0452/22/F/M/17 Question Paper – Accounting Feb/March 2017 Paper 22

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Cambridge Accounting (0452) question paper for paper 22, Feb/March 2017 — 0452/22/F/M/17, file 0452_m17_qp_22.pdf.

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Cambridge International Examinations
Cambridge International General Certificate of Secondary Education

* 3 1 5 9 1 6 1 4 5 2 *

0452/22

ACCOUNTING

February/March 2017

Paper 2

1 hour 45 minutes
Candidates answer on the Question Paper.
No Additional Materials are required.
READ THESE INSTRUCTIONS FIRST
Write your Centre number, candidate number and name on all the work you hand in.
Write in dark blue or black pen.
You may use an HB pencil for any diagrams or graphs.
Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.
Answer all questions.
You may use a calculator.
Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.
At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 21 printed pages and 3 blank pages.
DC (RCL (GO)) 131322/3
© UCLES 2017

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1

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Mandeep is a trader who maintains a full set of accounting records including a three column cash
book.
His transactions for December 2016 included the following:
December

4 Paid $387 by cheque for repairs to office equipment
11

Received a cheque from Jabin to settle his account of $300 less 2% cash
discount

15 Paid a cheque, $702, to Rama, after deducting a cash discount of 2½%
27 Made cash sales, $6795
29 Withdrew cash, $5000, for personal use
31 Paid all the cash into the bank except $200
REQUIRED
(a) Complete Mandeep’s cash book on the page opposite.
Balance the cash book and bring down the balances on 1 January 2017.

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[10]

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b/d

Balance

Dec 1

Discount
allowed

Details

2016

Date

Bank

150

Cash

Dec 1

2016

Date

b/d

Details

Balance

Mandeep
Cash Book

Discount
received

2590

Bank

Cash

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Mandeep’s financial year ends on 31 December. He prepared his draft financial statements for the
year ended 31 December 2016, but did not close or balance his ledger accounts.
Mandeep provided the following information at 31 December 2016.
1

At 31 December 2016 the inventory was valued at $13 420.

The office fixtures, original cost $9500, are depreciated at 20% per annum using the reducing
(diminishing) balance method.

The general expenses relating to the financial year ended 31 December 2016 amounted to
$9850.

Rent receivable owing by the tenant at 31 December 2016 amounted to $460.

No entry has been made in the accounting records for a motor vehicle, $16 000, introduced
into the business by Mandeep on 30 December 2016.

The draft profit for the year ended 31 December 2016 was $21 600.

REQUIRED
(b) Complete the following accounts in Mandeep’s ledger at 31 December 2016.
Close the accounts by balancing or by making a transfer to an appropriate account.
Mandeep
Inventory account
Date
2016
Jan 1

Details
Balance

b/d

Date

Details

12 650

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Provision for depreciation of office fixtures account
Date

Details

Date
2016

Details

Jan 1

Balance b/d

$
3420

General expenses account
Date
2016

Details

Date

Details

9475

Dec 31

Total payments

Details

Rent receivable account
Date

Details

Date
2016

Dec 31

Total receipts

5060

Drawings account
Date
2016

Details

Date

Details

8950

Dec 31

Total drawings

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6
Capital account
Date

Details

Date
2016

Jan 1

Details
Balance

b/d

$
63 000

[14]
[Total: 24]

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Vinita’s accountant prepared a set of financial statements at the end of her first year of trading on
31 December 2016.
Vinita was not familiar with some of the terms used in these statements.
REQUIRED
(a) State the meaning of each of the following terms.
(i)

Income statement

[1]

(ii)

Statement of financial position

[1]

(iii)

Non-current assets

[2]

(iv)

Non-current liabilities

[1]

(v)

Capital

[1]

(b) Give one example of an intangible asset.
[1]

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The accountant calculated the following ratios for Vinita’s business on 31 December 2016.
Current ratio
Quick ratio

3.62 : 1
0.59 : 1

REQUIRED
(c) Comment on Vinita’s current ratio.

[2]
(d) Explain why the quick ratio is a better measure of liquidity than the current ratio.

[2]
(e) Suggest two actions Vinita could take to increase her quick ratio.
1

2
[2]

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Vinita wished to compare her results with those of a similar business and was able to obtain the
financial statements of a business in the same trade.
REQUIRED
(f)

State how each of the following may be regarded as a limitation of financial statements.
(i)

Historical cost

[2]

(ii)

Non-financial factors

[2]
[Total: 17]

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The financial year of Doshi Manufacturing Company ends on 31 January. The following trial
balance was extracted from the books on 31 January 2017.
Inventory 1 February 2016
Raw materials
Work in progress
Finished goods
Revenue
Returns inwards
Purchases
Raw materials
Finished goods
Returns of purchases of raw materials
Carriage inwards on purchases of finished goods
Wages
Factory operatives
Factory supervisors
Office and sales staff
General expenses
Premises at cost
Factory machinery at cost
Office equipment at cost
Loose tools at valuation
Provision for depreciation 1 February 2016
Factory machinery
Office equipment
Capital 1 February 2016
Drawings
Trade receivables
Trade payables
Interest-free short term loan
Bank overdraft

$
49 500
28 750
63 100
12 250
394 600
21 700
1 500

1 246 850

16 400

297 100
152 000
108 700
160 000
366 000
250 000
72 000
21 150

96 750
76 150

2 171 250

122 000
32 400
630 000
41 500
50 000
32 100
2 171 250

The following additional information is available.
1

At 31 January
inventory

The factory machinery is being depreciated at 20% per annum on the reducing (diminishing)
balance method.

The office equipment is being depreciated at 15% per annum on the straight line (equal
instalment) method.

The loose tools are revalued at the end of each financial year.

The general expenses are to be apportioned 3/5 to the factory and 2/5 to the office.

raw materials
work in progress
finished goods
wages accrued factory supervisors
office staff
value of loose tools

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$
41 100
31 250
59 100
12 000
4 300
19 050

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11
REQUIRED

(a) Select the relevant figures and prepare the manufacturing account for the year ended
31 January 2017.
Doshi Manufacturing Company
Manufacturing Account for the year ended 31 January 2017
$

[12]
© UCLES 2017

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(b) Select the relevant figures and prepare the income statement for the year ended
31 January 2017.
Doshi Manufacturing Company
Income Statement for the year ended 31 January 2017
$

[11]

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(c) Suggest one reason why the loose tools are revalued at the end of each financial year rather
than by using the straight line (equal instalment) or reducing (diminishing) balance method of
depreciation.

[1]
[Total: 24]

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14
4

Lahiru is a trader. The following account appeared in his ledger.
Nusrath account
Date
2017
Feb 7
18
28

Details
Returns
Bank
Discount
Contra to sales
ledger

$
18
429
11

Date
2017
Feb 1
4

Details
Balance b/d
Purchases

$
440
650

REQUIRED
(a) State the section of Lahiru’s ledger in which the above account would appear.
[1]
(b) Explain the entry on 7 February and state where the double entry would be made in Lahiru’s
accounts.
Explanation

Double entry [2]
(c) (i)

Calculate the percentage of discount which was deducted on 18 February.

[1]

(ii)

Suggest one reason why this discount was deducted.

[1]

(d) Suggest why the contra entry was made.

[1]

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(e) Prepare the journal entry Nusrath would make to record the contra entry. A narrative is
required.
Nusrath
Journal
Debit
$

Credit
$

[3]
(f)

(i)

Calculate the balance of Lahiru’s account which would appear in Nusrath’s ledger on
28 February 2017.

[1]

(ii)

State the section of Nusrath’s statement of financial position on 28 February 2017 in
which the balance of Lahiru’s account would appear.
[1]

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Lahiru’s financial year ends on 28 February. He maintains a provision for doubtful debts of 4% of
trade receivables at the end of each year.
On 1 March 2016 Lahiru’s provision for doubtful debts amounted to $500. On 28 February 2017
his trade receivables owed $17 900.
REQUIRED
(g) Prepare the provision for doubtful debts account for the year ended 28 February 2017.
Balance the account and bring down the balance on 1 March 2017.
Lahiru
Provision for doubtful debts account
Date

Details

Date

Details

[4]

(h) Explain how Lahiru is applying the accounting principle of prudence by maintaining a provision
for doubtful debts.

[2]
(i)

Explain how Lahiru is applying the accounting principle of accruals (matching) by maintaining
a provision for doubtful debts.

[2]
[Total: 19]

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5

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Jai’s financial year ends on 31 January. He has not maintained a full set of accounting records.
All goods are sold on a cash basis and all purchases are made on credit terms. Jai has no record
of his sales and purchases for the year ended 31 January 2017.
The following information was available.
$

On 1 February 2016
Amount owing to credit suppliers
Inventory

4 600
2 900

During the year ended 31 January 2017
Amounts paid to credit suppliers
Cash discount received
Interest charged by credit supplier on overdue account
At 31 January 2017
Amount owing to credit suppliers
Inventory

32 725
640
15
5 350
3 400

The gross profit margin is 20%.
REQUIRED
(a) Calculate the purchases for the year ended 31 January 2017.

[6]

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(b) Prepare an income statement (trading account section) to calculate the revenue for the year.
Jai
Income Statement (Trading Account section) for the year ended 31 January 2017
$

[7]

[2]
(d) Suggest two ways in which the rate of inventory turnover could be improved.
1

2
[2]

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Jai always values his inventory at the lower of cost and net realisable value.
(e) Name the accounting principle which is being applied.
[1]
(f)

Complete the following table to indicate the effect of Jai overvaluing his inventory at
31 January 2017. An example has been provided.
overstated
Current assets at 31 January 2017

understated

Profit for the year ended 31 January 2017
Profit for the year ending 31 January 2018

[2]

Jai is considering increasing his gross profit margin.
REQUIRED
(g) Suggest two ways in which Jai might achieve this increase.
1

2
[2]
[Total: 22]

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6

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Amina is a trader. Her financial year ends on 31 December.
The totals of her trial balance on 31 December 2016 did not agree. Amina entered the difference
in a suspense account and prepared draft financial statements.
The following errors were later discovered.
1

One page of the sales journal had been undercast by $1000.

Repairs to office equipment, $484, had been treated as capital expenditure.

The total of the sales returns journal, $960, had been credited to the purchases returns
account in the ledger.

The bank balance, $1500, had been treated as a bank overdraft in the trial balance.

A credit note received from AK Stores for $210 had been correctly entered in the purchases
returns journal but had been credited to the account of the supplier as $120.

REQUIRED
(a) Prepare the journal entries to correct errors 3–5. Narratives are not required.
Amina
Journal
Debit
$

Credit
$

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[7]

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(b) Complete the following table to show the effect, if any, that correcting each error would have
on the draft profit. Where an error has no effect on profit, place a (ü) in the No Effect column.
Effect on draft profit for the year of correcting the error
Error

Increase
$

Decrease
$

No Effect

1
2
3
4
5
[7]
[Total: 14]

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0452/22/F/M/17

Accounting (0452) · Feb/March 2017 · Question paper 22

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