7707_s23_qp_22
A paper of Accounting, 7707
Questions:
5
Year:
2023
Paper:
2
Variant:
2
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1
Omer is a trader. The following transactions took place in April 2023. April Paid $1000 into the bank from his own personal money Paid $360 to a supplier, Alexander, by telephone transfer Cash sales, $695, were paid directly into the bank account Purchased goods, $340, on credit from Alexander Paid $68 cash for petrol Paid rent, $400, by standing order Received a cheque, $384, from a credit customer, Esme, in full settlement of an invoice for $400 Paid $323 by cheque to Alexander, having deducted $17 cash discount Purchased goods, $235, on credit from Alexander REQUIRED Complete Omer’s cash book on the page opposite. Balance the cash book and bring down the balances on 1 May 2023. Prepare the account for Alexander for April 2023. Balance the account and bring down the balance at 1 May 2023. Omer Alexander account Date Details $ Date Apr 1 Details Balance b/d $ Omer buys all his supplies from Alexander who does not allow Omer any trade discount. Omer is now considering also purchasing supplies from Tahir who would offer him 3% trade discount but no cash discount. REQUIRED Advise Omer whether he should choose: Option 1 – purchase supplies from Alexander only, or Option 2 – purchase supplies from both Alexander and Tahir Justify your answer by providing three advantages and one disadvantage of the option you have chosen.
2. Sources and recording of data  →  2.3. Books of prime entry
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
5. Preparation of financial statements  →  5.1. Sole traders
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2
Ramla has calculated her draft profit figure for the year ended 28 February 2023. Adjustments in Ramla’s ledger accounts have still to be made for the following items. An amount of $99 owed to Ramla by Mai is to be written off as irrecoverable. Fixtures and fittings, $875, were purchased on credit from Padma. A loan repayment, $500, had been incorrectly recorded as loan interest. Rent paid, $350, had been recorded as $530. Drawings, $120, had been debited to the wages account. REQUIRED Prepare the journal entries required for items 1–5. Narratives are not required. Ramla Journal Item number Details Debit $ Credit $ …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… …… Complete the following table by entering the amount of each adjustment required to calculate Ramla’s adjusted profit. If an item has no effect on profit, enter zero (0) in the ‘no effect on profit’ box. Item Increase in profit $ Decrease in profit $ No effect on profit Profit $ Draft profit 11 650 Adjusted profit Explain how the journal for item 1 complies with the prudence principle. how the journal for item 5 complies with the business entity principle.
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
5. Preparation of financial statements  →  5.6. Incomplete records
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3
The Favourite Book Club was formed several years ago. The subscription amount of $52 per annum has remained unchanged since the club started. All subscriptions are paid by cheque or credit transfer. The treasurer provided the following information. At 1 January At 31 December $ $ Subscriptions in advance Subscriptions in arrears Insurance paid in advance Cash at bank For the year to 31 December 2022: Receipts $ Subscriptions received Payments Rent paid Insurance paid General expenses paid The club had 128 members in 2021 and 120 in 2022. The treasurer is aware that 4 current members will not pay their subscriptions for 2022. She has decided to write these subscriptions off. REQUIRED Prepare the subscriptions account for the year ended 31 December 2022. Balance the account and bring down the balances on 1 January 2023. Favourite Book Club Subscriptions account Date Details $ Date Details $ Prepare the income and expenditure account for the year ended 31 December 2022. Favourite Book Club Income and Expenditure Account for the year ended 31 December 2022 $ $ The treasurer is considering increasing the subscription amount in order to obtain sufficient funds to purchase computer equipment. The equipment would cost $400 and would be used to maintain the club records. REQUIRED Advise the treasurer whether she should fund the purchase of the computer equipment by increasing the subscription amount. Justify your answer by making points for and against increasing the subscription amount. Calculations are not required. State the meaning of the following terms: receipts and payments account accumulated fund
5. Preparation of financial statements  →  5.4. Clubs and societies
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4
Akila and Darius are in partnership. The partnership agreement provides for the following: interest on capital of 3% per annum interest on drawings of 5% a salary to Akila of $9500 per annum residual profits and losses to be shared 60% to Akila and 40% to Darius. The partners provided the following list of balances. $ Capital accounts at 1 May 2022 Akila 90 000 Darius 65 000 Current accounts at 1 May 2022 Akila 2 600 debit Darius 4 745 credit Drawings for the year ended 30 April 2023 Akila 19 400 Darius 16 320 The profit for the year ended 30 April 2023 was $42 304. REQUIRED Prepare the appropriation account on the opposite page for Akila and Darius for the year ended 30 April 2023. Prepare Akila’s current account for the year ended 30 April 2023. Akila Current account Date Details $ Date Details $ Calculate the balance on Akila’s current account at 30 April 2023 if he had been due $1000 loan interest from the partnership. Akila and Darius’s partnership agreement provided for salary, interest on capital, interest on drawings, and profit share. State two other items which are usually included in a partnership agreement. Akila and Darius are considering forming a limited company. They would be the only two shareholders in the company. Advise Akila and Darius whether they should form a limited company. Justify your answer with two advantages and two disadvantages of Akila and Darius forming a limited company.
5. Preparation of financial statements  →  5.2. Partnerships
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5
Amadi prepared the following trial balance which is not yet totalled and contains errors. Amadi Trial balance at 31 March 2023 Debit Credit $ $ Fittings and equipment at cost 30 000 Provision for depreciation of fittings and equipment 7 500 Trade receivables 6 100 Bank overdraft 3 106 Trade payables 3 485 Capital 20 000 Sales 73 250 Purchases 41 785 Discount received 1 990 Returns inwards 3 390 Carriage inwards 1 223 General expenses 6 430 Rent and rates 7 380 Drawings 9 500 Inventory at 1 April 2022 3 752 Inventory at 31 March 2023 3 965 REQUIRED Prepare a corrected trial balance at 31 March 2023. Show the remaining difference between the debit and credit totals as ‘suspense.’ Amadi then discovered the following errors. The general expenses account had been undercast by $200. A rent payment, $516, had been posted to the rent and rates account as $615. The total for discount received in the cash book for February 2023, $165, had been debited to the drawings account. No other entry for this total had been made. REQUIRED Prepare the suspense account. Amadi Suspense account Date Details $ Date Details $ REQUIRED Prepare the trading section of Amadi’s income statement for the year ended 31 March 2023. Amadi Income Statement (trading section) for the year ended 31 March 2023 $ $ Calculate Amadi’s gross margin, correct to two decimal places. Gross margin workings answer Amadi’s main competitor is Hector who owns his own business premises. Amadi and Hector have similar gross margins but Hector has a slightly higher profit margin. REQUIRED Explain whether or not Amadi should be satisfied with these results.
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
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