Accounting 0452/22 October/November 2019: question paper and mark scheme

Question

Tebogo is a trader. His financial year ends on 31 August. Tebogo maintains a full set of accounting records. He sells goods on credit terms. On 1 August 2019 Kayla, a credit customer, owed $900. The following transactions took place in August 2019. August 6 Sold goods on credit to Kayla, list price $1400, less a trade discount of 20% 12 Kayla returned some of the goods purchased on 6 August, list price $300 18 Sold goods on credit to Nyack, $620 24 Nyack returned one quarter of the goods purchased on 18 August 29 Received a cheque from Kayla in settlement of the balance due on 1 August, less 2% cash discount 30 Sold goods on credit to Kayla, $160 REQUIRED (a) Prepare the sales journal and the sales returns journal for August 2019. Total each journal and indicate the ledger account to which the total would be transferred. Tebogo Sales Journal Date Details $ $ Tebogo Sales Returns Journal Date Details $ $ [5] (b) Prepare the following accounts in Tebogo’s ledger for the month of August 2019. Close the accounts by balancing or by making a transfer to the income statement. Tebogo Kayla account Date Details $ Date Details $ 2019 Aug 1 Balance b/d 900 …… …… …… Sales account Date Details $ Date Details $ 2019 …… …… …… Aug 1 Total sales to date 21 400 Sales returns account Date Details $ Date Details $ 2019 Aug 1 Total returns to date 1 560 …… …… …… [8] Tebogo allows his credit customers a 2% cash discount if they settle their accounts within 30 days. From 1 September 2019 Tebogo decided to reduce the credit period to 21 days and reduce the percentage of cash discount to 1%. REQUIRED (c) (i) Suggest, giving a reason, one possible effect this decision may have on the profit for the year ending 31 August 2020. …… [2] (ii) Suggest, giving a reason, one possible effect this decision may have on the liquidity for the year ending 31 August 2020. …… [2] [Total: 17]

Question

Amelia opened a business on 1 April 2017. On that date she made the following payments by bank transfer. $ Premises 100 000 Office furniture 3 450 Carriage on office furniture 50 Stationery and small office equipment 30 Legal expenses on purchase of premises 1 400 Computer equipment 1 600 Installation of computer equipment 100 Ink cartridges and printer paper 40 REQUIRED (a) Complete the table by placing a tick (3) in the correct column to indicate whether each payment is capital expenditure or revenue expenditure. Payment Capital Revenue expenditure expenditure Premises Office furniture Carriage on office furniture Stationery and small office equipment Legal expenses on purchase of premises Computer equipment Installation of computer equipment Ink cartridges and printer paper [6] Amelia decided to depreciate her non-current assets using the reducing (diminishing) balance method at the following rates. Premises 2% per annum Office furniture 20% per annum Computer equipment 30% per annum She decided that no depreciation would be charged in the year of disposal. REQUIRED (b) Name one other method of depreciation which Amelia could apply. …… [1] (c) Prepare the following accounts for each of the years ended 31 March 2018 and 31 March 2019. Balance the provision for depreciation of computer equipment account and bring down the balance on 1 April 2018 and 1 April 2019. Amelia Computer equipment account Date Details $ Date Details $ Provision for depreciation on computer equipment account Date Details $ Date Details $ [6] On 30 September 2019 Amelia sold the office furniture as it was no longer suitable and received $1750 in cash. REQUIRED (d) Calculate the total depreciation on the office furniture up to the date of disposal. …… [3] (e) Calculate the profit or loss on the disposal of the office furniture. …… [4] [Total: 20] Question 3 is on the next page.

Question

The financial year of the KS Sports Club ends on 31 July. The club has 150 members and the annual subscription is $50. On 1 August 2018 subscriptions were outstanding from 5 members and 2 members had paid their subscription in advance for the next financial year. On 31 July 2019 subscriptions had been paid in advance for the next financial year by 4 members. REQUIRED (a) Prepare the subscriptions account for the year ended 31 July 2019 to show the amount received for subscriptions during the year. Balance the account and bring down the balance on 1 August 2019. KS Sports Club Subscriptions account Date Details $ Date Details $ [6] The treasurer of the KS Sports Club provided the following information. $ At 1 August 2018 Bank overdraft 2620 5% loan from AB Loans 2000 Receipts and payments during the year ended 31 July 2019 Subscriptions received from members ? Loan interest and repayment of loan 2100 Short-term interest-free loan received from a member 1000 General expenses 435 Rates and insurance 3120 Purchase of new sports equipment 4150 Repairs to sports equipment 215 Proceeds of sale of old sports equipment (book value $750) 870 Receipts from sports tournament 525 Expenses of sports tournament 335 At 31 July 2019 General expenses accrued 25 Insurance prepaid 150 (b) Prepare the receipts and payments account for the year ended 31 July 2019. Balance the account and bring down the balance on 1 August 2019. KS Sports Club Receipts and Payments Account for the year ended 31 July 2019 Date Details $ Date Details $ [13] [Total: 19]

Question

Mariam’s financial year ends on 30 September. She does not maintain a full set of accounting records, but was able to provide some information. On 1 October 2018 $ $ Premises at cost 80 000 Capital ? Fixtures and fittings at cost 7 800 Loan 21 000 Motor vehicle at cost 10 000 Trade payables 6 220 Inventory 6 350 Trade receivables 5 900 Bank balance 6 170 Mariam’s non-current assets have not been depreciated. During the year ended 30 September 2019 Mariam’s drawings amounted to $3125 Mariam transferred $5000 of her own money into the business bank account One-third of the loan was repaid and it was agreed that a further one-third would be repaid on 1 March 2020. Comparing the assets and liabilities on 30 September 2019 with those on 1 October 2018 the following differences were found: inventory had decreased by $510 trade payables had increased by $880 the balance at bank had increased by 10% trade receivables had increased to $6450 other payables amounted to $260 On 30 September it was decided to: write off a debt of $150 as irrecoverable create a provision for doubtful debts of 5% of the remaining trade receivables provide for depreciation on the fixtures and fittings for the year at 15% per annum on cost provide for depreciation on the motor vehicle for the year at 20% per annum on cost maintain the premises at cost price. REQUIRED (a) Prepare a statement of affairs at 30 September 2019 showing the total capital at that date. Mariam Statement of Affairs at 30 September 2019 $ $ $ [15] (b) Prepare the capital account of Mariam for the year ended 30 September 2019 to show the profit or loss for the year. Mariam Capital account Date Details $ Date Details $ [5] Mariam has been advised to start maintaining double entry records. REQUIRED (c) State two advantages to Mariam of maintaining double entry records. 1 …… 2 …… …… [2] [Total: 22] PLEASE TURN OVER

Question

Sabir’s financial year ends on 30 September. The totals of the trial balance prepared on 30 September 2019 did not balance and Sabir opened a suspense account with a debit entry of $7000. Sabir used the trial balance to prepare draft financial statements for the year ended 30 September 2019. After the preparation of these draft financial statements five errors were discovered. REQUIRED (a) Complete the table to show the entries required to correct each error. The first one has been completed as an example. Entry required to correct the error Debit Credit Error account $ account $ 1 The total of the sales returns journal, sales 990 suspense 1980 $990, had been posted to the credit of the sales account. sales returns 990 2 A bad debt written off, $65, had been credited to the account of Nadia instead of the account of Nadira. …… …… …… …… 3 No entry had been made for goods, cost price $150, withdrawn by Sabir for personal use. …… …… …… …… 4 The opening inventory, $4100, had not been entered in the trial balance. …… …… …… …… 5 The total of the discount allowed column in the cash book, $430, had been posted to the credit of the discount received account as $340. …… …… …… …… [9] (b) State whether all the errors in Sabir’s books have been discovered. Give a reason for your answer. Have all the errors been discovered? …… Reason …… …… [2] (c) Complete the following statement to show the effect on the draft profit for the year of correcting errors 1–5. Calculate the corrected profit for the year. If the error does not affect the profit place a tick (3) in the ‘No effect on profit’ column. Sabir Statement of corrected profit for the year ended 30 September 2019 Draft profit for the year before corrections $31 400 No effect Increase Decrease on profit in profit in profit Error 1 …… $ …… $…… Error 2 …… $…… $…… Error 3 …… $…… $…… Error 4 …… $…… $…… Error 5 …… $…… $…… $…… $…… …… Corrected profit for the year $…… [9] [Total: 20]

Question

Rashida started a business trading in fruit and vegetables on 1 July 2017. She rents shop premises. She works in the shop herself and does not employ any staff. All goods are sold on cash terms. Rashida provided the following information at the end of her second year of trading. $ Capital 53 000 Interest-free long term loan from family 10 000 Inventory 1 July 2018 860 Inventory 30 June 2019 920 Cost of sales 35 490 Revenue 42 000 Operating expenses 3 772 REQUIRED (a) Complete the table to show the ratios for Rashida for the year ended 30 June 2019. Calculations should be correct to two decimal places. You may use the space at the bottom of this page for your workings. Percentage of gross profit to revenue ……% Percentage of profit to revenue ……% Return on capital employed ……% Rate of inventory turnover ……times [8] Workings Rashida decided to compare her results with those of her two brothers Damon and Hakim. They formed a partnership eight years ago when they purchased premises and started a business as furniture wholesalers. They now employ ten warehouse workers. All goods are sold on credit terms to retail stores. REQUIRED (b) Explain why Rashida had a lower percentage of gross profit to revenue than her brothers. …… [2] (c) Suggest one reason why Rashida’s rate of inventory turnover is higher than that of her brothers. …… [1] (d) Suggest two expenses which would appear in the income statement of Damon and Hakim but would not appear in the income statement of Rashida. 1 …… 2 …… [2] (e) Suggest four factors which Rashida should consider when comparing her results with those of her brothers. 1 …… 2 …… 3 …… 4 …… …… [4] Rashida is disappointed with the percentage of gross profit to revenue. She is considering increasing the selling price. REQUIRED (f) Discuss how an increase in selling price may affect Rashida’s business. …… [2] Rashida is considering asking her sister, Sabeena, to join her in the business. (g) State three factors Rashida should consider before formally inviting Sabeena to become a partner. 1 …… 2 …… 3 …… …… [3] [Total: 22]