Accounting (0452) · May/June 2012 · Question paper 22

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UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
International General Certificate of Secondary Education

*2725653254*

ACCOUNTING

0452/22
May/June 2012

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 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 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.

For Examiner's Use
1
2
3
4
5
Total

This document consists of 19 printed pages and 1 blank page.
IB12 06_0452_22/6RP
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1

Dalia Said is a trader. She maintains a full set of accounting records. She purchases and
sells goods on credit.
The following transactions took place in March 2012.
March 2
8

Bought goods, $1950, on credit from Essam Wholesalers
Bought goods on credit from Ramy El Din, list price $680, subject to a trade
discount of 20%

14

Returned goods, list price $120, to Ramy El Din

21

Paid the balance owing to Essam Wholesalers by cheque, less 2% cash discount

28

Paid a cheque for $300 on account to Ramy El Din

REQUIRED
(a) Write up the purchases journal and the purchases returns journal for March 2012.
Total each journal and indicate the ledger account to which the total would be transferred.
Dalia Said
Purchases journal
Date

Details

$

$

[3]
Purchases returns journal
Date

Details

$

$

[2]
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(b) Write up the accounts of Essam Wholesalers and Ramy El Din as they would appear in
Dalia Said’s ledger for the month of March 2012.

For
Examiner's
Use

There was no balance on either of these accounts on 1 March 2012.
Where traditional “T” accounts are used they should be balanced and the balance
brought down. If there is no balance the account should be totalled.
Where three-column running balance accounts are used the balance column should be
updated after each entry.
Dalia Said
Essam Wholesalers account

[3]

Ramy El Din account

[4]

(c) Name the ledger in which Dalia Said would maintain the accounts of Essam
Wholesalers and Ramy El Din.
[1]

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Dalia Said’s total purchases for the year ended 31 March 2012 were $33 400. On 31 March 2012
her trade payables amounted to $2600. Dalia Said is allowed a period of 30 days in which to pay
her accounts.
REQUIRED
(d) Calculate the payment period for the trade payables.
Your answer should be rounded up to the next whole day.
Show your workings.

[2]

(e) State one advantage to Dalia Said of paying creditors after the due date.

[1]

(f) State one disadvantage to Dalia Said of paying creditors after the due date.

[1]

(g) Dalia Said is concerned that some of her credit customers are exceeding the period of
credit allowed.
Suggest three ways in which Dalia Said could improve the collection period for trade
receivables.
(i)

(ii)

(iii)
[3]
[Total: 20]

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2

Simon Nyemba sells farm machinery. His financial year ends on 31 January.
Mochudi Traders Ltd pay Simon Nyemba a commission on any goods purchased from them
by Simon’s customers. The commission is paid six-monthly in arrears.

For
Examiner's
Use

On 1 February 2011 Simon Nyemba was owed $280 in commission.
Simon Nyemba received cheques for commission as follows:
$
5 February 2011

280

3 August 2011

312

On 31 January 2012 Simon Nyemba was owed $296 commission.
REQUIRED
(a) Write up the commission received account as it would appear in Simon Nyemba’s
ledger for the year ended 31 January 2012.
Where a traditional “T” account is used it should be balanced and the balance brought
down.
Where a three-column running balance account is used the balance column should be
updated after each entry.
Simon Nyemba
Commission received account

[6]

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Simon Nyemba owns premises and pays property tax to the authorities.

For
Examiner's
Use

On 1 February 2011 two months’ property tax, $520, was prepaid.
On 24 April 2011 Simon Nyemba paid $1620 by cheque for property tax for six months
to 30 September 2011.
On 4 October 2011 he paid a further cheque for $1620 for property tax for six months
to 31 March 2012.
REQUIRED
(b) Write up the property tax account as it would appear in Simon Nyemba’s ledger for the
year ended 31 January 2012.
Where a traditional “T” account is used it should be balanced and the balance brought
down.
Where a three-column running balance account is used the balance column should be
updated after each entry.
Simon Nyemba
Property tax account

[6]

(c) Name the accounting principle applied in the preparation of the commission received
account and the property tax account.
[1]

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(d) Name the section of Simon Nyemba’s balance sheet on 31 January 2012 in which
each of the following balances would appear.

For
Examiner's
Use

(i) Commission receivable account
[1]
(ii) Property tax account
[1]

(e) On 31 January 2012 Simon Nyemba’s discount allowed account had a debit balance of
$324.
Prepare the journal entry Simon Nyemba would make to transfer the discount allowed
account to the income statement for the year ended 31 January 2012.
A narrative is required.
Simon Nyemba
Journal
Debit
$

Credit
$

[3]

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Simon Nyemba maintains a provision for doubtful debts. On 1 February 2011 there was a
credit balance of $460 on the provision for doubtful debts account.
At 31 January 2012 Simon Nyemba’s trade receivables amounted to $14 300 and he
decided to maintain the provision for doubtful debts at 3% of the trade receivables.
REQUIRED
(f) Write up the provision for doubtful debts account as it would appear in Simon Nyemba’s
ledger for the year ended 31 January 2012.
Where a traditional “T” account is used it should be balanced and the balance brought
down.
Where a three-column running balance account is used the balance column should be
updated after each entry.
Simon Nyemba
Provision for doubtful debts account

[5]

(g) Name one accounting principle which Simon Nyemba is applying by maintaining a
provision for doubtful debts.
[1]
[Total: 24]

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For
Examiner's
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Question 3 is on the next page

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3

Herman Wagner makes furniture.
He provided the following information for the year ended 30 April 2012
$
Inventories 1 May 2011 – Raw materials
Finished goods
Work in progress

14 300
12 100
6 520

Revenue

600 000

Purchases of raw materials

168 900

Purchases of finished goods

3 450

Carriage on purchases of raw materials

2 600

Wages – Factory direct

193 700

Factory indirect

43 600

Administration

121 100

General expenses – Factory

24 450

Administration

9 640

Factory machinery at cost

98 000

Office equipment at cost

14 500

Provision for depreciation of factory machinery

35 280

Provision for depreciation of office equipment

4 350

Loose tools 1 May 2011 at valuation

950

Additional information
1

© UCLES 2012

At 30 April 2012:
Inventories were valued at
Raw materials
Finished goods
Work in progress

$
16 400
11 300
6 970

2

The factory general expenses include rates and insurance, $6200, which should
be apportioned – factory ¾ and office ¼.

3

The factory indirect wages include $10 000 taken by Herman Wagner for personal
use.

4

The factory machinery is being depreciated at 20% per annum using the reducing
balance method.
The office equipment is being depreciated by 10% per annum using the straight
line method.

5

During the year additional loose tools, $45, were purchased.
At 30 April 2012 the loose tools were valued at $890.

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REQUIRED
(a)

Select the relevant information and prepare the manufacturing account of Herman
Wagner for the year ended 30 April 2012.

For
Examiner's
Use

Herman Wagner
Manufacturing Account for the year ended 30 April 2012

[16]

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(b) Define and give one example of each of the following types of inventory in Herman
Wagner’s business.

(i) Raw materials

[2]

(ii) Work in progress

[2]

(iii) Finished goods

[2]

(c) Explain why Herman Wagner revalues the loose tools at the end of each financial year
rather than using the straight line or reducing balance method of depreciation.

[2]

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After the preparation of the manufacturing account for the year ended 30 April 2012,
Herman Wagner prepared an income statement showing a gross profit of $170 200 and
total expenses of $144 000.

For
Examiner's
Use

On 1 May 2011 Herman Wagner’s capital was $130 000. On that date he borrowed
$20 000 (repayable on 30 April 2016) from Cashco Ltd.
REQUIRED
(d) Calculate the return on capital employed (ROCE) for Herman Wagner.
Use the total capital employed on 1 May 2011.
The calculation should be correct to two decimal places.
Show your workings.

[3]

(e) The return on capital employed (ROCE) calculated on 30 April 2011 was 19.50%.
State and explain whether Herman Wagner will be satisfied with the ratio you
calculated in (d).

Will he be satisfied?
Explanation

[3]
[Total: 30]

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4

The financial year of Creekside Ltd ends on 30 April.
The following information is available after the preparation of the income statement and
appropriation account for the year ended 30 April 2012.
$
Issued share capital 5% Preference shares of $1 each
Ordinary shares of $1 each
Retained profit at 1 May 2011

80 000
100 000
6 500

General reserve

10 000

Premises at cost

120 000

Plant and machinery at cost

90 000

Fixtures and fittings at cost

32 000

Inventory

24 660

Trade payables

26 960

Trade receivables

21 600

Provision for depreciation on machinery

15 500

Provision for depreciation on fixtures and fittings

6 400

Provision for doubtful debts

660

Cash

200

Bank overdraft

5 340

4% Debentures

30 000

Additional information
1

The profit retained for the year, after appropriations, was $7100.

2

The preference dividend for the year ended 30 April 2012 has been paid in full.

REQUIRED
(a) Prepare the balance sheet of Creekside Ltd at 30 April 2012.

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Creekside Ltd
Balance Sheet at 30 April 2012

For
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[15]
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Creekside Ltd wishes to purchase additional premises costing $40 000. It is proposed to
obtain this money by issuing either 4% debentures or 5% preference shares.
REQUIRED
(b) (i) Calculate the amount of additional debenture interest which would have to be
paid each year if debentures are issued.

[1]

(ii) State the effect on the profit for the year if additional debentures are issued.
Give a reason for your answer.
Effect
Reason
[2]

(c) (i) Calculate the amount of additional preference dividend which would have to be
paid each year if preference shares are issued.
[1]

(ii) State one way in which the existing ordinary shareholders may be affected if the
company issues additional preference shares.

[2]

(d) State one way in which the existing ordinary shareholders may be affected if the
company obtained the money by issuing additional ordinary shares.

[2]
[Total: 23]

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5

Bethany Searle is a trader. Her financial year ends on 31 March. The trial balance prepared
on 31 March 2012 failed to agree. The difference was entered in a suspense account.
The following errors were later discovered.
1

The total of the discount received column in the cash book, $96, had not been posted
to the ledger.

2

Cash received from a tenant, $340, had been entered in the cash book but had not
been posted to the rent received account.

3

Stationery returned to the supplier, $24, had been correctly entered in the supplier’s
account but had been entered in the purchases returns journal.

4

The balance of the petty cash book, $100, had not been included in the trial balance.

5

The total of the sales journal had been overcast by $1000.

For
Examiner's
Use

REQUIRED
(a) Prepare the entries in Bethany Searle’s journal to correct the above errors.
Narratives are not required.
The first one has been completed as an example.
Bethany Searle
Journal
Debit
$
1

Suspense

Credit
$

96

Discount received

96

2

3

4

5

[8]

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Before the errors were discovered Bethany Searle calculated that she had made a profit for
the year ended 31 March 2012 of $14 940.
REQUIRED
(b) Prepare a statement to show the effect of correcting errors 1-5 on the original profit for
the year.
If the error does not affect the profit for the year write “No effect”.
The first correction has been completed as an example.
Bethany Searle
Statement of corrected profit for the year ended 31 March 2012
$
14 940

Profit for the year before corrections
Effect on profit
Increase
Decrease
$
$
96

Error 1
2
3
4
5

Corrected profit for the year
[9]
Bethany Searle provided the following information at 31 March 2012.
Trade payables
Trade receivables
Bank overdraft
Cash
Inventory

$
21 570
19 540
2 880
100
14 210

REQUIRED
(c) Calculate the quick ratio. The calculation should be correct to two decimal places.
Show your workings.

[2]

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(d) Explain the importance of the quick ratio to Bethany Searle.

For
Examiner's
Use

[2]

(e) Explain why the quick ratio is more reliable as an indicator of liquidity than the current
ratio.

[2]
[Total: 23]

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