Accounting (0452) · Oct/Nov 2020 · Question paper 23

www.dynamicpapers.com

Cambridge IGCSE™

* 8 9 5 7 0 9 6 0 1 3 *

ACCOUNTING

0452/23

Paper 2 Structured Written Paper

October/November 2020
1 hour 45 minutes

You must answer on the question paper.
No additional materials are needed.
INSTRUCTIONS
●
Answer all questions.
●
Use a black or dark blue pen. You may use an HB pencil for any diagrams or graphs.
●
Write your name, centre number and candidate number in the boxes at the top of the page.
●
Write your answer to each question in the space provided.
●
Do not use an erasable pen or correction fluid.
●
Do not write on any bar codes.
●
You may use a calculator.
●
International accounting terms and formats should be used as appropriate.
●
You should show your workings.

INFORMATION
●
The total mark for this paper is 100.
●
The number of marks for each question or part question is shown in brackets [ ].
●
Where you are asked to complete a layout, you may not need all the lines for your answer.

This document has 20 pages. Blank pages are indicated.
DC (RCL/GO) 186688/3
© UCLES 2020

[Turn over

2
1

www.dynamicpapers.com

Sariah owns a business selling ladies’ clothing. She maintains a system of double entry
bookkeeping.
The following occurred during September 2020.
1

Purchased a motor vehicle on credit from Sharpe Motors $6350.

2

Ruhee, a credit customer, was declared bankrupt owing Sariah $1200. The debt is to be
written off.

REQUIRED
(a) Prepare journal entries to record the above transactions. Narratives are not required.
Sariah
Journal
Details

Debit
$

Credit
$

[4]

Sariah is preparing her financial statements for the year ended 30 September 2020. She provides
the following information for fixtures and fittings.
2019
October 1
2020
January 31
March 31

Fixtures and fittings at cost
Provision for depreciation of fixtures and fittings
Sold fixtures and received a cheque
The fixtures had been purchased on 1 February 2018 for $1500
Purchased new fixtures paying by cheque

$
28 600
6 185
1 150
3 500

Sariah’s policy is to provide depreciation on fixtures and fittings at 10% per annum using the
reducing balance method. A full year’s depreciation is charged in the year of purchase but none in
the year of disposal.

© UCLES 2020

0452/23/O/N/20

www.dynamicpapers.com

3
REQUIRED

(b) Prepare the following accounts for the year ended 30 September 2020. Close the accounts
by balancing or by making an appropriate year end transfer.
Sariah
Fixtures and fittings account
Date

Details

$

Date

Details

$

Provision for depreciation of fixtures and fittings account
Date

Details

$

Date

Details

$

Disposal account
Date

Details

$

Date

Details

$

[11]

© UCLES 2020

0452/23/O/N/20

[Turn over

4

www.dynamicpapers.com

Sariah is considering forming a partnership with her friend Emy who runs a similar business.
REQUIRED
(c) Advise Sariah whether or not she should form a partnership with Emy. Justify your answer
with two advantages and two disadvantages of forming a partnership with Emy.

[5]
[Total: 20]

© UCLES 2020

0452/23/O/N/20

5

www.dynamicpapers.com

PLEASE TURN OVER

© UCLES 2020

0452/23/O/N/20

[Turn over

6
2

www.dynamicpapers.com

Eniola compared her bank statement for July 2020 with the bank columns of her cash book. She
provided the following information.
Overdrawn balance shown in the cash book at 31 July 2020
Direct debit payment dated 25 July 2020, had not yet been entered in
the cash book
A cheque received from a customer on 12 July 2020 was dishonoured.
This dishonoured cheque had not yet been recorded in the cash book
Bank charges on the bank statement had not yet been entered in
the cash book
Unpresented cheques at 31 July 2020
Uncredited deposits at 31 July 2020

$
3420
350
665
45
1290
410

REQUIRED
(a) Calculate the corrected balance of the bank columns in the cash book at 31 July 2020.

[4]
(b) Prepare a bank reconciliation statement at 31 July 2020. Clearly identify the bank statement
balance at that date.
Eniola
Bank Reconciliation Statement at 31 July 2020

[4]

© UCLES 2020

0452/23/O/N/20

7

www.dynamicpapers.com

Eniola is concerned that her bank balance has decreased significantly during the last year. She is
considering how to improve her liquidity.
REQUIRED
(c) Suggest one effect of each of the following proposals.
(i)

Hire new non-current assets instead of purchasing them.

[1]

(ii)

Delay paying credit suppliers.

[1]

Eniola’s financial year end is 31 July 2020. She provided the following information about the rent
and rates of her business.
On 1 August 2019, she owed two months’ rent totalling $900. On the same date, rates of $260
were prepaid up to 30 September 2019.
During the year ended 31 July 2020 the following payments were made by credit transfer.
2019
August 1
October 1
2020
March 1

© UCLES 2020

Seven months’ rent
Twelve months’ rates

$
3150
1860

Six months’ rent

2700

0452/23/O/N/20

[Turn over

www.dynamicpapers.com

8
REQUIRED

(d) Prepare the rent and rates account for the year ended 31 July 2020. Balance the account and
bring down the balances on 1 August 2020.
Eniola
Rent and rates account
Date
2019
Aug 1

Details
Balance (rates)

$
260

Date
2019
Aug 1

b/d

Details
Balance (rent)

$
b/d

900

[6]

(e) Identify the sections of the statement of financial position at 31 July 2020 in which each of the
balances on the rent and rates account would appear.
Rent
Rates
[2]
(f)

(i)

Name one accounting principle Eniola would apply when recording the rent and rates in
her financial statements.
[1]

(ii)

State how Eniola would apply the accounting principle named in (f)(i).

[1]
[Total: 20]

© UCLES 2020

0452/23/O/N/20

9

www.dynamicpapers.com

PLEASE TURN OVER

© UCLES 2020

0452/23/O/N/20

[Turn over

www.dynamicpapers.com

10
3

Haziq has not maintained full accounting records for his business.
Haziq provided the following information for the year ended 31 July 2020.

Bank loan
Inventory
Non-current assets at net book value
Rent prepaid
Trade payables
Wages accrued

At 1 August
2019
$
6 000
8 400
35 580
240
6 280
–

At 31 July
2020
$
4 500
?
32 450
–
7 460
610

Summary of bank account for the year ended 31 July 2020
Date
2020
July 31

Details
Sales receipts
Balance
c/d

$
166 000
6 600

172 600

Date
Details
2019
Aug 1
Balance
b/d
2020
July 31 Payments to credit suppliers
Bank loan repayments
Bank loan interest
Rent
Wages
General expenses
Drawings

Additional information
1

The gross margin was 40%.

2

All sales were for cash and all cash received was banked.

© UCLES 2020

0452/23/O/N/20

$
2 150
96 220
1 500
300
2 640
41 400
10 890
17 500
172 600

11

www.dynamicpapers.com

REQUIRED
(a) Prepare the income statement for the year ended 31 July 2020.
Haziq
Income Statement for the year ended 31 July 2020
$

$

© UCLES 2020

0452/23/O/N/20

[15]

[Turn over

12

www.dynamicpapers.com

(b) Advise Haziq whether or not he should maintain a double entry bookkeeping system for his
business. Justify your answer with two advantages and two disadvantages.

[5]
[Total: 20]

© UCLES 2020

0452/23/O/N/20

13

www.dynamicpapers.com

PLEASE TURN OVER

© UCLES 2020

0452/23/O/N/20

[Turn over

14
4

www.dynamicpapers.com

The directors of DW Limited provided the following information at 30 September 2020.
6% debentures (2028)
Bank overdraft
Dividend paid
General reserve at 1 October 2019
Inventory at 30 September 2020
Issued share capital at 1 October 2019
Non-current assets at 30 September 2020
Cost
Provision for depreciation
Other payables
Other receivables
Provision for doubtful debts at 1 October 2019
Retained earnings
Trade payables
Trade receivables

$
18 000
6 450
2 000
6 500
26 300
200 000
462 000
106 000
2 200
1 600
625
73 475
8 250
14 500

Additional information
A draft income statement for the year ended 30 September 2020 was prepared showing a profit of
$84 900.
The following errors were later discovered.
1

Inventory of $26 300 included items valued at cost $5200 that needed repair. After repairs
costing $600, the items could be sold for $5000.

2

Operating expenses included insurance of $400 that was prepaid at 30 September 2020.

3

The provision for doubtful debts should have been adjusted so that it equals 5% of trade
receivables.

The directors decided to transfer $5000 to general reserve.
There was no change to the issued share capital during the year ended 30 September 2020.
REQUIRED
(a) Calculate the correct value of inventory at 30 September 2020.

[2]

© UCLES 2020

0452/23/O/N/20

www.dynamicpapers.com

15

(b) Calculate the revised profit for the year ended 30 September 2020 after adjusting for
errors 1–3.

[4]
(c) Prepare the statement of changes in equity for the year ended 30 September 2020.
DW Limited
Statement of Changes in Equity for the year ended 30 September 2020
Details

Share
capital
$

General
reserve
$

Retained
earnings
$

Total

On 30 September 2020

On 1 October 2019

$

[5]

© UCLES 2020

0452/23/O/N/20

[Turn over

www.dynamicpapers.com

16

(d) Prepare the statement of financial position at 30 September 2020.
DW Limited
Statement of Financial Position at 30 September 2020
$

$

$

[9]
[Total: 20]

© UCLES 2020

0452/23/O/N/20

17

www.dynamicpapers.com

PLEASE TURN OVER

© UCLES 2020

0452/23/O/N/20

[Turn over

www.dynamicpapers.com

18
5

Nazim owns a wholesale business and has prepared draft financial statements for the year ended
30 June 2020, his first year of trading.
After the preparation of these financial statements, some errors were discovered.
REQUIRED
(a) Complete the table to indicate the effect of each error on the profit for the year and on
working capital at 30 June 2020.
Write ‘understated’, ‘overstated’ or ‘no effect’.
The first one has been completed as an example.
Error
Repairs to office equipment had been entered
in the office equipment account.

Effect on profit
for the year

Effect on working
capital

Overstated

No effect

No adjustment had been made for insurance
prepaid.
An irrecoverable debt had not been written off.
No record had been made of additional capital
introduced in cash.
Closing inventory had been overstated.
[8]
After correcting the errors, Nazim compared his results with those of his brother Aziz, who has a
similar business.
Nazim

Aziz

Current ratio

1.71:1

2.12:1

Liquid (acid test) ratio

0.77:1

1.28:1

13.65%

15.25%

Return on capital employed
REQUIRED

(b) Suggest two reasons for the differences in each ratio.
(i)

Current ratio
1

2

[2]

© UCLES 2020

0452/23/O/N/20

19
(ii)

www.dynamicpapers.com

Liquid (acid test) ratio
1

2

[2]

(iii)

Return on capital employed (ROCE)
1

2

[2]

Nazim discovered that his rate of inventory turnover (times) was also lower than that of Aziz.
REQUIRED
(c) Suggest one reason for this difference.

[1]

© UCLES 2020

0452/23/O/N/20

[Turn over

20

www.dynamicpapers.com

Nazim is concerned about the length of time his credit customers are taking to pay their accounts.
He is considering operating a strict credit control policy requiring customers to pay within 30 days.
REQUIRED
(d) Advise Nazim whether or not he should introduce this strict credit control policy. Justify your
answer by providing two advantages and two disadvantages.

[5]
[Total: 20]

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.
To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download
at www.cambridgeinternational.org after the live examination series.
Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.

© UCLES 2020

0452/23/O/N/20