7707_s22_qp_22
A paper of Accounting, 7707
Questions:
5
Year:
2022
Paper:
2
Variant:
2
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1
Peter is a trader. The following transactions took place in April 2022. April Cash sales, $410, were paid directly into the bank account Paid $798 to Rahat, by cheque, in full settlement of a debt of $840 Paid $42 cash for a motor vehicle repair Purchased goods, list price $320, on credit subject to a trade discount of 10%, from Rahat Cash sales, $460 Paid $392 to Samir by telephone transfer, having deducted 2% cash discount from the amount due A cheque for commission receivable, $115, was paid into the bank account Paid $285 to Rafael by cash, in full settlement of a debt of $300 REQUIRED Prepare Peter’s cash book on the page opposite. Balance the cash book and bring down the balances on 1 May 2022. Peter has received a bank statement for April. He is using it to prepare a bank reconciliation statement and to update his cash book. REQUIRED Place a tick (✓) to show how each item in the table below would be used to prepare the bank reconciliation statement or to update the cash book. Prepare bank reconciliation statement Update cash book Items to be adjusted Added to bank statement balance Deducted from bank statement balance Debited to cash book Credited to cash book Bank charges Direct debit for rent Cheque paid to a supplier but not yet cashed Cheque for commission received dishonoured Dividend received REQUIRED Prepare the account for Rahat as it would appear in the ledger of Peter. Balance the account and bring down the balance on 1 May 2022. Peter Rahat account Date Details $ Date Apr 1 Details Balance b/d $
3. Verification of accounting records  →  3.3. Bank reconciliation
2. Sources and recording of data  →  2.1. The double entry system of book-keeping
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2
Stalla started trading on 1 April 2021. All receipts are paid into the bank and all payments are made from the bank. She has not kept a full set of books but has provided the following information. Summary of receipts and payments for the year ended 31 March 2022 $ Receipts Capital introduced 8 000 Loan received (repayable 2027) 5 000 Sales (all cash) 36 000 Payments Trade payables 17 850 Fixtures and fittings 12 000 General expenses 1 920 Rent and insurance 7 100 Drawings ? Bank balance at 31 March 2022 2 330 REQUIRED Record the total receipts and total payments to Stalla’s bank account showing the cash drawings for the year ended 31 March 2022. Balance the bank account and bring the balance down on 1 April 2022. Stalla Bank account Date Details $ Date Details $ During the year ended 31 March 2022, Stalla took goods from the business for her own personal use. The selling price of these goods is $3375. Her mark-up is 25%. REQUIRED Calculate Stalla’s total drawings for the year ended 31 March 2022. Stalla has provided a list of balances at 31 March 2022. $ Fixtures and fittings (net book value) 10 800 Inventory 2 150 Prepaid rent Balance at bank 2 330 Trade payables 1 875 Loan (repayable 2027) 5 000 Capital ? REQUIRED Prepare a statement of affairs to calculate Stalla’s capital at 31 March 2022. Stalla Statement of Affairs at 31 March 2022 $ $ Calculate Stalla’s profit for the year ended 31 March 2022. Stalla is now considering whether she should start to sell at least some of her goods on credit. REQUIRED Advise Stalla whether or not she should start selling on credit terms. Justify your answer.
5. Preparation of financial statements  →  5.6. Incomplete records
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
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3
Mosi is a trader. The totals of his trial balance at 30 April 2022 did not agree and the difference was placed in a suspense account. Mosi later discovered the following errors. Commission received, $96, had been debited to the discount received account. The entry to the bank account was correctly made. The total of the sales journal for April 2022, $1258, was transferred to the sales account as $2185. A cheque payment for motor expenses, $77, had been omitted from the book-keeping records. A payment by electronic transfer, $135, was recorded as a payment in the petty cash book. An invoice received from Tracey, $160, was credited to the account for Stacey. REQUIRED Prepare the journal entries to correct errors 1–5. Narratives are not required. Prepare the suspense account. Include the original difference on the trial balance as a balancing figure. Mosi Suspense account Date Details $ Date Details $ Mosi’s original draft profit, before correcting the errors, was $39 970. REQUIRED Calculate Mosi’s corrected profit for the year ended 30 April 2022.
3. Verification of accounting records  →  3.1. The trial balance
3. Verification of accounting records  →  3.2. Correction of errors
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4
Nala is a trader who buys and sells stationery. She provided the following information about her inventory at 28 February 2022. Item Number of units Cost per unit $ Carriage inwards per unit $ Selling expenses per unit $ Selling price per unit $ Packs of paper 4.50 – – 8.00 Packs of envelopes 5.50 1.00 1.50 10.00 Notepads 4.00 2.00 – 5.00 Boxes of pencils 3.50 – – 6.00 REQUIRED Calculate the value of Nala’s inventory at 28 February 2022. State the accounting principle used to value inventory. Complete the table by placing a tick (✓) to show how Nala should treat each item of her expenditure. Capital expenditure Revenue expenditure Computer printer paper Computer equipment Installation of computer equipment Motor vehicle Insurance of motor vehicle Delivery of motor vehicle Explain how the materiality principle is applied to the treatment of non-current assets. Nala has treated the receipt of a bank loan as a revenue receipt. REQUIRED Complete the table by placing a tick (✓) to show the effect of the error on capital and on liabilities. overstated understated Effect on capital Effect on liabilities Nala has charged depreciation on her shop fittings at 25% per annum using the reducing balance method. This year she is considering changing this to 10% per annum using the straight-line method, as this would improve her profit for the year. REQUIRED Advise Nala whether or not she should change her depreciation method. Justify your answer.
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
4. Accounting procedures  →  4.5. Valuation of inventory
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5
The trial balance of M Limited at 30 November 2021 was as follows. M Limited Trial Balance at 30 November 2021 Debit Credit $ $ Revenue 203 600 Inventory at 1 December 2020 12 945 Purchases 143 750 Rent and rates 12 460 Operating expenses 12 920 Wages 24 380 Equipment at cost 40 000 Provision for depreciation of equipment 17 500 Trade receivables 9 800 Provision for irrecoverable debts Bank Trade payables 11 585 Ordinary share capital 20 000 General reserve 3 000 Retained earnings 2 037 Dividend paid on ordinary shares 1 600 258 017 258 017 Additional information Inventory at 30 November 2021 was valued at $12 830. Depreciation on equipment is to be charged at 25% per annum using the reducing balance method. Accrued operating expenses at 30 November 2021 were $415. Rent includes a payment of $2250 for the 3 months from 1 October 2021 to 31 December 2021. The provision for doubtful debts is to be set at 4% of trade receivables. No dividends were outstanding at 30 November 2021. $1000 is to be transferred to the general reserve at 30 November 2021. REQUIRED Prepare the income statement for M Limited for the year ended 30 November 2021. M Limited Income Statement for the year ended 30 November 2021 $ $ …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. Prepare the statement of changes in equity for M Limited for the year ended 30 November 2021. M Limited Statement of Changes in Equity for the year ended 30 November 2021 Details Ordinary Share capital $ General reserve $ Retained earnings $ Total $ On 1 December 2020 ……. ……. ……. On 30 November 2021 … … … … … … … … … … … … … … … … … … … … Calculate the liquid ratio for M Limited at 30 November 2021. The answer should be correct to two decimal places. Liquid (acid test) ratio workings answer The managing director, Emily, plans to buy new equipment to be used to improve the profitability of the company. She is considering whether to fund the equipment by issuing further ordinary shares or requesting a bank overdraft. REQUIRED Advise Emily whether to fund the purchase of the equipment by issuing further ordinary shares or by requesting a bank overdraft. Justify your answer.
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
6. Analysis and interpretation  →  6.2. Interpretation of accounting ratios
5. Preparation of financial statements  →  5.3. Limited companies
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