabil owns a food store. He purchases goods on credit terms and sells on cash terms. Nabil’s financial year ends on 31 March. Nabil’s receipts and payments during the year ended 31 March 2019 included both capital and revenue items. REQUIRED (a) State whether each of the following represents capital expenditure, revenue expenditure, a capital receipt or a revenue receipt. The first one has been completed as an example. Payment of annual insurance premium revenue expenditure Purchases of goods for resale …… Proceeds of sale of old shop fittings at book value …… Cost of new shop fittings …… Delivery charge on new shop fittings …… Cash sales …… Loan from bank …… [6] (b) Complete the table by stating the double entry needed to record each of the following transactions which took place in March 2019. account(s) debited account(s) credited transaction $ $ Nabil transferred his private motor vehicle, $18 000, to the business. Purchased stationery, $44, on credit from Tahir. Paid office cash, $490, into the business bank account. Settled Vijay’s account of $200 by bank transfer after deducting 2% cash discount. [9] Nabil prepares a trial balance at the end of each financial year. REQUIRED (c) Complete the table by placing a tick (3) in the correct column to indicate where the balance of each of the accounts would appear in Nabil’s trial balance on 31 March 2019. The first one has been completed as an example. debit credit column column rent and rates 3 capital motor vehicle at cost motor expenses purchases returns discount received Tarek, a credit supplier insurance bank overdraft operating expenses 5-year bank loan drawings carriage outwards [6] [Total: 21]

Question

Hamila is a trader. Her financial year ends on 28 February. All goods are bought and sold on credit terms. Hamila provided the following information for February 2019. 2019 February 1 Safiya, a credit customer, owed $320 12 Safiya paid the balance due on 1 February by cheque 16 Safiya purchased goods on credit, list price $250, less 20% trade discount 18 The bank returned Safiya’s cheque because of insufficient funds in the account 24 Safiya paid $400 in cash 27 The balance of Safiya’s account was written off as irrecoverable REQUIRED (a) Prepare the account of Safiya as it would appear in Hamila’s ledger for the month of February 2019. Hamila Safiya account Date Details $ Date Details $ 2019 2019 [6] (b) Complete the bad debts account in Hamila’s ledger for the month of February 2019. Close the account by making an appropriate year-end transfer. Hamila Bad debts account Date Details $ Date Details $ 2019 2019 Feb 27 Total to date 674 …… …… …… [2] Hamila maintains a provision for doubtful debts. The following account appeared in Hamila’s ledger. Hamila Provision for doubtful debts account Date Details $ Date Details $ 2019 2018 Feb 28 Income statement 130 Mar 1 Balance b/d 1500 Balance c/d 1370 1500 1500 REQUIRED (c) (i) Explain the following entries in the provision for doubtful debts account. Name the account in which the double entry would be made for each item. State whether the account would be debited or credited. 1 March 2018 Balance b/d Explanation …… Name of account …… Debit or credit …… 28 February 2019 Balance c/d Explanation …… Name of account …… Debit or credit …… [4] (ii) Explain the following entry in the provision for doubtful debts account. 28 February 2019 Income statement …… [2] (d) Explain how Hamila is applying the principle of prudence by maintaining a provision for doubtful debts. …… [2] (e) Explain how Hamila is applying the principle of accruals (matching) by maintaining a provision for doubtful debts. …… [2] (f) Suggest two ways in which Hamila could reduce the possibility of bad debts. 1 …… 2 …… [2] [Total: 20] PLEASE TURN OVER

Question

Sam’s financial year ends on 31 December. On 1 November 2017 he sold old office equipment for $1900. The equipment had been purchased on 1 April 2015 for $4000 and had been depreciated using the reducing (diminishing) balance method at 20% per annum. A full year’s depreciation was charged in the year of purchase, but no depreciation was to be charged in the year of disposal. REQUIRED (a) Calculate the profit or loss on disposal of the office equipment. …… [5] On 1 January 2018 Sam purchased new office equipment costing $8000 on credit from C Limited. (b) Prepare a journal entry to record this purchase. A narrative is required. Sam General Journal Date Details Debit Credit $ $ 2018 [3] The new office equipment was expected to be used for 5 years and have a residual value of $2000. Sam was undecided about which method of depreciation to use for the new office equipment. REQUIRED (c) (i) Calculate the annual depreciation on the new office equipment using the straight-line (equal instalment) method. …… [2] (ii) Calculate the depreciation for the first year on the new office equipment using the reducing (diminishing) balance method at 20% per annum. …… [1] Sam decided to use the reducing (diminishing) balance method of depreciation. REQUIRED (d) Prepare a journal entry to record the transfer to the income statement of the depreciation on office equipment for the year ended 31 December 2018. A narrative is required. Sam General Journal Date Details Debit Credit $ $ 2018 [3] Sam’s book-keeper started to maintain a petty cash book on 1 April 2019. On that date $150 was placed in the petty cash box. This was to be the monthly imprest which was to be restored on the first day of each month. At the end of April 2019 Sam discovered that only a few entries had been made in the petty cash book for the month. The following information about the petty cash transactions for April 2019 is available. 2019 $ April 11 Received refund from cleaner for overpayment in March 5 18 Paid Kelly, a credit supplier 35 21 Bought printer paper 23 30 Paid cleaner 56 REQUIRED (e) Complete the entries for the transactions on 3 April and 6 April in the petty cash book on the page opposite. Enter the transactions for 11 April to 30 April in the petty cash book. Balance the petty cash book on 30 April and bring down the balance on 1 May 2019. Show the restoration of the imprest on 1 May 2019. [10] [Total: 24] The petty cash book is printed on the next page Sam – Petty Cash Book Total Date Details Total Office Travel Cleaning Ledger received paid expenses accounts $ $ $ $ $ $ 2019 150 April 1 Cash …… …… …… …… …… …… 3 Taxi fare 12 …… …… …… …… …… 6 Parcel post 3 …… …… …… …… 15

Question

Mostafa and Salma are partners in a wholesale business. Their financial year ends on 30 April. When they started the business they drew up a partnership agreement. The terms of the agreement included the following. interest to be allowed on capital at 5% per annum interest to be charged on drawings at 6% Mostafa to be entitled to an annual salary of $12 000 residual profits and losses to be shared in the ratio of 3 : 2. The partners provided the following information. At 1 May 2018 Mostafa Salma $ $ Capital account 45 000 25 000 Current account 3 250 credit 1 920 debit On 1 February 2019 the partners agreed that Mostafa’s salary should be increased to $15 000 per annum. For the year ended 30 April 2019 Mostafa Salma $ $ Drawings 10 000 8 000 The profit for the year ended 30 April 2019 was $14 820. REQUIRED (a) Suggest one reason why interest on capital was included in the partnership agreement. …… [1] (b) Suggest one reason why interest on drawings was included in the partnership agreement. …… [1] (c) Suggest one reason why a salary for Mostafa was included in the partnership agreement. …… [1] (d) Prepare the profit and loss appropriation account for the year ended 30 April 2019. Mostafa and Salma Profit and Loss Appropriation Account for the year ended 30 April 2019 $ $ [8] (e) Complete the current account of Mostafa for the year ended 30 April 2019. Balance the account and bring down the balance on 1 May 2019. Mostafa and Salma Mostafa Current account Date Details $ Date Details $ 2018 …… …… …… May 1 Balance b/d 3 250 [5] [Total: 16]

Question

S Limited was formed on 1 May 2018. On that date the company issued ordinary shares and 5% debentures. At the end of the financial year on 30 April 2019 the following financial statements were prepared: Income statement Statement of changes in equity Statement of financial position REQUIRED (a) Name the financial statement in which each of the following items would appear. Some items may appear in more than one statement. If the item does not appear in any of the financial statements write ‘No entry’. The first one has been completed as an example. financial statement Wages accrued at 30 April 2019 Income statement Statement of financial position Ordinary share capital Creation of general reserve Payment of interim ordinary share dividend on 31 October 2018 Proposed ordinary share dividend at 30 April 2019 Debenture interest accrued on 30 April 2019 [8] The directors of S Limited wish to raise funds for expansion. They are undecided whether to issue additional ordinary shares or additional 5% debentures. REQUIRED (b) 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 debenture holders receive interest 3 debenture holders receive a variable rate of interest debentures are usually included in the non-current liabilities section of the statement of financial position debentures have a prior claim in the event of the company being wound up debenture holders are entitled to vote at the annual general meeting debentures are often secured on the non-current assets of the company [5] (c) Suggest two ways in which the ordinary shareholders may be affected if the directors decide to raise funds from an issue of debentures. 1 …… 2 …… [2] The directors of S Limited are concerned about the working capital of the company at the end of the first year of trading. The following information is available at 30 April 2019. $ Inventory 27 400 Trade payables 28 700 Trade receivables 25 200 Bank overdraft 10 800 REQUIRED (d) Calculate the current ratio. The calculation should be correct to two decimal places. …… [2] (e) Calculate the quick ratio. The calculation should be correct to two decimal places. …… [2] (f) Explain why the quick ratio is more reliable than the current ratio as an indicator of liquidity. …… [2] (g) Complete the table by placing a tick (3) in the correct column to show how each of the following would affect the working capital of S Limited. increase decrease no effect issue additional debentures pay operating expenses by cheque sell goods for cash instead of on credit delay paying credit suppliers sell unused non-current assets reduce credit period for credit customers [6] (h) Suggest two problems the directors of S Limited may encounter if the working capital is inadequate. 1 …… 2 …… [2] [Total: 29]