Accounting (0452) · May/June 2018 · Question paper 23

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Cambridge International Examinations
Cambridge International General Certificate of Secondary Education

* 9 6 2 8 0 4 5 4 7 4 *

0452/23

ACCOUNTING

May/June 2018

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 (NF) 162023
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J Smith is a wholesaler. He provided the following incomplete document on 28 February 2018.
J Smith
Wholesale Supplier
112 Long Road
Westown
W Jones
High Street
Eastford
Date
2018
Feb

1
11
19
28

28 February 2018
Reference

Debit
$

Balance due
Goods
Returns
Payment
Discount

450

Credit
$

Balance
$

115
686
14

700
?
?
?
?

REQUIRED
(a) (i)

State the name of the document.
[1]

(ii)

Calculate the balance on the document at the end of February 2018.

[1]

(iii)

Calculate the percentage of the discount on 28 February.

[1]

(iv)

Name the type of discount on 28 February.
[1]

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(b) Complete the following table by placing a tick (3) in the correct column to indicate how
J Smith would record the issue of this document in his accounting records.
debit entry in ledger
account of W Jones

credit entry in ledger
account of W Jones

no entry would be made

[1]
(c) Complete the following table relating to the transaction of 11 February.
entries made by W Jones

document issued

name of person
issuing document

account debited

account credited

[4]

(d) Name the book of prime (original) entry in which each trader would record the transaction of
19 February.
book of prime (original) entry used by
J Smith

book of prime (original) entry used by
W Jones

[2]

The financial year of J Smith ends on 30 April. During the year ended 30 April 2018 he recorded a
bad debt and a bad debt recovered.
REQUIRED
(e) State the meaning of each of the following terms.
(i)

Bad debt

[1]

(ii)

Bad debt recovered

[1]

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(f)

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

2
[2]

J Smith maintains a provision for doubtful debts at the same percentage of the trade receivables
at the end of each year.
REQUIRED
(g) Explain how maintaining a provision for doubtful debts is an application of the principle of
prudence.

[2]
(h) Explain how maintaining a provision for doubtful debts is an application of the principle of
accruals (matching).

[2]
J Smith provided the following information.
30 April 2017 Trade receivables
Provision for doubtful debts

$
18 400
460

30 April 2018 Trade receivables

17 600

REQUIRED
(i)

Calculate the rate of the provision for doubtful debts as a percentage.

[1]

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(j)

Prepare the provision for doubtful debts account for the year ended 30 April 2018. Balance
the account and bring down the balance on 1 May 2018.
J Smith
Provision for doubtful debts account
Date

Details

$

Date

Details

$

[5]
[Total: 25]

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Sophia is a food wholesaler. Her receipts and payments during the financial year ended
31 March 2018 included both capital and revenue items.
REQUIRED
(a) State the meaning of each of the following terms and give an example of each.
Capital expenditure
Meaning

Example
Capital receipt
Meaning

Example
Revenue expenditure
Meaning

Example
Revenue receipt
Meaning

Example [8]

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After calculating her profit for the year ended 31 March 2018, Sophia discovered some errors had
been made in her accounting records.
Error 1

Rent received from a tenant had been credited to the premises account.

Error 2

Legal costs on the purchase of a new warehouse had been debited to the general
expenses account.

Error 3

Roof repairs to the existing warehouse had been debited to the premises account.

Error 4

Capital introduced had been included in the cash sales.

REQUIRED
(b) Complete the following table by placing a tick (3) in the correct column to indicate the effect
of each of the errors.
The first one has been completed as an example.
error
error 1

effect on profit for the year
overstated

understated

effect on closing capital
overstated

3

understated

no effect

3

error 2
error 3
error 4
[6]

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Sophia maintains a full set of books of prime (original) entry including a three column cash book.
REQUIRED
(c) Explain why Sophia’s cash book is both a book of prime (original) entry and also part of the
ledger.

[2]
The bank columns of Sophia’s cash book for the month of April 2018 were as follows.
Cash book (bank columns only)
Date
2018
April 1
8
28
30

Details
Balance b/d
Goodfoods
CD Limited
Sales

$
950
140
280
311

Date
2018
April 2
15
21
29

Details
Petty cash
Expenses
Lowlands Farm
FF Limited

Cheque
number
000198
000199
000200
000201

$
106
25
44
90

Sophia’s business bank statement for April 2018 was as follows.
2018
April

1
5
9
12
18
20
27
30

Bank Statement for the month of April 2018
Debit
Credit
$
$
Balance
000198
106
Credit
140
Standing order (insurance)
50
000199
25
Dishonoured cheque (Goodfoods)
140
000200
44
Charges
15
Direct debit (rates)
400

Balance
$
850 Cr
744 Cr
884 Cr
834 Cr
809 Cr
669 Cr
625 Cr
610 Cr
210 Cr

The following errors were discovered.
1

Sophia had brought down the cash book balance on 1 April 2018 incorrectly. It should have
been $850.

2

The bank had incorrectly entered a standing order for insurance in Sophia’s business bank
account instead of her personal bank account.

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REQUIRED
(d) Select the items required to update Sophia’s cash book on 30 April 2018 and write these
items in the table.
Indicate how each item would be entered in the cash book.
The first one has been completed as an example.
entry required in cash book
item

debit
$

cash book error

credit
$
100

[3]
Sophia prepared a bank reconciliation statement on 30 April 2018. She started with the credit
balance shown on the bank statement at that date.
REQUIRED
(e) Select the items which would be entered in Sophia’s bank reconciliation statement on
30 April 2018 and write these items in the table.
Place a tick (3) in the correct column to indicate how each item would be recorded in the
bank reconciliation statement.
entry in bank reconciliation statement
item

added to bank
statement balance

deducted from
bank statement
balance

[4]
[Total: 23]
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Jamil started a business on 1 January 2014. He considered using the straight line (equal
instalment) method to depreciate all his non-current assets.
REQUIRED
(a) Name one other method Jamil could use to depreciate his non-current assets.
[1]
(b) Suggest two reasons why the straight line (equal instalment) method would not be a suitable
method of depreciation to apply to the hand tools used in Jamil’s factory.
1

2
[2]
Jamil decided to depreciate his office machinery at 20% per annum using the straight line (equal
instalment) method calculated on a month-by-month basis from the date of purchase to the date
of disposal.
He provided the following information.
2014

January 1

Purchased office machine A, $15 000, paying by cheque.

2016

October 1

Purchased office machine B, $18 000, paying by cheque.

2017

July 1

Purchased office machine C, $20 000, on credit from XY Limited.
XY Limited agreed to accept office machine A in part exchange at a
valuation of $6000.

REQUIRED
(c) Calculate the depreciation on office machinery for the year ended 31 December 2016.
Show your calculations and insert your answers in the spaces provided.
Calculation of depreciation for the year ended 31 December 2016
depreciation on office
machine A

depreciation on office
machine B

calculation

calculation

answer $

answer $

total

$
[2]

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(d) Calculate the depreciation on office machinery for the year ended 31 December 2017.
Show your calculations and insert your answers in the spaces provided.
Calculation of depreciation for the year ended 31 December 2017
depreciation on office
machine A

depreciation on office
machine B

depreciation on office
machine C

calculation

calculation

calculation

answer $

answer $

answer $

total

$
[3]

(e) Prepare the following accounts in the ledger of Jamil for each of the two years ended
31 December 2016 and 31 December 2017.
Balance the accounts and bring down the balances on 1 January 2017 and 1 January 2018.
Jamil
Office machinery account
Date
2016
Jan 1

Balance A b/d

Details

$

Date

Details

$

15 000

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Provision for depreciation of office machinery account
Date

Details

$

Date
2016
Jan 1

Balance A b/d

Details

$
6 000

[11]
(f)

Calculate the profit or loss on the disposal of office machine A.

[4]
[Total: 23]

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The financial year of AB Limited ends on 31 March. The income statement for the year ended
31 March 2018 showed a profit for the year of $35 000.
REQUIRED
(a) Complete the following statement of changes in equity for the year ended 31 March 2018,
which has been partially prepared by the accountant.
AB Limited
Statement of Changes in Equity for the year ended 31 March 2018
Ordinary General Retained
share
reserve earnings
capital
$
$
$
On 1 April 2017

200 000

14 000

6 000

Total
$
220 000

Profit for the year

35 000

Final dividend paid (for year ended 31 March 2017)

(10 000)

Interim dividend paid (for year ended 31 March 2018)

(4 000)

Transfer to general reserve

At 31 March 2018

2 000

[6]
The following additional information was available on 31 March 2018.
4% Debentures (repayable 1 April 2022)
Premises at cost
Machinery at cost
Office equipment at cost
Provision for depreciation of machinery
Provision for depreciation of office equipment
Trade receivables
Trade payables
Other receivables
Other payables
Petty cash
Bank
Inventory
Provision for doubtful debts
Bank loan (repayable 1 January 2019)

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$
30 000
195 000
98 000
39 500
35 280
15 800
9 900
10 020
568
950
200
2 040 credit
12 120
198
20 000

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REQUIRED
(b) Prepare the statement of financial position at 31 March 2018.
AB Limited
Statement of Financial Position at 31 March 2018
$

$

$

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$

$

$

[14]
The directors of AB Limited want to raise $100 000 in order to expand the business. After the first
two years this should increase the annual profit before interest by $25 000.
It is proposed to raise the funds by either issuing more debentures or more ordinary shares.
REQUIRED
(c) Suggest two disadvantages to the existing ordinary shareholders if the funds are raised by
the issue of debentures.
1

2

[2]
(d) Suggest two disadvantages to the existing ordinary shareholders if the funds are raised by
the issue of additional ordinary shares.
1

2

[2]
[Total: 24]
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5

Aretta opened a clothes store on 1 April 2018.
She invested $12 800 as capital. Her father gave her a loan of $7200, repayable on 1 October 2018.
Interest of 5% per annum was to be paid on the loan at the end of each month.
The credit side of Aretta’s cash book for April 2018 was as follows.
April 1

$
9 500
15 000
2 400
3 600

Shop fixtures and fittings
Credit suppliers
Rent of premises for 6 months
Insurance for 12 months

April 30 Operating expenses
Wages
Drawings

980
1 900
1 500

Additional information
1

All purchases were made on credit terms and all sales were made for cash.

2

Aretta’s gross profit margin was 25%.

3

No record was made of cash sales.

4

Aretta decided to depreciate the shop fixtures and fittings at 12% per annum using the
straight line (equal instalment) method.

5

On 30 April 2018 inventory was valued at $4080 and $810 was owed to credit suppliers.

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REQUIRED
(a) Prepare Aretta’s income statement for the month ended 30 April 2018 to show the revenue,
gross profit and profit for the month.
Aretta
Income Statement for the month ended 30 April 2018
$

$

[12]

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On 30 April 2018 Aretta was concerned that her quick (acid test) ratio was very low. She considered
six proposals to improve the ratio.
REQUIRED
(b) State the formula for the calculation of the quick (acid test) ratio.

[1]
(c) Complete the following table by placing a tick (3) in the correct column to indicate the effect
of each proposal on Aretta’s quick (acid test) ratio.
The first one has been completed as an example.
effect on quick ratio

proposal

increase

1

purchase a motor vehicle on credit

2

pay credit suppliers early to receive cash
discount

3

obtain a bank overdraft and repay the loan
immediately

4

arrange for the loan to be extended to 2 years

5

sell on credit terms rather than on cash terms

6

reduce inventory by selling half at cost price

decrease

no effect

3

[5]
(d) State which proposal would affect the quick (acid test) ratio but not affect the current ratio.
Explain the reason for your answer.
Proposal number
Reason

[3]

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Aretta decided to compare her business performance with that of another clothes store in the
same town.
REQUIRED
(e) Explain two factors Aretta should consider when comparing her business performance with
that of the other business.
1

2

[4]
[Total: 25]

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