Accounting (0452) · May/June 2016 · Question paper 21

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Cambridge International Examinations
Cambridge International General Certificate of Secondary Education

* 1 8 9 2 4 7 4 3 6 2 *

0452/21

ACCOUNTING
Paper 2

May/June 2016
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.
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Answer all questions.
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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 17 printed pages and 3 blank pages.
DC (LEG) 112122/5
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1

Katie is a trader. She maintains a full set of accounting records. Her financial year ends on 30 April.
Katie’s transactions for the year ended 30 April 2016 included the following.
2015
May 12

Paid cash for stationery

June 16

Received commission by cheque

July

Paid A1 Stationers, by cheque, the balance due on 1 May

9

$
95
1680

Sept 10

Received commission by cheque

Nov 30

Purchased stationery on credit from A1 Stationers

Dec

Returned damaged stationery to A1 Stationers

6

1710
217
53

On 30 April 2016
Inventory of stationery
Commission receivable outstanding

196
1590

REQUIRED
(a) Enter the transactions in the following accounts in the ledger of Katie for the year ended
30 April 2016.
Make the transfers to the income statement. Balance the accounts and bring down the
balances on 1 May 2016.
Katie
Stationery account

© UCLES 2016

Date
2015
May 1

Details

$

Date

Details

$

182

Balance

b/d

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A1 Stationers account
Date

Details

$

Date
2015
May 1

Balance

Details

$

b/d

114

Commission receivable account
Date
2015
May 1

Balance

Details

$

Date

Details

$

1680

b/d

[14]
(b) Name the ledger in which the commission receivable account would appear.
[1]
(c) Name the section of the statement of financial position on 30 April 2016 in which the balance
on the commission receivable account would appear. Give a reason for your answer.
Section of statement of financial position
Reason

[2]
[Total: 17]

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2

Sue is a trader. Her financial year ends on 31 December.
She provided the following information about her inventory for the financial year ended
31 December 2014.
Cost

Inventory 1 January
Inventory 31 December

$
6800
8200

Net realisable
value
$
7100
7800

REQUIRED
(a) Define the following terms.
(i)

cost

(ii)

net realisable value

[2]

(b) Explain why the inventory at 31 December 2014 was included in the financial statements at
net realisable value rather than cost.

[2]
After the preparation of the income statement for the year ended 31 December 2014 it was
discovered that the inventory on 1 January had been included at net realisable value.
REQUIRED
(c) Complete the following table to indicate the effect of this error on the cost of sales and the
profit for the year ended 31 December 2014.
Place a tick (✓) under the correct heading to indicate whether each item would be overstated
or understated.
overstated

understated

cost of sales
profit for the year
[2]

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Sue provided the following information for the year ended 31 December 2015.
$
49 900
7 500

Cost of sales
Average inventory
REQUIRED
(d) (i)

State the formula for the calculation of the rate of inventory turnover.

[1]

(ii)

Calculate the rate of inventory turnover for the year ended 31 December 2015.
The calculation should be correct to two decimal places.
Show your workings.

[2]

Sue’s rate of inventory turnover for the previous year was 8.15 times.
REQUIRED
(e) State whether you consider that Sue would be satisfied with the change in the rate of inventory
turnover. Give a reason for your answer.
Satisfied?
Reason
[2]
(f)

Suggest one way in which the rate of inventory turnover could be improved.

[1]

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Sue’s cash book for the month of April 2016 was as follows.
Sue
Cash Book
Date
2016
April 1
9
19
28
29

Details
Balance b/d
Bank loan
A Meyer
Sales
Cash

Dis.*
$

Cash
$
120

Bank
$
3000
392

8
1940

2000

Date Details
2016
April 1 Balance b/d
9 J Foy (cheque
dishonoured)
14 K Mzolo
21 Repairs
24 Bank charges
29 Bank

Dis.*
$

Cash
$

Bank
$
3842
116
585

15
58

211
2000

*Dis. stands for Discount
REQUIRED
(g) (i)

State the significance of each of the balances on 1 April 2016.
Balance in cash column

Balance in bank column
[2]

(ii)

Suggest two possible reasons why the cheque from J Foy was dishonoured on 9 April.
1
2 [2]

(iii)

State whether Sue allowed or received the discount on 14 April.
[1]

(iv)

Calculate the percentage the discount on 14 April represents correct to two decimal
places.

[1]

(v)

Explain the entries on 29 April.

[2]

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(vi)

State whether the total of the discount column on the debit side of the cash book is
debited or credited to the discount account on 30 April.
[1]

(vii)

Calculate the balances which would appear in the cash book on 1 May 2016. State
whether they would be debit or credit balances.
Balance in cash column on 1 May

$

Type of balance

(debit or credit)

Balance in bank column on 1 May

$

Type of balance

(debit or credit)
[2]
[Total: 23]

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3

The financial year of the Hillcrest Athletics Club ends on 30 April.
In addition to providing training facilities for members, the club also runs a café for members and
visitors.
The treasurer provided the following information.

Subscriptions prepaid
Subscriptions accrued
Rent, rates and insurance prepaid
Café inventory
Café suppliers

At 1 May 2015
$
1045
760
155
790
1292

At 30 April 2016
$
285
180
850
1137

During the year ended 30 April 2016:
Amounts received
Subscriptions
Café sales
Proceeds of sale of old
equipment

$
16 910
10 430
1 059

Amounts paid
Café suppliers
Rent, rates and insurance
New equipment
General expenses

$
7 998
4 860
16 300
14 794

During the year, all the equipment was sold and was replaced by new equipment. At the date of
sale, the net book value of equipment was $956.
Equipment is depreciated by 15% per annum on the cost of equipment held at the end of each
year. No deprecation is charged in the year of disposal.
REQUIRED
(a) Prepare the income statement for the café for the year ended 30 April 2016.
Hillcrest Athletics Club
Café Income Statement for the year ended 30 April 2016
$

$

[7]

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(b) Calculate the subscriptions for the year ended 30 April 2016.

[5]
(c) Prepare the income and expenditure account for the year ended 30 April 2016.
Hillcrest Athletics Club
Income and Expenditure Account for the year ended 30 April 2016
$

$

[9]
[Total: 21]

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4

At the end of the financial year on 29 February 2016 Nyeko Limited provided the following
information.
On 28 February 2015:

$

4% Debentures

80 000

Equity and reserves
Ordinary shares of $1 each
General reserve
Retained earnings

200 000
34 000
8 000
242 000

During the year ended 29 February 2016:
2015
March 1

Issue of ordinary shares of $1 each

May 1

November 1

2016
February 29

$
50 000

Payment of final dividend on ordinary shares
for the financial year ended 28 February 2015

8 000

Payment of interim dividend on ordinary shares
for the financial year ended 29 February 2016

6 250

Transfer to general reserve

6 000

Proposed final ordinary share dividend for the
financial year ended 29 February 2016

5 000

For the year ended 29 February 2016:
Revenue
Profit for the year before debenture interest

$
180 200
19 360

REQUIRED
(a) Calculate the profit for the year ended 29 February 2016 after debenture interest.

[2]
(b) (i)

Calculate the percentage (%) final ordinary share dividend for the year ended
28 February 2015. Show your workings.

[1]

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(ii)

Calculate the percentage (%) total ordinary share dividend for the year ended
29 February 2016. Show your workings.

[3]

(c) Prepare the statement of changes in equity for the year ended 29 February 2016.
Nyeko Limited
Statement of Changes in Equity for the year ended 29 February 2016
Ordinary
share
capital
$

General
reserve

Retained
earnings

Total

$

$

$

[7]
(d) (i)

Calculate the profit for the year after debenture interest as a percentage of revenue.
The calculation should be to two decimal places. Show your workings.

[2]

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(ii)

Suggest two ways in which the profit for the year as a percentage of revenue could be
improved.
1

2
[2]

(e) (i)

Calculate the profit for the year ended 29 February 2016 after debenture interest as a
percentage of equity and reserves on 28 February 2015.
The calculation should be to two decimal places. Show your workings.

[2]

(ii)

Suggest two ways in which the profit for the year as a percentage of equity and reserves
could be improved.
1

2
[2]

The directors of Nyeko Limited wish to raise additional funds to finance a programme of expansion.
They are considering raising $60 000 by an issue of 5% preference shares of $1 each.
REQUIRED
(f)

State two ways in which the ordinary shareholders may be affected if Nyeko Limited raised
the additional funds by the issue of preference shares.
1

2
[2]
[Total: 23]

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Question 5 is on the next page.

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5

Samar is a trader. His financial year ends on 30 April. He maintains a provision for doubtful debts
of 2½% of the trade receivables at the end of each year.
On 1 May 2015 Samar’s provision for doubtful debts amounted to $474. On 30 April 2016 his
credit customers owed $17 440.
REQUIRED
(a) Prepare the provision for doubtful debts account for the year ended 30 April 2016. Balance
the account and bring down the balance on 1 May 2016.
Samar
Provision for doubtful debts account
Date

Details

$

Date

Details

$

[4]

(b) Prepare an extract from the statement of financial position on 30 April 2016 to show the trade
receivables.
Samar
Extract from Statement of Financial Position at 30 April 2016
Current assets

[2]
(c) State the difference between a bad debt and a provision for doubtful debts.

[2]

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

[2]
(e) State one other accounting principle which Samar is applying by maintaining a provision for
doubtful debts.
[1]
(f)

Suggest two ways in which Samar could reduce the risk of bad debts.
1

2
[2]

On 10 May 2016 Samar received a cheque, $49, from M Khan, whose account had been written
off in 2014.
REQUIRED
(g) Prepare a journal entry to record the recovery of the bad debt.
A narrative is required.
Samar
Journal
Debit
$

Credit
$

[3]
[Total: 16]

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6

Wasim is a trader. His financial year ends on 31 March.
The totals of his trial balance on 31 March 2016 did not agree. The difference was a shortage on
the debit side of $495. This was entered in a suspense account.
The following errors were later discovered.
1

The total of a page of the purchases account, $3842, had been carried forward as $3824.

2

A cheque received from DEC Limited, $150, had been credited to the account of DDE Limited.

3

The balance of the petty cash book, $100, had been omitted from the trial balance.

4

Repairs to motor vehicle, $283, had been debited to the motor vehicles account.

5

Purchase of fixtures, $2200, on credit from Office Supplies Company, had been debited to
Office Supplies Company and credited to fixtures account.

6

The total of the discount allowed column in the cash book, $250, had been credited to the
discount received account in the ledger.

7

The total of the analysis column for stationery in the petty cash book, $67, had not been
transferred to the stationery account in the ledger.

REQUIRED
(a) Prepare the suspense account. Start with the balance arising from the difference on the trial
balance. The account should be balanced or totalled as necessary.
Wasim
Suspense account
Date

Details

$

Date

Details

$

[7]

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(b) Prepare journal entries to correct two of the errors which do not require correcting by means
of the suspense account. Narratives are required.
Wasim
Journal
Error
number

Debit
$

Credit
$

[6]

(c) Name the type of error made in Error 2.
[1]
Wasim prepared draft financial statements for the year.
REQUIRED
(d) Complete the following table by placing a tick (✓) in the correct column to indicate whether
the profit for the year would be affected by each of the errors.
The first one has been completed as an example.
error number

affects profit for the
year

1

✓

does not affect the
profit for the year

2
3
4
5
6
7
[6]
[Total: 20]
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