Accounting (0452) · May/June 2008 · Question paper 3

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UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
International General Certificate of Secondary Education

*0537636579*

0452/03

ACCOUNTING

May/June 2008

Paper 3

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 a soft pencil for any diagrams or graphs.
Do not use staples, paper clips, highlighters, 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 the 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.

For Examiner's Use
1
2
3
4
5
Total

This document consists of 18 printed pages and 2 blank pages.
IB08 06_0452_03/2RP
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1

Jane Sharma is a trader. Her financial year ends on 30 April.

For
Examiner's
Use

The bank columns of her cash book for the month of April 2008 were as follows:
Cash Book (bank columns only)
2008
April 1
12
30
May 1

Balance b/d
Lobatse Traders
Cash

$
2210
314
500

Balance b/d

3024
2073

2008
April 9
16
28
30

Mashatu Stores
General expenses
Ghanzi & Co
Balance c/d

$
436
125
390
2073
3024

Jane Sharma’s business bank statement for April 2008 was as follows:
Bank Statement at 30 April 2008
Date
2008
April 1
10
11
17
18
21
29
30

Details

Debit
$

Balance
AB Insurance Co
Dividend (credit transfer)
Mashatu Stores
Lobatse Traders
General expenses
Lobatse Traders (dishonoured)
Bank charges

Credit
$
2120

360
62
436
314
125
314
11

Balance
$
2120 Cr
1760
1822
1386
1700
1575
1261
1250

The following errors were discovered:
1

The cash book balance brought forward on 1 April should have been $2120.

2

The bank had credited dividend received, $62, to Jane Sharma’s business account
instead of her personal account.

REQUIRED
(a) State two reasons, other than finding errors, why Jane Sharma should reconcile her
cash book with the statement received from the bank.
(i)

(ii)
[2]

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(b) Update Jane Sharma’s cash book. Bring down the updated cash book balance on
1 May 2008.

For
Examiner's
Use

Cash Book (bank columns only)

[6]

(c) Prepare a bank reconciliation statement for Jane Sharma at 30 April 2008.
Bank Reconciliation Statement at 30 April 2008

[6]

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(d) State the bank balance that should be shown in the balance sheet of Jane Sharma at
30 April 2008. State whether it is an asset or a liability.

[2]

In addition to the corrected bank balance Jane Sharma had the following current assets
and current liabilities on 30 April 2008.
Stock
Debtors
Creditors
Cash

$
6322
5670
7250
100

REQUIRED
(e) Calculate, to two decimal places, the current ratio. Show your workings.

[2]

(f) Explain why Jane Sharma would find the quick ratio more reliable than the current ratio
as an indicator of liquidity.

[2]
[Total: 20]

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5
2

Miriam Rajah is a trader. Her financial year ends on 31 January. Miriam employs a
bookkeeper to maintain her financial records.

For
Examiner's
Use

The following account appears in Miriam Rajah’s ledger:
Provision for doubtful debts account
2008
Jan 31

$
50
600
650

Profit & loss
Balance c/d

2007
Feb 1

Balance b/d

$
650
650

2008
Feb 1

Balance b/d

600

For candidates who are not familiar with the layout of the account shown above, an
alternative presentation is provided.
Provision for doubtful debts account
2007
Feb 1
2008
Jan 31

Debit
$
Balance
Profit and loss

50

Credit
$
650

Balance
$
650 Cr
600 Cr

REQUIRED
(a) State one reason why Miriam Rajah should maintain a provision for doubtful debts.

[1]

(b) Explain each entry in the provision for doubtful debts account as it appears in Miriam
Rajah’s ledger.
2007 February 1 Balance

[2]
2008 January 31 Profit and loss

[2]

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Explain the significance of the $600 shown at the end of the account.

For
Examiner's
Use

[2]
Miriam Rajah is concerned that she often has a bank overdraft. She believes that this may
be connected to the rate at which she pays her creditors and the rate at which she is paid
by her debtors.
All Miriam Rajah’s sales and purchases are made on credit terms. She allows her debtors
30 days credit and is allowed 21 days credit by her creditors.
REQUIRED
(c) Suggest one way in which the collection period for debtors may affect the payment
period for creditors.

[2]
The following information is available at 31 January 2008:
$
For the year ended 31 January 2008
credit sales
credit purchases
At 31 January 2008
debtors
creditors

268 500
242 500
30 000
20 200

REQUIRED
(d) Calculate Miriam Rajah’s collection period for debtors. Show your workings. Round up
your answer to the nearest whole day.

[2]

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(e) Calculate Miriam Rajah’s payment period for creditors. Show your workings. Round up
your answer to the nearest whole day.

For
Examiner's
Use

[2]

(f) State two possible advantages to Miriam Rajah of paying her creditors before the due
date.
(i)

(ii)
[2]

Miriam Rajah is also the treasurer of a local sports club.
The financial year of the sports club ends on 31 March. Miriam Rajah is able to provide the
following information relating to the members’ subscriptions.
$
At 1 April 2007
Subscriptions owing by members

320

For the year ended 31 March 2008
Subscriptions received from members in cash
At 31 March 2008
Subscriptions prepaid by members

8720
400

REQUIRED
(g) Prepare the subscriptions account as it would appear in the ledger of the sports club for
the year ended 31 March 2008.
Show the amount transferred to the income and expenditure account.
Where a traditional “T” account is used it should be balanced and the balance brought
down on 1 April 2008. Where a three column running balance account is used the
balance column should be updated after each entry.

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Subscriptions account

For
Examiner's
Use

[7]
[Total: 22]

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3

Abdul and Amina Mahmoud are in partnership. Their financial year ends on 30 April. The
trial balance prepared on 30 April 2008 failed to agree. The debit side totalled $95 857 and
the credit side totalled $95 457. The difference was entered in a suspense account.

For
Examiner's
Use

The following errors were later discovered:
1

Abdul had spent $20 of his personal funds to purchase business stationery. This had
not been recorded in the books.

2

Goods withdrawn by Abdul for personal use, costing $300, had been debited to his
drawings account but no other entry had been made.

3

$50 recovered from a bad debt (written off in 2006) had been correctly entered in the
cash book and had been debited to the bad debts account.

4

The partners decided that the debit balance of $2200 on Amina’s current account
should be transferred to her capital account. This had not been recorded.

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REQUIRED
(a) Prepare the entries in Abdul and Amina Mahmoud’s journal to correct the above errors.
Narratives are not required.
Journal
Debit
$

Credit
$

[9]
(b) Prepare the suspense account in Abdul and Amina Mahmoud’s ledger to show the
required entries. Start with the balance arising from the difference on the trial balance.
Where a traditional “T” account is used it should be balanced or totalled as necessary.
Where a three column running balance account is used the balance column should be
updated after each entry.

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Suspense account

For
Examiner's
Use

[4]

Before the errors were discovered Abdul and Amina Mahmoud calculated that they had
made a net profit of $12 900 for the year ended 30 April 2008.
REQUIRED
(c) Prepare a statement to show the effect of correcting errors 1-4 on the original net profit
and calculate the corrected net profit.
If the error does not affect the net profit write “No effect”.
The first correction has been completed as an example.
Abdul and Amina Mahmoud
Statement of corrected net profit for the year ended 30 April 2008
$
12 900

Net profit before corrections
Effect on net profit
Increase
Decrease
$
$
20

Error 1
2
3
4

Corrected net profit
[4]

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Abdul and Amina Mahmoud calculated the percentage of net profit to sales and found that it
was lower than that of the previous financial year.
REQUIRED
(d) State two ways in which the percentage of net profit to sales could be improved.
(i)

(ii)
[2]
[Total: 19]

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4

Gideon Yeboah is a manufacturer. He provided the following information.

Stock - raw materials
work in progress
finished goods

At 1 April 2007
$
21 230
11 680
46 900

For
Examiner's
Use

At 31 March 2008
$
19 410
12 130
53 170

For the year ended 31 March 2008
Sales of finished goods
Purchases of raw materials
Purchases of finished goods
Direct factory wages
Factory general expenses

$
825 000
255 620
13 200
194 060
133 910

The following additional information is available on 31 March 2008:
1

Direct factory wages accrued amounted to $4800.

2

The factory general expenses include insurance on the factory which is prepaid by
$210.

3

The factory machinery was valued at $92 000.
On 1 April 2007 the factory machinery was valued at $103 000. Additional machinery
costing $21 000 was purchased during the year. There were no sales of machinery
during the year.

REQUIRED
(a) (i) State the basis on which Gideon Yeboah should value his stocks.

[1]
(ii) Name one accounting principle Gideon Yeboah is applying by valuing his stocks
on this basis.
[1]

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(b) Prepare the manufacturing account of Gideon Yeboah for the year ended
31 March 2008.

For
Examiner's
Use

Gideon Yeboah
Manufacturing Account for the year ended 31 March 2008

[11]

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(c) Prepare the trading account of Gideon Yeboah for the year ended 31 March 2008.

For
Examiner's
Use

Gideon Yeboah
Trading Account for the year ended 31 March 2008

[6]
[Total: 19]

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5

Tahir Ali supplies building materials. His financial year ends on 31 December.
On 1 January 2006 he decided to provide a delivery service for his customers. On that date
he purchased three motor vehicles, costing $20 000 each, on credit from Ansari Road
Motors.
Tahir Ali decided that depreciation should be calculated on motor vehicles owned at
31 December each year at the rate of 20 % per annum, using the reducing (diminishing)
balance method. A full year’s depreciation should be provided in the year of purchase, but
no depreciation should be provided in the year of disposal.
On 30 June 2007 Tahir Ali decided that only two motor vehicles were required and he sold
the other motor vehicle on credit to Apollo Traders for $17 000.
REQUIRED
(a) Explain how Tahir Ali is applying the matching principle when he depreciates his motor
vehicles.

[2]

(b) Write up the following accounts in Tahir Ali’s ledger for each of the years ended
31 December 2006 and 31 December 2007.
(i) Motor vehicles account.
(ii) Provision for depreciation of motor vehicles account.
(iii) Disposal of motor vehicles account.
Where traditional “T” accounts are used they should be balanced at the end of each year
and, where appropriate, the balance brought down on the first day of the following financial
year. Where three column running balance accounts are used the balance column should
be updated after each entry.

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19
(i)

Motor vehicles account

(ii)

Provision for depreciation of motor vehicles account

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(iii)

Disposal of motor vehicles account

For
Examiner's
Use

[18]
[Total: 20]

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