7707_s20_qp_21
A paper of Accounting, 7707
Questions:
5
Year:
2020
Paper:
2
Variant:
1
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1
The ZED Sports Club has a shop which sells sportswear. The following details relate to the shop for the year ended 29 February 2020. $ Opening inventory Closing inventory Purchases Mark-up 40% REQUIRED Calculate the shop sales for year ended 29 February 2020. All the shop sales and purchases are for cash. All the club’s receipts are paid into the bank and all payments are made by cheque. On 1 March 2019 the club’s bank balance was overdrawn by $845. In addition to the shop sales and purchases, the following receipts and payments were made during the year ended 29 February 2020. $ Subscriptions received 11 400 Competition fees received Payments for competition prizes Purchases of fittings 4 000 Rent and insurance 4 575 Wages of shop assistant 2 000 REQUIRED Prepare the receipts and payments account for the ZED Sports Club for the year ended 29 February 2020. Balance the account and bring down the balance on 1 March 2020. ZED Sports Club Receipts and Payments Account for the year ended 29 February 2020 Date ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… Details …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… $ ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… Date ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… Details …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… …….………………… $ ……… ……… ……… ……… ……… ……… …… ……… ……… ……… ……… ……… The club’s bank statement at 29 February 2020 showed a positive balance of $7162. On comparing the bank statement with the cash book, the treasurer found: Competition fees, $260, had not been recorded by the bank. A cheque paid for $25 for competition prizes had been charged twice by the bank. The payment for fittings, $4000, was made on 27 February 2020, and had not been recorded on the bank statement. REQUIRED Prepare the bank reconciliation statement for ZED Sports Club at 29 February 2020. ZED Sports Club Bank Reconciliation Statement at 29 February 2020 State three differences between a receipts and payments account and an income and expenditure account. Receipts and payments account Income and expenditure account
5. Preparation of financial statements  →  5.4. Clubs and societies
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
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Ame provided the following balances from his books at 31 March 2020. $ Capital 10 369 Drawings 4 000 Equipment at cost 15 500 Provision for depreciation of equipment 3 100 Inventory at 1 April 2019 1 765 Trade receivables 1 290 Bank overdraft Trade payables 1 600 Sales 31 250 Purchases 18 330 Purchases returns Carriage inwards Discount received Commission receivable 1 500 Rent and insurance 5 700 Office expenses 2 425 REQUIRED Prepare Ame’s trial balance at 31 March 2020. Show the difference in the trial balance totals as a suspense account balance. Ame Trial Balance at 31 March 2020 Capital Drawings Equipment at cost Provision for depreciation of equipment Inventory at 1 April 2019 Trade receivables Bank overdraft Trade payables Sales Purchases Purchases returns Carriage inwards Discount received Commission receivable Rent and insurance Office expenses Suspense Debit $ …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… ______________ ______________ Credit $ …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… ______________ ______________ Ame later discovered several errors had been made in the accounting records. REQUIRED Complete the table to show the entries required to correct each error. The first one has been completed as an example. Error Entries required to correct the error Debit Credit Account $ Account $ No entry had been made for cash sales, $60. Office expenses, $240, had been credited to the wages account. No debit entry had been made. The purchases journal total for March 2020 was $2165. This amount was incorrectly recorded in the purchases account as $2651. An insurance payment, $375, had been correctly recorded in the cash book but no other entry had been made. The purchase of equipment, $800, was correctly recorded in the cash book but debited to the office expenses account. Cash …………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ………. ………. ………. ………. ………. ………. ………. ………. Sales …………… …………… …………… …………… …………… …………… …………… …………… ……… ………. ………. ………. ………. ………. ………. ………. Prepare the suspense account. Start with the difference on the trial balance prepared in Part . Balance or total the account as necessary. Ame Suspense account Date ……… ……… ……… ……… ……… ……… ……… Details ……………………… ……………………… ……………………… ……………………… ……………………… ……………………… ……………………… $ ……… ……… ……… ……… ……… ……… ……… Date ……… ……… ……… ……… ……… ……… ……… Details …………………… …………………… …………………… …………………… …………………… …………………… …………………… $ ……… ……… ……… ……… ……… ……… …… [Total 20]
3. Verification of accounting records  →  3.1. The trial balance
3. Verification of accounting records  →  3.2. Correction of errors
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Chippo owns a manufacturing business which produces product S. She provided the following information for the year ended 30 April 2020. $ Revenue 254 000 Purchases of raw materials 46 500 Purchases of finished goods 59 000 Wages of factory operatives 38 250 Royalties paid to the inventor of product S 7 690 Factory general expenses 4 500 Factory fuel and power 5 325 Rent and insurance 28 000 Factory machinery at cost 60 000 Provision for depreciation of factory machinery 21 600 Inventory at 1 May 2019: raw materials 3 120 work in progress 5 400 finished goods 8 220 Additional information Factory machinery is depreciated at 20% per annum using the reducing balance method. Rent and insurance is to be split equally between the factory and the office. The annual salary of the factory supervisor is $28 500. Closing inventory at 30 April 2020 was: $ Raw materials Work in progress Finished goods REQUIRED Prepare Chippo’s manufacturing account for the year ended 30 April 2020. Chippo Manufacturing Account for the year ended 30 April 2020 ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… $ ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… $ ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… Prepare Chippo’s income statement (trading account section) for the year ended 30 April 2020. Chippo Income Statement (Trading Account section) for the year ended 30 April 2020 ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… $ ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… $ ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… Complete the table by placing a tick (ü) in the correct column, to indicate whether each of the following actions would increase or decrease Chippo’s gross margin. Action Increase gross margin Decrease gross margin Increase wages of factory supervisor Reduce trade discount allowed to customers Chippo is considering converting her sole trader business into a limited company because she thinks that this will make it easier for her to obtain finance for future expansion. REQUIRED Advise Chippo whether or not she should convert her business to a limited company, in order to obtain finance. Justify your answer by providing advantages and disadvantages.
5. Preparation of financial statements  →  5.5. Manufacturing accounts
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Rani is a trader. Her financial year ends on 31 March. She provided the following information about her three types of inventory at 31 March 2020. Inventory Number Cost Selling price Selling expenses item of units per unit per unit per unit $ $ $ A B C REQUIRED Calculate the total value of Rani’s inventory at 31 March 2020. Rani later discovered that she had an amount of inventory of item D at 31 March 2020. This inventory originally cost $1660. She considered this inventory to be obsolete. REQUIRED Explain to Rani how the value of the inventory of item D affected the profit for the year ended 31 March 2020. Advise Rani whether or not she should stop purchasing item D to avoid having obsolete inventory in the future. Justify your answer by providing advantages and disadvantages. Rani earns advertising income by placing advertising boards in her shop window. The following details relate to her advertising income. On 1 April 2019 Rani had received $420 in advance, and $300 was owed to her. During the year ended 31 March 2020, Rani received cheque payments totalling $6000. She decided to write off the amount of $300 due to her. On 31 March 2020 Rani had received $500 in advance, and $400 was owed to her. REQUIRED Prepare the advertising income account in the ledger of Rani for the year ended 31 March 2020. Balance the account and bring down the balances on 1 April 2020. Rani Advertising income account Date ……… ……… ……… ……… ……… ……… ……… ……… ……… Details ……………………… ……………………… ……………………… ……………………… ……………………… ……………………… ……………………… ……………………… ……………………… $ ……… ……… ……… ……… ……… ……… ……… ……… ……… Date ……… ……… ……… ……… ……… ……… ……… ……… ……… Details …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… …………………… $ ……… ……… ……… ……… ……… ……… …… ……… ……… Explain to Rani the effect on gross profit of recording sales of inventory as advertising income.
4. Accounting procedures  →  4.5. Valuation of inventory
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MPT Limited prepares its financial statements to 30 April each year. The company’s retained earnings at 1 May 2019 were $14 000. The general reserve was $35 000. During the year ended 30 April 2020 the following took place. The company made a profit for the year of $28 000 after charging debenture interest. A transfer of $5000 was made to the general reserve. A dividend of $4500 was paid. No other dividends were payable for the year. MPT Limited provided the following balances at 30 April 2020. $ Fixtures and equipment at book value 152 000 Motor vehicles at book value 60 400 Inventory 30 330 Bank overdraft 6 200 Trade payables 24 900 Trade receivables 31 500 Provision for doubtful debts 5% Debentures (repayable 2025) 20 000 Ordinary share capital 150 000 REQUIRED Calculate the retained earnings of MPT Limited at 30 April 2020. Prepare the statement of financial position for MPT Limited at 30 April 2020. MPT Limited Statement of Financial Position at 30 April 2020 ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… $ ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… $ ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… $ ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… The directors of MPT Limited are considering using the general reserve to repay the bank overdraft. REQUIRED State why it is not appropriate to use the general reserve to repay the bank overdraft. Calculate the return on capital employed (ROCE) for the year ended 30 April 2020. The calculation should be correct to two decimal places and should be based on closing capital employed. The directors are considering increasing dividend in 2021 as a way of increasing return on capital employed (ROCE). REQUIRED Advise the directors how the return on capital employed (ROCE) can be increased. Justify your answer by commenting on both profit and capital employed.
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
5. Preparation of financial statements  →  5.3. Limited companies
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