0452/22/O/N/18 Question Paper – Accounting Oct/Nov 2018 Paper 22

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Cambridge Accounting (0452) question paper for paper 22, Oct/Nov 2018 — 0452/22/O/N/18, file 0452_w18_qp_22.pdf.

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Cambridge International Examinations
Cambridge International General Certificate of Secondary Education

* 0 9 6 3 2 2 4 4 3 5 *

0452/22

ACCOUNTING

October/November 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 (RCL (GO)) 156839/3
© UCLES 2018

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2
1

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Rajinder owns an engineering business. His financial year ends on 31 July.
His cash book for July 2018 was as follows.
Rajinder
Cash Book
Date
2018
July 1
3
15

Details

Balance b/d
W Limited
Sale of old
machinery
22 Cash
29 Sales

* Dis. stands for discount

Dis.* Cash Bank Date
$
$
$
2018
113
July 1
18
582
2
7
500
450
18
220
880
22
27

Details
Balance b/d
Petty cash
Ayesha (cheque
dishonoured)
Machinery
Bank
AM Limited

Dis.* Cash Bank
$
$
$
4074
193

450

1133
1420
1312

REQUIRED
(a) ii(i) State the significance of the balance shown on the credit side of the cash book on 1 July
2018.

[1]
i(ii) State why the entry on 2 July was required.

[1]
(iii) Calculate the percentage that the discount on 3 July represents.

[1]
(iv) Suggest one possible reason why the cheque from Ayesha was dishonoured.

[1]
i(v) Explain the entries on 22 July.

[2]
© UCLES 2018

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3
(vi) State the meaning of the entry on 29 July.

[1]
(b) Calculate the cash and bank balances at the end of July. Name the section of the statement
of financial position in which each balance would appear.
Cash balance $
Section of statement of financial position
Bank balance $
Section of statement of financial position [4]
(c) Complete the following accounts in Rajinder’s ledger.
Close the accounts on 31 July 2018 by balancing or by making a transfer to an appropriate
account.
Some entries have already been made in the accounts during the year.
Rajinder
Sales account
Date

Details

………

Date
2018
June 30

………

Details

Total to date

13 500

………

Details

AM Limited account
Date

Details

………

Date
2018
July 1

………

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Balance

b/d

Purchases

250
440

[5]
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(d) Prepare the discount allowed account for the year ended 31 July 2018.
The total discount allowed up to 30 June 2018 was $178.
Close the account on 31 July 2018 by making a transfer to an appropriate account.
Rajinder
Discount allowed account
Date

Details

Date

Details

………

[3]
[Total: 19]

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5
2

Adil is a wholesaler. All his sales are made on credit terms. His financial year ends on 31 August.
REQUIRED
(a) State the meaning of each of the following terms.
Bad debts

Bad debts recovered

Provision for doubtful debts

[3]
On 31 August 2018 Adil received a cheque for $0.20 in a dollar from Mahinda, a credit customer.
The balance of the account was irrecoverable.
REQUIRED
(b) Record this information in the following accounts in Adil’s ledger.
Close the accounts on 31 August 2018 by balancing or by making a transfer to an appropriate
account.
Some entries have already been made in the accounts during the year.
Adil
Mahinda account
Date
2018
Feb 1

Sales

………

Details

$
600

Date
2018
Feb 10

Sales returns

………

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Details

$
30

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Bad debts account
Date
2018
Aug 30

Total to date

………

Details

Date

Details

710

………

………
[4]

Adil is proposing to stop selling on credit and to sell on cash terms only.
REQUIRED
(c) (i)

State one possible advantage to Adil of going ahead with this proposal.

[1]

(ii) State one possible disadvantage to Adil of going ahead with this proposal.

[1]
(d) Suggest two ways (apart from stopping selling on credit) in which Adil could reduce the risk of
bad debts.
1

2
[2]

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Adil has maintained a provision for doubtful debts for many years. He provided the following
information.
Trade receivables on 31 August 2017
Trade receivables on 31 August 2018 (after writing off Mahinda’s account)

$
44 200
42 000

On 31 August 2018 Adil decided to reduce the rate of the provision for doubtful debts from 3%
to 2½%.
REQUIRED
(e) Prepare the provision for doubtful debts account for the year ended 31 August 2018. Balance
the account and bring down the balance on 1 September 2018.
Adil
Provision for doubtful debts account
Date

Details

Date

Details

………

………
[4]

(f)

Explain how Adil is applying the accruals (matching) principle by maintaining a provision for
doubtful debts.

[2]

(g) Name two other accounting principles which Adil is applying maintaining a provision for
doubtful debts.
1
2 [2]

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On 20 September 2018 Adil received a cheque for $250 from Amaya whose account had been
written off in 2017.
REQUIRED
(h) State how this was recorded in Adil’s books of account.
debit

credit

[2]
(i)

State how this transaction would affect the profit for the year ending 31 August 2019.
[1]
[Total: 22]

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10
3

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Paul and Ann are in partnership. Their financial year ends on 30 September.
When they started the business they drew up a partnership agreement which provided for:
Interest on capital at 4% per annum
Interest on drawings at 5%
An annual salary of $7000 for Paul
Interest on any loans from partners at 6% per annum
Sharing of profits and losses equally
On 1 October 2017 the balances on the partners’ accounts were as follows:

Capital account
Current account
Loan account

Paul
$
50 000
1 150 credit
10 000

Ann
$
85 000
3 125 debit

The interest on loan is credited to Paul’s current account at the end of each financial year.
On 1 April 2018 Paul introduced a motor vehicle, $14 500, into the business. He also deposited
an amount into the business bank account so that his total capital was $80 000.
The partners agreed that Paul’s salary should be increased by $1000 per annum starting on
1 April 2018.
Drawings during the year ended 30 September 2018 were as follows:
Paul
Ann

$
9 000
11 000

On 30 September 2018 Ann transferred $5000 from her capital account to her current
account.
The profit for the year ended 30 September 2018 after loan interest was $11 350.

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REQUIRED
(a) Prepare journal entries to record the following:
1

The introduction of additional capital by Paul on 1 April 2018.

The transfer of $5000 from Ann’s capital account to her current account on 30 September
2018.

Narratives are not required.
Paul and Ann
Journal
Date

Details

Debit
$

Credit
$

[5]

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(b) Prepare the profit and loss appropriation account for the year ended 30 September 2018.
Paul and Ann
Profit and Loss Appropriation Account for the year ended 30 September 2018
$

[8]

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(c) Prepare the current account of Paul for the year ended 30 September 2018. Balance the
account and bring down the balance on 1 October 2018.
Paul
Current account
Date

Details

Date

Details

………

[8]
[Total: 21]

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4

The financial year of LS Limited ends on 30 June.
The following information is available.
$

On 1 July 2017
Issued share capital of ordinary share of $0.50 each
5% Debentures repayable in 2022
Long-term bank loan

150 000
20 000
10 000

The directors of LS Limited are hoping to expand the business and have estimated that $80 000
will be required. They anticipate that the expansion will increase the profits of the company, but
that there will be no significant increase until 2020.
The finance director has proposed raising funds from
either an issue of ordinary shares of $0.50 each
or an issue of 6% preference shares of $1 each
or an issue of 5% debentures repayable in 2024.
REQUIRED
(a) Complete the table to indicate how each value would change if an issue of debentures was
made.
Where the value changes insert the amount in the relevant column.
Where there is no effect, place a tick () in the column headed ‘no effect’.
increase
$

decrease
$

no effect

total of current assets
total profit for the year
total equity
[3]
(b) State two ways in which the existing ordinary shareholders may be affected if an issue of
preference shares is made.
1

[2]

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(c) State two ways in which the existing ordinary shareholders may be affected if an issue of
additional ordinary shares is made.
1

2
[2]
One of the directors has made the following alternative proposals for raising the necessary funds.
Proposal 1 – use the general reserve
Proposal 2 – request a bank overdraft
REQUIRED
(d) State why each of these proposals should not be accepted.
Proposal 1

Proposal 2

[2]
(e) Suggest one method which the directors have not yet considered to raise the funds required
for expansion.
[1]
[Total: 10]

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5

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Mariam is a trader. Her financial year ends on 31 July.
She provided the following information.
$

For the year ended 31 July 2018
Total sales – credit
cash

192 000
28 000
220 000

Total purchases – credit
cash

154 500
20 500
175 000

At 31 July 2018
Inventory
Trade receivables
Cash

14 900
16 200
100

Trade payables
Bank overdraft

16 500
3 700

REQUIRED
(a) Complete the table on the opposite page to show the ratios for the year ended 31 July 2018.
You may use the space below for your workings.
Workings

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Ratio

2018

2017

Current ratio (to two decimal places)

1.95 : 1

Quick (acid test) ratio (to two decimal places)

1.15 : 1

Trade receivables collection period (rounded up to
the next whole day)

27 days

Trade payables payment period (rounded up to
the next whole day)

32 days

[8]
(b) Suggest two reasons for the change in the current ratio.
1
2 [2]
(c) Complete the following table by placing a tick () in the correct column to show how each of
the following courses of action would affect Mariam’s current ratio.
increase

decrease

no effect

introduce $4000 additional capital in order to
pay off the bank overdraft
sell half the inventory at cost price to a cash
purchaser
convert a $10 000 long-term bank loan into a
bank overdraft
increase the bank overdraft by $16 500 in order
to repay the trade payables
[4]

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

[2]
(e) Comment on the change in the quick (acid test) ratio.

[2]
(f)

Comment on the change in the trade receivables collection period.

[2]

(g) (i)

Suggest one advantage to Mariam of the change in the trade payables payment period.

[1]

(ii) Suggest one disadvantage to Mariam of the change in the trade payables payment
period.

[1]
[Total: 22]

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6

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Priti opened a retail food store on 1 October 2017. She did not keep many accounting records.
Priti makes purchases on both cash and credit terms. All sales are made for cash.
The following information is available.
$

On 1 October 2017
Capital introduced into the business bank account

30 000

During the year ended 30 September 2018
Purchase of non-current assets by cheque
Cheques paid to credit suppliers
Discount received
Returns to credit suppliers
Cash paid into bank from shop sales
Withdrawals from bank for cash purchases
Expenses paid

19 400
33 150
850
1670
48 500
4 820
?

On 30 September 2018
Amount owing to credit suppliers
Expenses accrued
Cash at bank

3180
120
16 040

REQUIRED
(a) Calculate the total purchases for the year ended 30 September 2018.

[6]

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(b) Prepare the bank account for the year ended 30 September 2018. Insert the missing figure
which represents the expenses paid during the year.
Priti
Bank account
Date

Details

Date

Details

………

[7]

Priti did not value her inventory on 30 September 2018.
All goods are sold at a gross profit margin of 20%.
Non-current assets are to be depreciated at the rate of 10%.

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REQUIRED
(c) Prepare the income statement for the year ended 30 September 2018. Show the value of the
closing inventory, the gross profit and the profit for the year.
Priti
Income Statement for the year ended 30 September 2018
$

[11]

(d) State the difference between margin and mark-up.

[2]
[Total: 26]

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0452/22/O/N/18

Accounting (0452) · Oct/Nov 2018 · Question paper 22

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