Accounting (0452) · Oct/Nov 2016 · Question paper 23

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Cambridge International Examinations
Cambridge International General Certificate of Secondary Education

* 6 5 1 5 2 4 0 7 8 3 *

0452/23

ACCOUNTING
Paper 2

October/November 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.
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 19 printed pages and 1 blank page.
DC (RCL (JDA)) 116458/3
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1

Jolindi is a trader who maintains a full set of accounting records including a three column cash
book.
Her transactions for September 2016 included the following.
September 5

Cash sales, $515, of which $400 was paid directly into the bank

10

A cheque received in August for $190 from C Barnes was dishonoured

15

Received a cheque from H Magagula to settle her debt of $480, less 2½% cash
discount

21

Paid $324 by cheque, for new office equipment, $280, and repairs to existing
office equipment, $44

28

Paid all the cash into the bank except $50

REQUIRED
(a) Complete Jolindi’s cash book on the page opposite.
Balance the cash book and bring down the balances on 1 October 2016.
[10]

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Balance

b/d

Details

Sept 1

2016

Date

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Discount
allowed
$

193

$

Cash

$

Bank

Sept 1

2016

Date

Jolindi
Cash Book

b/d

Balance

Details

Discount
received
$

$

Cash

1560

$

Bank

3

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4
(b) State why it is not possible for Jolindi to have a credit balance in the cash column of her cash
book.

[1]
Jolindi decided to compare the bank column of her cash book with her bank statement and to
prepare a bank reconciliation statement.
REQUIRED
(c) State two reasons for preparing a bank reconciliation statement.
1

2

[2]
(d) Suggest two items which may appear in the cash book but not on the bank statement.
1

2

[2]

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5
Jolindi believes that her working capital could be improved. She is considering five courses of
action.
REQUIRED
(e) State whether each of the following courses of action would increase, decrease or have no
effect on the working capital. Give a reason for your answer in each case.
The first one has been completed as an example.
Effect on
working
capital
Reduce credit sales
and increase cash
sales

No effect

Reason

Trade receivables decrease and cash
increases so total current assets
is unchanged. No effect on current
liabilities.

Create a provision
for doubtful debts

Take a long-term
bank loan

Take a short-term
bank loan

Pay credit suppliers
early to earn cash
discount

[8]
[Total: 23]
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2

The financial year of Crossroads Limited ends on 31 October.
The partially completed statement of changes in equity for the year ended 31 October 2016 was
as follows:

On 1 November 2015
Share issue
Profit for the year
Final dividend paid (for year
ended 31 October 2015)
Interim dividend paid (for year
ended 31 October 2016)
Transfer to general reserve

Ordinary
share
capital
$

General
reserve

Retained
earnings

Total

$

$

$

350 000
50 000

16 000

46 000
72 000

412 000
50 000
72 000

(17 500)

(17 500)

(10 500)
(15 000)

(10 500)

15 000

On 31 October 2016

The following additional information was also available on 31 October 2016.

Premises at cost
Machinery and equipment at cost
Fixtures and fittings at cost
Provision for depreciation – machinery and equipment
fixtures and fittings
Inventory
Trade receivables
Trade payables
Rates paid in advance
Debenture interest accrued
Wages accrued
Bank
Provision for doubtful debts
4% debentures (repayable 2026)

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$
363 000
185 000
70 000
83 250
24 073
30 853
28 000
31 600
1 340
800
320
11 400 credit
750
20 000

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REQUIRED
(a) Prepare the statement of financial position on 31 October 2016.
Crossroads Limited
Statement of Financial Position at 31 October 2016
$

$

$

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[15]

(b) State the meaning of each of the following terms.
Issued share capital

Called-up share capital

Paid-up share capital

[3]
[Total: 18]

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3

The financial year of Kristy ends on 31 October. She maintains a provision for doubtful debts. The
following account appeared in her ledger.
Provision for doubtful debts account
Date
2016
Oct 31

Details

Income statement
Balance c/d

$

75
450
525

Date
2015
Nov 1

Details

Balance b/d

$

525
___
525

REQUIRED
(a) Explain the following entries in the above account. Name the account in which the double
entry would be made for each item. State whether the account would be debited or credited.
1 November 2015 Balance b/d
Explanation

Double entry
31 October 2016 Income statement
Explanation

Double entry
31 October 2016 Balance c/d
Explanation

Double entry [6]
(b) State the entry for provision for doubtful debts that would appear in the statement of financial
position on 31 October 2016.

[2]
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On 31 October 2016 the following transactions took place.
1

Kristy transferred her personal computer system to the business. When purchased it cost
$1200 and was now valued at $740.

2

An invoice was received from Comp4u for $266, consisting of $40 for repairs to the computer
system and $226 for a new printer.

REQUIRED
(c) Prepare journal entries to record the transactions which took place on 31 October 2016.
Narratives are required.
Kristy
Journal

1

2

Debit
$

Credit
$

[7]

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During the year ended 31 October 2016 the payments made by Kristy included both capital and
revenue expenditure.
REQUIRED
(d) Complete the following table by placing a tick () in the correct column to show whether each
payment is capital expenditure or revenue expenditure.
Capital
expenditure

Revenue
expenditure

Wages paid to employees to
build new office block
Insurance premium for new
office block
Cost of painting new office
block
Cost of moving furniture into
new office block
[4]
On 31 October 2016 it was found that two receipts had been incorrectly classified.
REQUIRED
(e) Complete the following table by placing a tick () in the correct column to indicate the effect
of each error on the profit for the year.
Effect of error on profit
overstated

understated

Proceeds of sale of old fixtures (at book
value) included in income statement
Interest received on loan to employee
recorded as part repayment of loan
[2]
[Total: 21]

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4

Hamza is a trader who does not maintain a full set of accounting records. His financial year ends
on 31 August.
In December 2015 it was discovered that some errors had been made in the financial statements
for the year ended 31 August 2015.
REQUIRED
(a) Complete the following table to indicate the effect of correcting each error on the profit for
the year.
The first one has been completed as an example.
Effect on profit of correcting error
increase
$
Purchases returns, $2000, had not
been recorded.

decrease
$

2000

Wages owing at 31 August 2015, $450,
were not recorded.
Discount allowed, $115, had been
recorded as discount received.
The provision for doubtful debts, $950,
should have been adjusted to 2½% of
trade receivables, who owed $36 000.
Inventory at 1 September 2014 had
been valued at net realisable value,
$16 700, instead of at cost, $15 300.
[8]
Hamza had no record of the purchases for the year ended 31 August 2016, but the following
information was available.
$
14 100
13 700
385 500
7 500
2 100
3 910
21 500
5 320
5 660

Inventory 1 September 2015
Inventory 31 August 2016
Revenue
Returns from customers
Carriage inwards
General expenses
Wages and salaries
Rates and insurance
Depreciation of non-current assets
Mark-up on cost

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REQUIRED
(b) Prepare the income statement for the year ended 31 August 2016 showing the purchases for
the year.
Hamza
Income Statement for the year ended 31 August 2016
$

$

[14]
[Total: 22]

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5

Tom’s financial year ends on 31 July. He depreciates his non-current assets using the reducing
(diminishing) balance method.
REQUIRED
(a) Name one other method of depreciation which Tom could apply.
[1]
(b) Explain how providing for depreciation of non-current assets is an application of the principle
of accruals (matching).

[2]
(c) Name one other accounting principle which is applied when providing for depreciation of
non-current assets.
[1]
Tom depreciates his machinery using the reducing (diminishing) balance method at 20% per
annum on all machinery held at the end of the year. No depreciation is charged in the year of
disposal.
On 1 August 2014 he owned one machine (Machine A) which had cost $3000, and which had
been depreciated by $600.
On 1 January 2015 Tom purchased another machine (Machine B) for $3500, paying by cheque.
REQUIRED
(d) (i)

Calculate the depreciation of Machine A for each of the years ended 31 July 2015 and
31 July 2016.

[2]

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(ii)

Calculate the depreciation of Machine B for each of the years ended 31 July 2015 and
31 July 2016.

[2]

(e) Prepare the following accounts in the ledger of Tom.
(i)

Machinery account
Balance the account on 31 July 2015 and bring down the balance on 1 August 2015.
Tom
Machinery account

Date
2014
Aug 1

Details
Balance (A)

b/d

$

Date

Details

$

3000

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(ii)

Provision for depreciation of machinery account
Balance the account at the end of each year and bring down the balance on
1 August 2015 and 1 August 2016.
Tom
Provision for depreciation of machinery account
Date

Details

$

Date

2014
Aug 1

Details

Balance

$

b/d

600

[7]
On 1 October 2016 Tom sold Machine A for $1640.
REQUIRED
(f)

Calculate the profit or loss on the disposal of Machine A.

[4]
[Total: 19]

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6

Joey is a trader. His financial year ends on 30 September. He provided the following information
for the year ended 30 September 2016.
$
290 000
224 025
38 860

Revenue
Cost of sales
Expenses

Joey obtained the trading results of DT Traders, another business in the same town, and decided
to compare the profitability of the two businesses.
REQUIRED
(a) Complete the following table to show the ratios for Joey’s business.
The calculations should be to two decimal places.
Ratio
Percentage of gross profit to revenue
(gross profit margin)
Percentage of profit for the year to revenue
(net profit margin)

Joey

DT Traders

%

18.50%

%

10.25%

You may use the space below for your workings.

[4]

Workings

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(b) Suggest two reasons for the difference in the percentage of gross profit to revenue (gross
profit margin).
1

2

[2]
(c) Suggest two reasons for the difference in the percentage of profit for the year to revenue (net
profit margin).
1

2

[2]
(d) State which business had better control on its expenses.
[1]
Joey is hoping to increase the percentage of profit for the year to revenue (net profit margin) in the
following financial year. He is considering four courses of action.
REQUIRED
(e) Complete the following table by placing a tick () in the correct column to show how each
course of action would affect Joey’s percentage of profit for the year to revenue (net profit
margin).
increase

decrease

no effect

Buy in bulk from suppliers to obtain
trade discount
Offer cash discount to encourage
credit customers to pay early
Pay employees monthly instead of
weekly
Write off damaged inventory at the
year end
[4]

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(f)

State how each of the following may be regarded as a limitation of financial statements.
Historical cost

Non-financial factors

[4]
[Total: 17]

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