Accounting (0452) · Feb/March 2017 · Examiner report

Cambridge International General Certificate of Secondary Education
0452 Accounting March 2017 www.dynamicpapers.com
Principal Examiner Report for Teachers

ACCOUNTING
Paper 0452/12
Paper 12

Key messages
Candidates should always attempt multiple choice questions and never offer ‘no response’.
As always, when preparing ledger accounts, labels such as BBD and BD are unacceptable. Ideally, balance
b/d or c/d should be written.
Labelling items is extremely important when preparing income statements or statements of financial position.
Again, abbreviations such as COGS for cost of goods sold or GP for gross profit are not acceptable. In
questions concerning clubs or associations, correct terminology is required to gain marks.
Candidates should always indicate where they may have re-written an answer in a different section of the
answer booklet.
General comments
The paper was well attempted by a number of candidates. The number of candidates not attempting
questions is reducing and candidates generally completed the paper. However, the main causes for
candidates not being awarded marks relates to the key messages above and will be commented on below.
Comments on specific questions
Question 1
This question comprised ten multiple choice items. There were only a few instances where candidates made
no attempt at a particular answer. It needs to be repeated that it is always worth attempting this type of
question.
Some questions caused more difficulty than others and they are discussed below.
(b)

Correction of entries is always a problem. Candidates should be encouraged to start by writing the
initial entry, the correct entry and then decide on which entry is necessary to resolve it.

(g)

The incorrect treatment and the value of the drawings of goods led to incorrect answers in this
question. Candidates should practise rewriting the ‘capital’ section of the statement of financial
position.

(i)

The treatment of the decrease in work in progress clearly caused an issue in this question.
Candidates should be encouraged to draft a production account showing an opening and closing
work in progress.

Question 2
(a)

A majority of candidates answered this question correctly. A small number lost marks as they did
not use the names of the individuals, but rather stated ‘supplier’ and ‘customer’.

(b)

This question was addressed well. Most candidates could suggest acceptable reasons for the issue
of a credit note although some just described the role of a credit note rather than the reason for its
issue.

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0452 Accounting March 2017 www.dynamicpapers.com
Principal Examiner Report for Teachers
(c)

A significant number of candidates confused sales and purchases returns, and others did not
understand what is meant by a book of prime entry, providing answers such as ‘purchase ledger’,
‘nominal ledger’ etc. In this situation, candidates should be encouraged to really think through who
is ‘buying’ and who is ‘selling’ the goods.

(d)

This was reasonably well answered. Many candidates answered with specific reference to Amitav
and Barry, which was acceptable, rather than general reasons for keeping books of account.

(e)

The majority of candidates understood the principle of duality, although a small number lost marks
for not being specific enough or not giving enough detail – for example, duality means two effects
without expanding further. Many candidates cited duality means ‘giving’ and ‘receiving’ without
expanding.

(f)

This question required candidates to complete the gaps in two sentences using given terms. Most
were successful but some candidates used ‘balance sheet’ instead of the given term ‘statement of
financial position’.

(g)

There were several ‘no responses’ or answers which were too general stating that accounts should
be ‘understandable’ and there was some confusion with ‘reliability’. However, it was pleasing to see
that many candidates had learnt the definition well and referred to the users of financial statements.

(h)

This question had the highest ‘no response’ returns. Candidates did not know the purpose of
international accounting standards although some did know it involved common formats, practices,
rules, and methods.

(i)

This question is repeated regularly in exam papers and is generally well answered. Candidates lost
marks by not providing adequate reasons for why a party may be interested. The reasons were
either too general or not related to the interested party. The most common choice was ‘bank’ and
often candidates cited whether a business could repay the loan or interest rather than the bank
assessing whether or not to grant a loan or overdraft. Similarly with ‘trade payables’ where
candidates talked about whether the customer was paying for goods bought rather than the ability
to pay in the future.

Question 3
(a)

A large number of candidates achieved full marks for this question. Some common errors were the
inclusion of the equipment in the working capital and the treatment of the bank as a liability. Many
candidates recognised that Simran’s capital must include the equipment but then did not use their
own figure from (i) in the correct way.

(b)

Many candidates displayed an excellent knowledge of double entry in this question. Others made
some basic mistakes such as reversal of entries, failing to balance the entries and not using the
correct names for ledger accounts (‘Simran’ for ‘capital’, ‘private motor vehicle’ for ‘vehicle’ and
‘credit transfer’ for ‘bank’). Transaction 4 proved the most problematic with many candidates not
understanding the gross amount owed to Neel, ignoring the discount received, or calculating the
discount received as 4% of the amount paid ($1.92).

(c)

Many candidates achieved (i) and (ii) but offered transaction 2 for (iii).

(d)

The majority of candidates identified correctly the section of the statement of financial position as
being current liabilities, however the item was often stated as accrued wages or expenses. A few
candidates misread the question and made reference to sections of the income statement.

(e)

Many candidates were confused by this question. Incorrect payment to Neel from (b) was used and
many included the discount received. Other issues were the omission of the opening balance and
the inclusion of drawings and the private motor vehicle.

(f)

Candidates were very well prepared in the preparation of ledger accounts with many achieving full
marks. Some common mistakes were in the incorrect narrative for the dishonoured cheque e.g.
dishonoured cheque or Paul instead of ‘bank’, not specifying ‘sales’ returns or omitting the $20
cash received. Weaker candidates netted off the bad debt with bank receipts.

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Cambridge International General Certificate of Secondary Education
0452 Accounting March 2017 www.dynamicpapers.com
Principal Examiner Report for Teachers
Question 4
(a)

This was answered correctly by the majority of candidates.

(b)

This question was attempted very well by many candidates but for others it was answered
extremely poorly. It was clear that candidates understood how to deal with Vehicle A but
unfortunately when it came to Vehicle B many candidates attempted to include figures for the year
ended December 2015, hence the calculation for December 2016 being incorrect. However, the
main issue came with the equipment. The calculation for December 2015 was dealt with correctly
but a large number of candidates did not appreciate the additional capital purchased in 2016. Many
calculated a second year based on the original purchase of equipment and consequently offered
an incorrect net book value at 31 December 2016.

(c)

A large number of candidates produced a reasonable extract from the statement of financial
position. However, a number omitted the headings for cost, accumulated depreciation and net book
value and some did not total the net book value column. Most candidates correctly brought forward
accumulated depreciation from (b) but some used the depreciation for the year ended December
2016.

(d)

This was answered correctly by a large majority of candidates. Most candidates also used the new
international terminology.

Question 5
(a)

This question was generally poorly answered. Many candidates omitted the loan receipt or
alternatively treated it as the opening balance. Some recognised the loan repayment without
receiving it in the first instance and a few candidates netted off the loan resulting in a correct figure
for balance brought down. A small number of candidates deducted the stock of trophies from the
payment for trophies indicating weak knowledge of the difference between receipts and payments
and income and expenditure accounts.

(b)

Candidates either performed very well in this question but generally this area proved to be an issue
for many candidates. Main areas of weakness were that once correct figures for accruals and
prepayments were calculated they were treated incorrectly in the account. Incorrect labelling of
subscriptions, complete reversal and the transfer to ‘income and expenditure’ (often income
statement or subscriptions received). Occasionally when candidates arrived at a figure for income
and expenditure it was not correctly used in part (c).

(c)

Many very strong candidates did not achieve full marks here as a result of incorrect presentation.
Candidates did not show the net income/profit from tournaments and coach travel in the income
section but separated the expenses into the expenditure section. The treatment of the inventory
was often omitted or added to cost. Depreciation was often calculated correctly but the cost of
equipment was also included. Weaker candidates included the repayment of the loan and some
lost the mark for surplus by incorrectly labelling it profit.

(d)

This question required candidates to comment on reasons on why there are differences between
the closing balance on the receipts and payments account and the final figure on the income and
expenditure account. There were some very good answers with appropriate examples, clearly
indicating candidates understood the theory of this section. Issues arose when candidates did not
indicate which account they were referring to which they must be encouraged to do. In many
instances, candidates were able to give an example but not provide a sufficient reason. This
question resulted in a high level of ‘no response’.

Question 6
(a)

Candidates were required to calculate retained earnings at 31 December 2016 and hence were not
penalised for narratives. There was a very positive response to this question with many gaining full
marks. The main issue was in the calculation of the dividend. The common answer being $18 000
(calculation based on share capital $200 000). There were some calculations of $9000 assuming
9% of the $100 000 debentures. Some candidates omitted the retained profit brought forward.

(b)

Candidates were less confident with this question. As an extract of a statement of financial position
was required correct narratives were necessary which many did not present. Share capital was

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Cambridge International General Certificate of Secondary Education
0452 Accounting March 2017 www.dynamicpapers.com
Principal Examiner Report for Teachers
frequently shown as $400 000, debentures were often included and despite a correct calculation
brought forward from (a) the retained earnings of $80 000 were included again.
(c)

This was mainly well addressed. A small number of candidates merely stated that D Limited made
a profit.

(d)

Few candidates achieved the full two marks here as there was often repetition of the same point,
for example, to have funds for retention, expansion, retained earnings or general reserve. There
were relatively few comments about funds being needed for immediate liquidity.

(e)

The candidates who performed well in (a) and (b) also scored highly in this question. However, it
was generally apparent that candidates had not prepared well for this area. Many candidates used
the retained earnings for the numerator and many omitted the debentures from the capital
employed figure. Some candidates used a denominator of the share capital $200 000.

(f)

This is a frequently asked question and candidates were confident in providing two suitable
reasons. Candidates should be careful in not repeating the same point, for example, lower profit,
and higher expenses. As a general guide, one comment on capital and one on profit is required.

(g)

This question gave the opportunity to candidates to demonstrate their understanding of the
scenario. Some candidates, however, did not focus on this and gave very general factors to
consider. Many candidates were clear about the requirements and offered very astute observations
about payment of interest, dividends, the impact of the number of shares and the repayment term
etc. Some candidates included the consideration of preference shares and their comparison with
ordinary shares.

© 2017

Cambridge International General Certificate of Secondary Education
0452 Accounting March 2017 www.dynamicpapers.com
Principal Examiner Report for Teachers

ACCOUNTING
Paper 0452/22
Paper 22

Key messages
All the questions on this structured paper were compulsory.
Candidates are reminded of the importance of reading through a question carefully before attempting an
answer. This ensures that an important piece of information is not overlooked and that instructions are
followed precisely. A factually correct statement which is not the answer to the question being asked cannot
be awarded credit.
Where appropriate, candidates are advised to provide supporting calculations. This ensures that at least
some credit may be earned even though the final answer may be incorrect.
The spaces provided on the question paper for candidates’ answers should be adequate. Sometimes it may
be necessary to cross out all or part of the answer and provide another answer elsewhere on the question
paper. It is very important that candidates indicate that this has been done. A note ‘Please refer to page«’ or
‘Continued on page«’ would ensure that this additional work is not overlooked when the script is being
marked.
Candidates should avoid the use of inappropriate abbreviations such as ‘PC’, ‘COGS’ in financial statements
and ‘bbd’ for balance brought down in ledger accounts.
Candidates are expected to be familiar with International Accounting Terminology and avoid the use of ‘old’
terminology.
It is important that candidates present accounting statements in the correct format and that appropriate
descriptions are used in both financial statements and in ledger accounts.
General comments
Accounting is a subject in which precision is extremely important. The written answers produced in some of
the narrative questions were vague and lacked clarity.
It is important that candidates have a thorough knowledge of double entry book-keeping and can apply this
knowledge to the various scenarios on the question paper.

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Cambridge International General Certificate of Secondary Education
0452 Accounting March 2017 www.dynamicpapers.com
Principal Examiner Report for Teachers
Comments on specific questions
Question 1
(a)

Using data provided, candidates were required to complete and balance a cash book. The
calculation of the cash discount on 15th December proved to be challenging for some candidates.
The actual cheque paid was $702 which was after deducting cash discount.
This represented 97 21 % of the balance due. The discount was $18.
Common errors included entering drawings on the debit side, calculating the contra incorrectly and
using incorrect dates.

(b)

Some partially completed ledger accounts were provided together with relevant information relating
to these accounts. Candidates were asked to close the accounts by making year-end transfers or
balancing as necessary. Many candidates found this question difficult. Some straightforward marks
were wasted when balances were not actually brought down.
The inventory account should have been credited with the transfer of the opening inventory to the
income statement. The inventory account should then have been debited with a transfer from the
income statement of the closing inventory. It was then possible to balance the account and bring
down a debit balance of $13 420. A common error was to make a transfer of $770 to the income
statement.
In the provision for depreciation account a common error was to calculate the depreciation for the
year as $1900 instead of $1216. This was the result of calculating the rate of depreciation on the
cost rather than the net book value.
The general expenses relating to the current year were stated in the question so this should have
been transferred to income statement and the accrual should have been debited and brought down
as a credit balance.
The rent receivable for the current year of $5520 should have been transferred to the income
statement and the balance owing by the tenant credited and brought down as a debit balance.
A common error was to balance the drawings account: this should have been transferred to the
capital account.
In the capital account the motor vehicle and the profit should have been credited and the drawings
debited. The account should then have been balanced and the balance brought down.

Question 2
(a)

Candidates were required to explain the meaning of five accounting terms. Most candidates
understood that the income statement is used to calculate the profit or loss but many did not relate
this to a time period, e.g. a financial year.
The majority of candidates understood that this was a statement showing the assets and liabilities
of a business but did not state that this related to a certain date.
The majority of candidates earned at least one of the available two marks by explaining that these
were assets which are kept for a period longer than one year. Only some candidates expanded this
statement and gained the additional mark.
Most candidates were able to explain that non-current liabilities are those which do not have to be
repaid in the next twelve months.
Almost all candidates recognised that capital represents the resources invested in a business, but
many did not explain who had provided these resources.

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Cambridge International General Certificate of Secondary Education
0452 Accounting March 2017 www.dynamicpapers.com
Principal Examiner Report for Teachers
(b)

One example of an intangible asset was required. The most popular answer was ‘goodwill’, but
there were other good examples such as ‘intellectual property’.

(c)

The current ratio and the quick ratio of a business were stated and candidates were required to
comment on the current ratio. It was obvious from the ratio that the current assets were greater
than the current liabilities: a number of candidates incorrectly referred to assets and liabilities rather
than current assets and current liabilities. The better candidates correctly explained that the ratio
was very high and this was not an efficient use of resources.

(d)

An explanation was required why the quick ratio is a better measure of liquidity than the current
ratio. Most candidates correctly explained that this ratio excludes inventory from the calculation
because this is the least liquid current asset.

(e)

Two actions to increase the quick ratio were required to be suggested. It is necessary to be specific
and state how such actions might be put into effect for example obtaining a long-term loan.

(f) (i)

Candidates were asked to explain how applying the historical cost principle may be regarded as a
limitation of financial statements. It was expected that candidates would explain that all
transactions (not just assets) are recorded at the original cost. Consequently it is difficult to
compare transactions taking place at different times.

(ii)

An explanation was required on why non-financial factors may be regarded as a limitation of
financial statements. Most candidates understood that only monetary transactions can be recorded;
consequently many important factors do not appear in the financial statements.

Question 3
(a)

Using information provided, a manufacturing account had to be prepared. There were many wholly
correct responses. Some candidates did not label important figures such as cost of materials
consumed, prime cost and cost of production. It is preferable to deduct the purchases returns from
the purchases and thus show the net purchases. The depreciation of the machinery and the loose
tools proved to be challenging to some candidates. Some candidates included extraneous items
such as office wages. The factory overheads should be added to the prime cost and not deducted
from it. The prime cost plus overheads should have then be adjusted for the work in progress

(b)

The income statement of a manufacturing business had to be prepared. Many candidates earned full
marks. Once again, marks were forfeited because of missing labels for items such as cost of sales,
gross profit and profit for the year. A number of candidates included extraneous items such as loose
tools. There were a few errors which could have been avoided such as omitting the cost of
production calculated in part (a), adding the returns instead of deducting them, and not adjusting the
office wages for the amount accrued.

(c)

Candidates were required to suggest one reason why loose tools were revalued each year rather
than depreciated using other methods of depreciation. Very few candidates managed to explain that
it is not practical to keep detailed records of these low-value items and so it is difficult to apply the
other methods of depreciation.

Question 4
(a)

An account appearing in a trader’s ledger was provided and candidates were asked to name the
section of the ledger in which this would appear. Many correctly identified the purchases ledger.

(b)

Candidates were asked to explain an entry in the account which represented Lahiru returning goods
to Nusrath. Most candidates recognised the item as being purchases returns but did not explain
which person was returning the goods. Many candidates simply stated ‘returns’ for the account in
which the double entry would be made. This was not regarded as adequate; the answer should have
specified ‘credit the purchases returns account’.

(c) (i)

Many candidates correctly calculated the percentage of discount which was deducted in one of the
transactions. A number of candidates incorrectly calculated $11 as a percentage of $429 rather than
as a percentage of $440.

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0452 Accounting March 2017 www.dynamicpapers.com
Principal Examiner Report for Teachers
(ii) The majority of candidates correctly stated that the discount was deducted because Lahiru made
payment within the specified period. A number of candidates incorrectly stated that Nusrath made
the payment.
(d)

A reason why a contra entry was made in the account of a supplier was required. Candidates should
have explained that this was to set off the amount Lahiru owed Nusrath against the amount Nusrath
owed Lahiru. A few erroneously described a contra entry in a cash book

(e)

Very few candidates were able to produce the correct journal entry to record the contra from Lahiru’s
account in the sales ledger to his account in the purchases ledger. Some attempted entries from the
sales account to the purchases account.

(f)

Candidates were required to calculate the balance of the personal account of Lahiru and to state the
section of the statement of financial position in which it would appear. The majority correctly
calculated the balance.

(g)

A provision for doubtful debts account had to be prepared. There were many wholly correct answers.
Common errors involved including extraneous items such as the trade receivables, an incorrect
transfer to income statement and incorrect dates.

(h)

Most candidates were able to explain that the principle of prudence is applied by maintaining a
provision for doubtful debts to ensure that the profit and current assets are not overstated. It is
important to be specific and refer to ‘current assets’ or ‘trade receivables’ rather than ‘some assets’.

(i)

An explanation of how the principle of accruals was being applied by maintaining a provision for
doubtful debts was required. Most candidates merely gave a definition of the principle which was not
adequate. The sales for which is business is unlikely to be paid are regarded as an expense of the
year in which those sales are made.

Question 5
(a)

Candidates were required to calculate the purchases made by a trader who had not maintained a full
set of accounting records. The calculation was acceptable in the form of an arithmetic calculation or
a ledger account. Many candidates earned good marks. A number of candidates incorrectly included
the opening and closing inventories. The treatment of the discount and the interest proved
challenging for some candidates.

(b)

The trading section of an income statement had to be prepared in order to calculate the revenue for
the year. The inventories were stated in the question and the purchases figure had been calculated
in part (a).
Many candidates could not calculate the gross profit, and, consequently, could not get the correct
revenue figure. The gross profit margin (gross profit as a percentage of revenue) was 20%, so the
gross profit should have been calculated at 25% of the cost of sales.

(c)

Using their own figure of cost of sales from part (b), a vast majority of candidates calculated the rate
of inventory turnover correctly.

(d)

Candidates were required to suggest two ways in which the rate of inventory turnover could be
improved. Most candidates correctly suggested reducing the inventory levels. Incorrect suggestions
included reducing cost of sales and reducing selling prices.

(e)

Most candidates correctly identified the principle of prudence.

(f)

A table had to be completed to indicate the effect on profit for the current year and the following year
of an over-valuation of inventory. Most candidates earned at least one of the two available marks.

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0452 Accounting March 2017 www.dynamicpapers.com
Principal Examiner Report for Teachers
(g)

Two ways in which the gross profit margin could be increased had to be stated. Many limited their
response to ‘reduce cost of sales’ but did not offer suggestions as to how this could be achieved e.g.
buying from cheaper suppliers. Some incorrectly suggested increasing the amount of goods sold.
There were many references to reducing the cost of production, but there was no mention in the
question that the data related to a manufacturing business.

Question 6
(a)

Journal entries were required to correct three errors. A large number of candidates did not follow the
instruction to show correcting entries for only errors 3 – 5 and attempted to make entries for all five
errors and lost valuable time.
To correct the error of sales returns being credited to the purchases returns account it was
necessary to debit both the sales returns and the purchases returns accounts with $960 and to credit
the suspense with $1920.
The bank balance of $1500 had been entered as a bank overdraft in the trial balance. To correct this
it was necessary to credit the suspense account with $3000. No debit entry is required as the cash
book was actually correct.
A credit note for $210 was incorrectly credited to the supplier’s account as $120. This resulted in two
errors being made: an incorrect figure being recorded on the wrong side. The correcting entry is to
debit the account of the supplier (AK Stores) and credit suspense account with $330.

(b)

A table had to be completed to indicate the effect on the profit for the year of correcting five errors. A
common error was to use ticks in all the columns ignoring the dollar sign at the top of each of the first
two columns. Where the item affect the profit it was necessary to indicate the amount by which the
profit would increase or decrease: it was only in the last column where a tick should have been used
to indicate that the profit was not affected.

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