7707_s24_qp_21
A paper of Accounting, 7707
Questions:
5
Year:
2024
Paper:
2
Variant:
1
Login to start this paper & get access to powerful tools
1
Addo is a trader who only sells on credit. His trade receivables at 1 April 2024 were as follows: $ Nuru Mahia Ava Rachel During April 2024, the following transactions took place: April Sold goods to Ava, list price $150, less 6% trade discount Received telephone transfer from Ava, $689 Sold goods to Nuru, $165 Received cheque, $627, from Mahia, in full settlement of an invoice for $660 Received $760 from Nuru by electronic transfer. Nuru had deducted 5% cash discount Nuru returned goods $30 Sold goods to Mahia, list price $480, trade discount 5%, cash discount 5% if invoice paid within 30 days Rachel has become bankrupt and Addo decides to write off the amount owing from her, as irrecoverable REQUIRED Prepare the sales journal for April 2024. Total the sales journal and indicate the ledger account to which the total would be posted. Addo Sales journal Date Details $ $ Prepare the journal entry to write off the amount owing by Rachel. A narrative is required. Addo Journal Date Details $ $ Calculate: the total amount of money which Addo received from trade receivables during April 2024. the total amount of cash discount which Addo allowed in April 2024. Prepare Addo’s sales ledger control account for April 2024. Addo Sales ledger control account Date Details $ Date Details $ Addo is considering changing his credit terms. He would introduce more credit checks on new customers and would increase cash discount to 7½% for payment within 30 days. REQUIRED Advise Addo whether or not he should make these changes to his credit terms. Justify your answer by providing two advantages and two disadvantages of changing his credit terms.
4. Accounting procedures  →  4.4. Irrecoverable debts and provision for doubtful debts
2. Sources and recording of data  →  2.3. Books of prime entry
Open
2
Paul is a trader. He maintains a three-column cash book. Paul has prepared draft financial statements for the year ended 31 March 2024. Paul later discovered the following five errors in his accounting records for the year ended 31 March 2024. A purchase invoice, $140, had been debited to the account for office equipment. Cash discount received, $18, had been recorded in the bank payments column of the cash book. Carriage inwards, $82, had been credited to the carriage outwards account. A payment for insurance, $375, had been debited to the bank account and credited to the insurance account. The bank receipts column of the cash book for February 2024 had been undercast by $90. REQUIRED Prepare the journal entries required to correct these five errors. Narratives are not required. Paul Journal Error number Details Debit $ Credit $ Calculate the corrected bank balance at 31 March 2024. $ Original cash at bank balance per draft financial statements Bank balance after correcting errors Calculate the corrected profit for the year ended 31 March 2024. $ Original profit for the year per draft financial statements Profit for the year after correcting errors
5. Preparation of financial statements  →  5.6. Incomplete records
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
3. Verification of accounting records  →  3.3. Bank reconciliation
Open
3
Zahra and Panya are the shareholders and directors of Q Limited. The company directors of Q Limited have provided the following trial balance. Q Limited Trial Balance at 31 January 2024 Debit Credit $ $ Revenue 78 000 Purchases 38 200 Rent and insurance 10 600 Directors’ salaries 19 000 General expenses 3 420 Advertising 5 400 Dividends paid 2 500 Fittings at cost 18 000 Provision for depreciation of fittings 5 400 Inventory at 1 February 2023 2 950 Cash at bank Trade payables 2 288 Ordinary share capital 13 000 Retained earnings 2 297 100 985 100 985 Additional information Inventory at 31 January 2024 was valued at $4720. Depreciation on fittings is to be charged at 10% per annum using the straight-line method. Payment for advertising, $75, is outstanding at 31 January 2024. No dividends were outstanding at 31 January 2024. REQUIRED Prepare the income statement for Q Limited for the year ended 31 January 2024. Q Limited Income statement for the year ended 31 January 2024 $ $ Calculate the retained earnings at 31 January 2024. Prepare the statement of financial position for Q Limited at 31 January 2024. Q Limited Statement of financial position at 31 January 2024 $ $ Zahra and Panya would like to expand the company and increase sales. In order to do this they are considering increasing the amount spent on advertising by 100%. Advise Zahra and Panya whether or not they should go ahead with the 100% increase in the amount spent on advertising. Justify your answer by providing two points in favour and two points against this increase.
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
4. Accounting procedures  →  4.5. Valuation of inventory
Open
4
Ahmed owns a trading business. He prepares his financial statements to 31 December each year. Ahmed had some unused office space and he decided to use some of this to store inventory and to rent the rest to Bilal. On 1 January 2023 Bilal started renting the office space from Ahmed. The annual rental charge is $4800. During 2023 Bilal paid the following amounts of rent into Ahmed’s bank account. $ 1 April 30 September REQUIRED Prepare Ahmed’s rent receivable account for the year ended 31 December 2023. Balance the account and bring down the balance at 1 January 2024. Ahmed Rent receivable account Date Details $ Date Details $ Ahmed sold old office equipment for $1350 on 3 January 2023, on credit to Rahat. The equipment had been purchased for $3200 on 1 January 2021. Ahmed charges depreciation at 25% per annum using the reducing balance method. He does not charge depreciation in the year of disposal. REQUIRED Prepare the disposal of office equipment account. Ahmed Disposal of office equipment account Date Details $ Date Details $ Complete the table by placing a tick (✓) to indicate whether each amount of spending on the new inventory storage space is capital expenditure or revenue expenditure. $ Capital expenditure Revenue expenditure Painting the walls of the storage area Shelving for the storage area Installation of the shelving Light fittings for storage area Light bulbs for storage area Ahmed’s ledger accounts at 31 December 2023 include the following balances. $ Inventory at 1 January 2023 Receivables Cash Payables Bank overdraft Ahmed’s inventory at 31 December 2023 was valued at $12 130. His purchases for the year ended 31 December 2023 were $97 000. REQUIRED Complete the following table. ratio working answer (to 2 decimal places) Rate of inventory turnover Current ratio Liquid (acid test) ratio Ahmed’s rate of inventory turnover for 2023 was lower than for 2022. REQUIRED Suggest two problems which may be caused by Ahmed’s lower rate of inventory turnover.
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
6. Analysis and interpretation  →  6.2. Interpretation of accounting ratios
4. Accounting procedures  →  4.5. Valuation of inventory
Open
5
Stella started in business as a retailer on 1 April 2023. She sells one type of good only. She has not kept a full set of accounting records but has provided the following information. Half of Stella’s purchases were on cash terms and half on credit terms. During the year ended 31 March 2024, Stella paid $34 250 to credit suppliers. On 31 March 2024, she owed $2960 to credit suppliers. Unlike her competitors, Stella made all of her sales for cash. Stella’s mark-up was 32%. The following amounts were paid for expenses during the year to 31 March 2024. $ Rent and insurance Wages Other expenses At 31 March 2024, $300 was unpaid for wages and $500 was paid in advance for rent. Insurance is $2400 per annum. On 1 April 2023, Stella paid $3000 for insurance for the following 15 months. Other expenses included $120 paid for vases and flowers. One third of these were for Stella’s own home. Stella treats business costs of under $150 as revenue expenditure. Inventory was valued at $6420 at 31 March 2024. REQUIRED Calculate total purchases for the year ended 31 March 2024. Prepare Stella’s income statement for the year ended 31 March 2024. Stella Income Statement for the year ended 31 March 2024 $ $ Stella’s sales revenue was the same each month for the year to 31 March 2024. She is now considering selling on credit terms as well as for cash. REQUIRED Advise Stella whether or not to start selling on credit terms. Justify your answer by providing points for and against starting selling on credit. State: the accounting principle which Stella is following when she treats payments for small items which may last longer than one year, as revenue expenditure. one advantage of following the principle in 5. State two advantages of maintaining a full set of double entry accounting records.
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
Open