7707_w21_qp_22
A paper of Accounting, 7707
Questions:
5
Year:
2021
Paper:
2
Variant:
2
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1
Ayesha is a trader who maintains a full set of accounting records and prepares control accounts at the end of each month. She provided the following information for the month of August 2021. $ On 1 August Sales ledger control account debit balance 9 800 Sales ledger control account credit balance Purchases ledger control account credit balance 7 700 Totals for the month Credit sales 88 850 Credit purchases 55 400 Cash purchases 1 860 Receipts from customers 82 100 Payments to credit suppliers 50 600 Discount received Discount allowed Irrecoverable debt written off Provision for doubtful debts Sales returns 2 400 Interest charged to customer on overdue account Contra between sales ledger and purchases ledger 2 920 The sales ledger control account credit balance brought down on 1 September 2021 was $350. REQUIRED Prepare the sales ledger control account and the purchases ledger control account for August 2021. Balance the accounts and bring down the balances on 1 September 2021. Name the book of prime entry which Ayesha would use to obtain the following information when preparing her sales ledger control account. Item Book of prime entry Returns Discount allowed Interest charged to customer on overdue account Contra entry Suggest two reasons why the sales ledger control account had a credit balance of $420 on 1 August 2021.
3. Verification of accounting records  →  3.4. Control accounts
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2
Jabir owns an electrical wholesale business. The following balances appeared in his books on 30 September 2021. $ Inventory 8 000 Purchases 109 000 Trade payables 11 600 Revenue 160 000 Trade receivables 22 600 Operating expenses 35 200 The inventory on 1 October 2020 was $11 000. All sales and purchases were on a credit basis. REQUIRED Calculate the gross profit and profit for the year. Calculate the gross margin. Advise Jabir on two actions he could take to improve his gross margin. Calculate the trade receivables turnover. Round up your answer to the next whole day. Jabir wants to increase his credit sales and is considering allowing his credit customers an extra 14 days above his current trade receivables turnover. REQUIRED Advise Jabir whether he should allow his credit customers an extra 14 days above his current trade receivables turnover. Justify your answer. Calculate the trade payables turnover. Round up your answer to the next whole day. Jabir’s credit suppliers are prepared to double the rate of his trade discount provided he increases his current monthly purchases by 20%. REQUIRED Advise Jabir whether he should increase his current monthly purchases by 20% to earn the additional trade discount. Justify your answer.
5. Preparation of financial statements  →  5.6. Incomplete records
4. Accounting procedures  →  4.5. Valuation of inventory
6. Analysis and interpretation  →  6.2. Interpretation of accounting ratios
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3
On 31 July 2021 the following information was provided by KA Limited, a manufacturer of garden tools. $ Inventory 1 August 2020 Raw materials 5 820 Work in progress 1 750 Finished goods 12 360 Purchases Raw materials 34 200 Finished goods 3 900 Carriage on purchases Raw materials Finished goods Direct wages 67 200 Indirect factory wages 24 000 Factory machinery at cost 47 000 Provision for depreciation of factory machinery 11 000 Factory general overheads 16 400 Rates 5 300 Inventory 31 July 2021 Raw materials 6 030 Work in progress 2 780 Finished goods 10 340 Revenue 223 000 Additional information On 31 July 2021 rates, $500, were prepaid. Rates are to be apportioned 75% factory, 25% office. On 31 July 2021 factory general overheads, $230, were accrued. Factory machinery is to be depreciated at 20% per annum using the reducing balance method. REQUIRED Prepare the manufacturing account of KA Limited for the year ended 31 July 2021. Prepare the income statement (trading section) of KA Limited for the year ended 31 July 2021. KA Limited Income Statement (Trading section) for the year ended 31 July 2021 ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… DH Limited, a customer of KA Limited, has been declared bankrupt. A debt of $350 was owing to KA Limited. This is to be written off. REQUIRED Prepare the journal entry to record the irrecoverable debt. A narrative is not required. KA Limited Journal Details Debit $ Credit $ KA Limited maintains a provision for doubtful debts. REQUIRED Explain how maintaining a provision for doubtful debts is an application of each of the following accounting principles. Matching Prudence
5. Preparation of financial statements  →  5.5. Manufacturing accounts
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
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4
Nikita is a trader. The totals of her trial balance at 30 June 2021 did not agree. The debits exceeded the credits by $2600. Nikita opened up a suspense account. The following errors were later discovered. Insurance of $2500 had been entered as $4500 in the insurance account. The correct entry had been made in the cash book. The total of the discount received column in the cash book of $500 had been debited to the discount allowed account in the general ledger. Credit sales of $1400 to Kajal had been correctly entered in the sales account, but debited as $1000 in Kajal’s account. A cheque of $700 received from Anisah had been correctly entered in the cash book, but credited to Aisha’s account. REQUIRED Prepare journal entries to correct errors 1 to 4. Narratives are not required. Nikita Journal Error number Details Debit $ Credit $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Prepare the suspense account. Start with the difference on the trial balance. Nikita Suspense account Date Details $ Date Details $ Complete the statement to show the effect on the profit for the year of correcting errors 1 to 4. Where the error does not affect profit write ‘no effect’. Calculate the corrected profit for the year. Nikita Statement of corrected profit for the year ended 30 June 2021 $ Profit for the year before corrections 28 000 Increase in profit $ Decrease in profit $ Error 1 Error 2 Error 3 Error 4 _________ _________ _________ _________ _________ Corrected profit for the year _________
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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5
Simon has a business selling office stationery. On 1 January 2019 he owned two delivery vehicles which had been purchased on 1 January 2018. Delivery vehicle A had cost $30 000 and delivery vehicle B had cost $25 000. Simon uses the straight-line method for depreciating the delivery vehicles. A rate of 20% per annum on cost is used, with the rate being applied for each part of the year for which the delivery vehicles are owned. Due to a decline in business, delivery vehicle B was sold on 31 March 2020 and a cheque for $10 350 was received. Delivery vehicle A was still in use at the end of 2020. REQUIRED Complete the following accounts for each of the years ended 31 December 2019 and 2020. Balance the accounts at the end of each year where appropriate. Simon Delivery vehicles account Date Details $ Date Details $ Jan 1 Balance b/d 55 000 Delivery vehicles disposal account Date Details $ Date Details $ Simon’s sister Yasmin is also in business and depreciates her delivery vehicles by the reducing balance method. Simon is considering whether to apply the reducing balance method of depreciation to his delivery vehicles. REQUIRED Advise Simon whether he should apply the reducing balance method of depreciation. Justify your answer.
4. Accounting procedures  →  4.2. Accounting for depreciation and disposal of non-current assets
5. Preparation of financial statements  →  5.1. Sole traders
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