7707_s20_qp_22
A paper of Accounting, 7707
Questions:
5
Year:
2020
Paper:
2
Variant:
2
Login to start this paper & get access to powerful tools
1
Bilal is a trader. He buys goods on credit and for cash. He sells goods on a cash basis only. The following transactions took place in April 2020. April 4 Bought goods on credit from Milly, list price $320, subject to a trade discount of 20% Bought goods on credit from EHL Limited, $500 Bought stationery, $145, paying by cheque Cash sales, $280, were paid immediately into Bilal’s bank account Paid $128 cash to Milly Cash sales, $110 Bought goods on credit, $250, from Todd who offers 4% cash discount for payments made within 14 days Bought office equipment, $500, paying by bank transfer Paid by cheque for the goods purchased from Todd on 13 April after deducting the cash discount Paid $485 to EHL Limited by telephone transfer, having deducted 3% cash discount Sold old office equipment for $50 cash REQUIRED Prepare the purchases journal for April 2020. Total the journal and indicate the ledger account to which the total would be posted. Bilal Purchases journal Date …… … ……… …… … ……… ……… ……… Details ……………………………………………… ……………………………………………… ……………………………………………… ……………………………………………… ……………………………………………… ……………………………………………… $ ………… ………… ………… ………… ………… ………… $ ……… ………… ………… ……… ……… ………… Complete Bilal’s cash book on the page opposite. Balance the cash book and bring down the balances on 1 May 2020. Name one accounting principle applied by Bilal in each of the following situations. accounting principle The double entry for the posting of the purchases journal entries is completed by posting the individual amounts to the purchases ledger. The purchase of goods on 5 April did not include goods costing $55 which Bilal bought for his own use. The stationery purchased on 6 April had been recycled. This is expected to improve the reputation of the business. Reputation is not recorded in the accounting statements. The value of office equipment shown in the financial statements was based on its purchase price.
2. Sources and recording of data  →  2.3. Books of prime entry
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
Open
2
The K Music Club provides facilities for listening to music and also provides a refreshment bar for members. The club had the following assets and liabilities at 1 April 2019. $ Subscriptions in advance Subscriptions in arrears Cash at bank 1 570 Cash in hand Wages outstanding (refreshment bar) Inventory (refreshment bar) Fixtures and fittings at book value 11 200 REQUIRED Calculate the accumulated fund at 1 April 2019. State how the accumulated fund of a club is built up over time. The following information is available for the year ended 31 March 2020. $ Subscriptions received (all by cheque) 8 500 Subscriptions written off as irrecoverable Wages paid to refreshments bar staff 1 250 Balances at 31 March 2020 included the following. $ Subscriptions in advance Subscriptions in arrears Wages outstanding (refreshments bar) REQUIRED Calculate the refreshment bar staff wages for the year ended 31 March 2020. …………………………………………… …………………………………………………… Prepare the subscriptions account for the year ended 31 March 2020. Balance the account and bring down the balances on 1 April 2020. K Music Club Subscriptions account Date ……… ……… ……… ……… ……… ……… ……… ……… ……… Details ………………………… ………………………… ………………………… ………………………… ………………………… ………………………… ………………………… ………………………… ………………………… $ ……… ……… ……… ……… ……… ……… ……… ……… ……… Date ……… ……… ……… ……… ……… ……… ……… ……… ……… Details ………………………… ………………………… ………………………… ………………………… ………………………… ………………………… ………………………… ………………………… ………………………… $ ……… ……… ……… ……… ……… ……… ……… ……… ……… Advise the club treasurer whether or not club members should be required to pay their subscriptions by direct debit. Justify your answer by providing two advantages and two disadvantages.
5. Preparation of financial statements  →  5.4. Clubs and societies
5. Preparation of financial statements  →  5.6. Incomplete records
Open
3
Gok is a wholesaler. He prepares his financial statements to the end of February each year. At 29 February 2020, Gok’s ledger account balances included the following. $ Revenue 420 000 Purchases 311 400 Sales returns 12 000 Discount allowed 9 000 Wages 12 360 Rent and rates 11 750 General expenses 4 220 Irrecoverable debts 8 600 Insurance 4 500 Telephone expenses 4 565 Inventory at 1 March 2019 26 700 Drawings 9 500 Fixtures and equipment at cost 120 000 Provision for depreciation of fixtures and equipment 43 200 Additional information Gok did not have time to count and value his inventory at 29 February 2020. His margin is 25%. A loan of $60 000 was obtained from the bank on 1 July 2019. Interest is charged at 7% per annum. The fixtures and equipment are being depreciated at 20% per annum using the reducing balance method. The insurance includes $1500 which covers the period from 1 March to 30 September 2020. Drawings include a payment of $1660 for Gok’s personal telephone expenses. One quarter of this amount was for business use. REQUIRED Prepare Gok’s income statement for the year ended 29 February 2020. Gok Income Statement for the year ended 29 February 2020 $ $ …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. The wages paid by Gok are to his part-time warehouse assistant, Aiman. REQUIRED Advise Gok whether or not he should offer Aiman a partnership in the business. Justify your answer with two advantages and two disadvantages.
5. Preparation of financial statements  →  5.6. Incomplete records
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
Open
4
Nadia is a trader. Her financial year ends on 31 March. She extracted a trial balance at 31 March 2020. The debit and credit totals did not agree. The difference was entered into a suspense account. After Nadia prepared draft financial statements, she discovered the following errors. The purchases account was overcast by $110. $13 for discount allowed in February 2020 had been credited to the discount allowed account as $15. A payment for insurance, $220, was correctly recorded in the cash book, but was recorded as $202 in the insurance account. Commission received, $65, had been debited to the account for commission payable. The entry to the cash book had been correctly made. Cash drawings, $85, were correctly entered in the cash book but were credited to the drawings account. The cost of a vehicle repair, $190, had been debited to the motor vehicles account. A payment of $100 to Robert had been posted to the account of Roberta. REQUIRED Prepare the suspense account. Include the original difference on the trial balance as a balancing figure. Nadia Suspense account Date ………. ………. ………. ………. ………. ………. ………. ………. ………. Details .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… $ ……… ……… ……… ……… ……… ……… ……… ……… ……… Date ………. ………. ………. ………. ………. ………. ………. ………. ………. Details .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… $ ……… ……… ……… ……… ……… ……… ……… ……… ……… Identify the type of error made in Error 6 Error 7 Complete the following statement to show the effect on the profit for the year of correcting errors 2–7. If there is no effect on profit write ‘nil’ in the ‘no effect’ column. Calculate the corrected profit for the year. Ignore depreciation of non-current assets. The first correction has been completed as an example. Nadia Statement of corrected profit for the year ended 31 March 2020 $ Draft profit for the year before corrections No Increase Decrease Effect in profit in profit $ $ Error 1 Error 2 Error 3 Error 4 Error 5 Error 6 Error 7 Corrected profit for the year At 31 March 2020 Nadia’s trade receivables owed $14 500. After the preparation of the draft financial statements for the year ended 31 March 2020, Nadia discovered the following. $300 owed by DD Supplies should have been written off as irrecoverable. A provision of doubtful debts of 2% of trade receivables should have been created. REQUIRED Prepare journal entries to record 1 and 2 above. Narratives are not required. Nadia Journal Date Details Debit $ Credit $ ……… ……… ……… ……… ……… ………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ………………
3. Verification of accounting records  →  3.1. The trial balance
3. Verification of accounting records  →  3.2. Correction of errors
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
Open
5
The directors of JKY Limited provided the following information. For the year to 30 April 2020: $ Revenue 209 510 Purchases 121 618 At 30 April 2020: Inventory 11 050 Trade receivables 28 700 Bank overdraft 6 280 All sales and purchases were made on credit terms. Inventory at 1 May 2019 was valued at $8000 REQUIRED Calculate the following ratios. Show your workings. Rate of inventory turnover workings answer (to two decimal places) Trade receivables turnover workings answer (round up to nearest whole day) The rate of inventory turnover for the year ended 30 April 2020 was lower than that of the previous year. The trade receivables turnover for the year ended 30 April 2020 was higher than that of the previous year. REQUIRED Explain the effects of the change in: inventory turnover trade receivables turnover The directors are concerned about the level of trade receivables. They are considering introducing cash discount of 1% for payment within 21 days or charging interest on amounts outstanding after 30 days. REQUIRED Advise the directors whether they should introduce the cash discount policy or the interest charge policy. Justify your answer by providing one advantage and one disadvantage of each policy. The information in the accounting statements is affected by the company’s accounting policies. REQUIRED Explain to the directors of JKY Limited the importance of the following objectives in selecting the company’s accounting policies. comparability relevance
6. Analysis and interpretation  →  6.2. Interpretation of accounting ratios
4. Accounting procedures  →  4.5. Valuation of inventory
6. Analysis and interpretation  →  6.1. Calculation and understanding of accounting ratios
Open