Accounting (0452) · Oct/Nov 2011 · Question paper 23

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UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
International General Certificate of Secondary Education

*0620144673*

0452/23

ACCOUNTING

October/November 2011

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 18 printed pages and 2 blank pages.
IB11 11_0452_23/6RP
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1

Mai Wang is a sole trader who keeps a full set of double entry records including a three
column cash book.
On 1 July 2011 Mai Wang had $250 cash in hand and a bank overdraft of $4500.
Mai Wang’s transactions for the month of July 2011 included the following:
July 2
9

Cash sales, $342, of which $300 was paid into the bank on that date
Received a cheque from Mark Fu in settlement of his account of $150 less
2% cash discount

15

Withdrew $500 from the bank for personal use

23

Paid Sally Tan $468 by cheque after deducting cash discount of 2½% cash
discount

29

A cheque received in June for $330 from Mulyani Ltd was dishonoured and
returned by the bank

30

Paid all the remaining cash into the bank except $100

REQUIRED
(a) Enter the above transactions in Mai Wang’s cash book on the page opposite.
Balance the cash book at 31 July and bring down the balances on 1 August 2011.
[10]
The cash book is printed on the next page.

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For
Examiner's
Use

Date

Details

Discount
Allowed
$

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Bank
$

Cash
$

Date

Cash Book

Mai Wang

Details

Discount
Received
$
$

Cash

$

Bank

3

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0452/23/O/N/11

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Mai Wang’s bank statement showed a debit balance of $4873 on 31 July 2011.

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Examiner's
Use

REQUIRED
(b) State the bank balance that should be shown in the balance sheet of Mai Wang at
31 July 2011. State whether it is an asset or a liability.

[2]

(c) Explain the meaning of each of the following terms.
(i) Bank reconciliation statement

[2]
(ii) Cheques not yet credited

[2]
(iii) Cheques not yet presented.

[2]
[Total: 18]

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BLANK PAGE

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Question 2 is on the next page

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2

The financial year of Kapiti Ltd ends on 31 August.

For
Examiner's
Use

The following information is available.
Issue share capital
1 September 2010

Retained profit
General reserve

80 000 5% preference shares of $1 each
400 000 ordinary shares of $0.50 each
$
90 000
88 000

During the year ended 31 August 2011 the company paid an interim dividend of $0.05 per
share on the ordinary shares.
On 31 August 2011 it was decided to:
1
2
3

Pay the preference share dividend in full.
Transfer $25 000 to a general reserve.
Pay a final dividend of $0.10 per share on the ordinary shares.

The profit for the year ended 31 August 2011 before the preference share dividend
was $174 000.
REQUIRED
(a) Calculate the profit for the year ended 31 August 2011 after taking into account the
preference share dividend.
Show your workings.

[3]
(b) Prepare the profit and loss appropriation account of Kapiti Ltd for the year ended
31 August 2011
Start with the profit for the year after the preference share dividend you calculated in (a)

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Kapiti Ltd
Profit and Loss Appropriation Account for the year ended 31 August 2011

For
Examiner's
Use

[9]
(c) State the amount that would be shown for each of the following in the balance sheet of
Kapiti Ltd at 31 August 2011.
(i) General reserve

$

(ii) Retained profit

$

[2]

(d) Explain whether the interim ordinary share dividend would appear in the balance sheet
of Kapiti Ltd on 31 August 2011.

[3]

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(e) Explain the meaning of the term “limited liability”.

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Examiner's
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[2]

Kapiti Ltd requires extra finance. It is considering increasing the total preference share
capital to $100 000 by the issue of additional 5% preference shares of $1 each.
REQUIRED
(f) (i) State two features of preference shares.
1

2
[4]
(ii) State how much money the company could raise from the issue of preference
shares.
[1]

(iii) State the amount of additional preference dividend which would have to be paid
each year if the extra shares are issued.
[1]
(iv) State one way in which the issue of preference shares may affect the existing
ordinary shareholders.

[2]
[Total: 27]

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3

Ajit Singh is a trader. He maintains a full set of books of prime (original) entry and prepares
a sales ledger control account and a purchases ledger control account at the end of each
month.

For
Examiner's
Use

REQUIRED
(a) State two advantages of preparing control accounts.
(i)

(ii)
[2]

(b) State one reason why it is possible to have a credit balance brought down on a sales
ledger control account.

[1]

Ajit Singh provided the following information for the month of October 2011.
October

1 Debit balances in sales ledger

October 31 Totals for the month
Credit sales
Cash sales
Cheques received from credit customers
Cheques paid to credit suppliers
Discounts allowed
Discounts received
Returns by credit customers
Returns to credit suppliers
Bad debts written off
Provision for doubtful debts
Interest charged by credit supplier on overdue account
Interest charged to credit customer on overdue account
Contra entry
November 1 Debit balances in sales ledger
Credit balances in sales ledger

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$
15 940
14 820
5 630
15 252
17 670
355
298
1 280
996
105
680
15
10
485
?
100

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REQUIRED
(c) Select the relevant figures and prepare Ajit Singh’s sales ledger control account for the
month of October 2011.
Where a traditional “T” account is used it should be balanced and the balances brought
down on 1 November 2011.
Where a three column running balance account is used the balance column should be
up-dated after each entry.
Ajit Singh
Sales ledger control account

[12]

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Ajit Singh’s financial year ended on 31 October 2011. His sales for the year were as
follows.

For
Examiner's
Use

$
165 900
71 000

Credit sales
Cash sales

Ajit Singh allows his credit customers one month in which to pay their accounts.
REQUIRED
(d) Using the debit balance on 1 November on the sales ledger control account you
prepared in (c) and the above information, calculate the collection period for trade
receivables. Your answer should be rounded up to the next whole day.
Show your workings.

[2]

(e) State and explain whether you think that Ajit Singh will regard the collection period for
trade receivables as satisfactory.
Will he be satisfied?
Explanation

[3]

(f) State one possible advantage to Ajit Singh of being able to collect the trade
receivables before the due date.

[1]
[Total: 21]

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4

Ahmed El Din is a manufacturer of men’s suits. He purchases fabric from several suppliers
which his workforce makes into suits for sale to wholesalers and large retailers.
Ahmed El Din’s financial year ends on 30 September.
He provided the following information.

Inventory – raw materials
finished goods
Work in progress
Direct factory wages accrued
Factory general expenses prepaid

At 1 October 2010
$
17 300
29 300
9 200
2 300
-

At 30 September 2011
$
19 400
31 200
10 400
2 750
250

For the year ended 30 September 2011
$
858 000
203 300
199 500
42 600
122 400

Revenue
Raw materials purchased
Direct factory wages
Indirect factory wages
Factory general expenses
Additional information on 30 September 2011:
1

On 1 October 2010 the factory machinery was valued at $132 500.
Additional machinery costing $5900 was purchased during the year.
There were no sales of machinery during the year.
On 30 September 2011 the factory machinery was valued at $124 000.

2

Inventories are valued at the lower of cost and net realisable value.

3

During the year ended 30 September 2011 Ahmed El Din took finished goods
costing $900 for his own use. No entries have been made in the accounting
records.

REQUIRED
(a) Prepare the manufacturing account of Ahmed El Din for the year ended
30 September 2011.

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Ahmed El Din
Manufacturing Account for the year ended 30 September 2011

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Examiner's
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[14]

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(b) Prepare the income statement of Ahmed El Din showing the calculation of his gross
profit for the year ended 30 September 2011.
Ahmed El Din
Income Statement for the year ended 30 September 2011

[6]

(c) Explain how the prudence principle has been applied in the preparation of the
manufacturing account. Give an example to illustrate your answer.

[2]

(d) Explain how the accruals (matching) principle has been applied in the preparation of
the manufacturing account. Give an example to illustrate your answer.

[2]

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(e) Explain how the business entity principle has been applied in the preparation of the
income statement. Give an example to illustrate your answer.

For
Examiner's
Use

[2]
[Total: 26]

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5

Susan Morgan is a trader. Her financial year ends on 31 July. She provided the following
information:
ratio

Year ended 31 July 2010 Year ended 31 July 2011

percentage of gross profit to sales

21%

25%

percentage of net profit to sales

10%

11%

REQUIRED
(a) Suggest two reasons for the increase in the percentage of gross profit to sales.
(i)

(ii)
[2]

(b) Suggest two reasons for the increase in the percentage of net profit to sales.
(i)

(ii)
[2]

(c) Using the information in the table above, calculate the percentage of expenses to sales
for each year. Show your workings.
(i) Year ended 31 July 2010

[1]
(ii) Year ended 31 July 2011

[1]

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(d) Explain how the change in the percentage of expenses to sales has affected the
efficiency of the business.

For
Examiner's
Use

[3]
Susan Morgan provided the following information at 31 July 2011.
Inventory
Trade payables
Trade receivables
Petty cash
Balance at bank

$
4500
5600
3800
50
1000

REQUIRED
(e) Calculate Susan Morgan’s current ratio. The calculation should be correct to two
decimal places.
Show your workings.

[2]

(f) Calculate Susan Morgan’s quick ratio. The calculation should be correct to two decimal
places.
Show your workings.

[2]

(g) Susan Morgan’s quick ratio at 31 July 2010 was 1.05:1.
State and explain whether you think that Susan Morgan will be satisfied with the
change in the quick ratio.
Will she be satisfied?
Explanation

[3]
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(h) Explain why it is important for Susan Morgan to have an adequate amount of working
capital.

[2]
(i) State and explain the effect of each of the following transactions on Susan Morgan’s
working capital.
The first one has been completed as an example.
(i) Susan Morgan paid $10 000 additional capital into the business bank account.
Effect

Working capital increases by $10 000

Explanation The current assets increase by $10 000 as the bank balance
increases. There is no change in the current liabilities.
(ii) Payment of $20 from petty cash for office expenses.
Effect
Explanation

[2]
(iii) Payment of $240 by cheque to Jones, a creditor, in full settlement of $250 owing.
Effect
Explanation

[2]
(iv) Receipt of $230 in cash from the sale of goods (cost price $270).
Effect
Explanation

[2]

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(j) State one reason why each of the following business people are interested in Susan
Morgan’s financial statements.

For
Examiner's
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(i) Bank manager

(ii) Employee

(iii) Supplier of goods on credit

(iv) Potential purchaser of the business.

[4]
[Total: 28]

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