7707_w20_qp_22
A paper of Accounting, 7707
Questions:
5
Year:
2020
Paper:
2
Variant:
2
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1
Dev owns a business selling furniture. The following transactions took place during August 2020. Transaction Date Details $ August 9 Sold goods on credit to Petra Petra returned damaged goods to Dev Banked cash sales Petra settled her outstanding balance at 1 August by credit transfer after taking a cash discount of 5% On 1 August 2020, the balance on credit customer Petra’s sales ledger account was $940 debit. REQUIRED Complete the table to name each business document and book of prime entry for the following transactions in Dev’s accounting records. Transaction Business document Book of prime entry Prepare the account of Petra for August 2020 as it would appear in Dev’s sales ledger. Balance the account and bring down the balance on 1 September 2020. Dev Petra account Date Details $ Date Details $ Identify the section of Dev’s statement of financial position at 31 August 2020 in which the balance on Petra’s account would appear. Dev allows his credit customers a cash discount of 5% for prompt payment. He is considering reducing this to 2%. REQUIRED State one advantage and one disadvantage to Dev of this proposal. Dev is considering turning his business into a limited company. REQUIRED Advise Dev whether or not he should form a limited company. Justify your answer with two advantages and two disadvantages of forming a limited company.
5. Preparation of financial statements  →  5.3. Limited companies
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
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2
BH Sports Club provides sporting facilities and a café for the use of its members and guests. The club’s financial year ends on 31 July. The following information is available. Assets and liabilities At 1 August $ At 31 July $ Bank Café inventory Sports hall at book value 17 000 16 560 Insurance prepaid – sports hall and sports equipment Sports equipment at book value ? Subscriptions in arrears Subscriptions received in advance – Wages accrued – café staff Receipts and Payments Account for the year ended 31 July 2020 Details $ Details $ Balance b/d Purchases of café supplies 8 190 Subscriptions received 9 960 Wages – café staff 2 750 Café takings 13 520 Wages – sports staff 5 220 Insurance – sports hall and sports equipment 1 430 Sports equipment 2 100 Sports hall expenses 3 360 Balance c/d 1 270 24 320 24 320 Additional information Sports equipment is depreciated at 10% per annum using the reducing balance method. REQUIRED Prepare the subscriptions account for the year ended 31 July 2020. Balance the account and bring down the balances on 1 August 2020. BH Sports Club Subscriptions account Date Details $ Date Details $ Calculate the café profit for the year ended 31 July 2020. Prepare the income and expenditure account for the year ended 31 July 2020. BH Sports Club Income and Expenditure Account for the year ended 31 July 2020 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. $ ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. State what the balance on BH Sports Club’s accumulated fund represents. State the effect that the surplus or deficit on BH Sports Club’s income and expenditure account for the year ended 31 July 2020 will have on the accumulated fund.
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
JP Limited’s financial year ended on 30 September 2020. The following balances were available at that date. $ 7% debentures (2026) 20 000 Administrative expenses 44 000 Carriage inwards 1 500 Distribution costs 38 000 Debenture interest paid Inventory at 1 October 2019 66 000 Non-current assets at book value at 1 October 2019 610 000 Provision for doubtful debts 1 000 Purchases 263 000 Revenue 529 500 Trade receivables 80 500 Additional information Inventory at 30 September 2020 was valued at $59 000. Interest on the 7% debentures (2026) had been paid up to 31 March 2020. Administrative expenses included rates of $1200 for the six months ending 31 March 2021. Distribution costs of $800 were outstanding at 30 September 2020. Non-current assets should be depreciated by 10% per annum using the reducing balance method. Irrecoverable debts of $500 are to be written off. The directors wish to maintain the provision for doubtful debts at 2% of trade receivables. REQUIRED Calculate the cost of sales for the year ended 30 September 2020. Calculate the increase or decrease in the provision for doubtful debts at 30 September 2020. Prepare the income statement for the year ended 30 September 2020. JP Limited Income Statement for the year ended 30 September 2020 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Complete the table by placing a tick (✓) in the correct column to indicate the effect on the equity of JP Limited of each of the following. The first one has been completed as an example. Increase Decrease No effect Issue additional debentures ✓ Issue additional ordinary shares Payment of ordinary share dividend Proposal of ordinary share dividend Transfer from retained earnings to general reserve
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
5. Preparation of financial statements  →  5.1. Sole traders
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4
Carlos owns a business selling computer equipment. He provided the following information for the year ended 31 July 2020. $ Sales 240 000 Cost of sales 169 000 Operating expenses 55 000 Drawings 18 000 Capital employed 62 000 REQUIRED Calculate the profit for the year ended 31 July 2020. Workings Profit for the year ended 31 July 2020 31 July 2019 $11 550 Calculate the following ratios correct to two decimal places. Profit margin Workings Year ended 31 July 2020 31 July 2019 8.56% Gross margin Workings Year ended 31 July 2020 31 July 2019 34.26% Return on capital employed (ROCE) Workings Year ended 31 July 2020 31 July 2019 32.08% Comment on the performance of Carlos’s business over the two years (2019 and 2020). Carlos is concerned that the business bank balance has shown a large decrease. He is considering either investing more cash from his private funds or obtaining a two-year bank loan. REQUIRED Advise Carlos which option he should select. Justify your answer by providing one advantage and one disadvantage of each option. State the name of one party, other than himself and his employees, who would be interested in Carlos’s financial statements. State one reason for their interest. Interested party The interest they would have
6. Analysis and interpretation  →  6.2. Interpretation of accounting ratios
5. Preparation of financial statements  →  5.6. Incomplete records
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
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5
Razia’s financial year ends on 30 September. The totals of the trial balance on 30 September 2020 did not agree. The totals were debit $10 450 and credit $10 250. A suspense account was opened. The following errors were later discovered. The total of the sales returns journal had been overcast by $300. Cash sales, $820, had not been recorded in the books of account. A purchase invoice, $190, had been credited to the account of P Hill instead of D Hill. A cheque payment, $240, for motor repairs had been correctly entered in the cash book but had been posted to the debit of motor repairs account as $420. Rent received, $310, had been debited to the rent payable account. Staff wages, $250, had been posted to Razia’s drawings account. A cheque paid, $900, to Kamil, a credit supplier, had been entered correctly in the cash book but had not been posted to Kamil’s account. REQUIRED Prepare the suspense account. Start with the balance arising from the difference on the trial balance. The account should be balanced or totalled as necessary. Razia Suspense account Date Details $ Date Details $ Identify the types of error made in Error 2 and Error 4. Error Type of error Complete the table by placing a tick (✓) in the correct column to indicate the effect on the profit for the year of correcting each error. Error number Increase profit Decrease profit No effect on profit Razia is considering whether or not to sell on cash terms only. REQUIRED Advise Razia whether or not she should sell on cash terms only. Justify your answer with two advantages and two disadvantages of selling on cash terms only.
3. Verification of accounting records  →  3.2. Correction of errors
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
3. Verification of accounting records  →  3.1. The trial balance
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