7707_w21_qp_23
A paper of Accounting, 7707
Questions:
5
Year:
2021
Paper:
2
Variant:
3
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1
Shiv is a trader. His financial year ends on 31 August. He does not maintain a full set of accounting records but was able to provide the following information for the year ended 31 August 2021. Total revenue $320 000 Mark-up 25% Bank account summary for the year ended 31 August 2021 $ $ Balance b/d 49 000 Expenses 34 000 Cash sales 3 700 Drawings 4 200 Receipts from trade receivables 312 400 Payments to trade payables 257 700 Equipment 16 000 Balance c/d 53 200 365 100 365 100 Assets and liabilities 1 September 2020 31 August 2021 $ $ Inventory at cost 23 500 ? Trade receivables 22 000 25 900 Expenses owing – Trade payables 32 600 29 600 Equipment at net book value – 12 800 Premises at cost 90 000 90 000 Shiv had withdrawn $900 for a family holiday during the year. He had included this in the expenses. On 31 August 2021 Shiv decided to create a provision for doubtful debts of 3% of trade receivables. REQUIRED Calculate the purchases for the year ended 31 August 2021. Prepare the income statement for the year ended 31 August 2021. The inventory on 31 August 2021 should be clearly shown within the statement. Shiv Income Statement for the year ended 31 August 2021 $ $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Name the accounting principle Shiv should apply when recording the $900 he had used for a family holiday. Shiv has always valued his inventory at cost price. He is considering valuing the inventory on 31 August 2021 at selling price as he believes it would result in a higher profit for the year. REQUIRED Discuss the implications of Shiv valuing the inventory on 31 August 2021 at selling price.
5. Preparation of financial statements  →  5.6. Incomplete records
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2
Jas owns a printing business and has recently incurred various expenditures relating to her premises. REQUIRED Complete the table by inserting a tick (3) to show how each item of expenditure should be classified. The first one has been completed as an example. Capital expenditure Revenue expenditure Building new extension to warehouse Rates on new extension Carriage costs for roof tiles for new extension Legal costs for new extension Repairs to office roof Jas’s business is expanding rapidly and she needs more warehousing space. Jas can rent an additional warehouse. The rent for the first six months would be $40 000. Alternatively, Jas can purchase a warehouse for $900 000. She can obtain a long-term loan of $700 000. REQUIRED Advise Jas whether she should rent or purchase a warehouse. Justify your answer. An extract from Jas’s statement of financial position at 31 December 2019 showed the following: Cost Accumulated Net book depreciation value $ $ $ Fixtures 115 000 77 625 37 375 During the year ended 31 December 2020 the following transactions took place. On 1 January 2020 fixtures, $30 000, were purchased by cheque. On 30 June 2020 fixtures were sold for $6000, which was received by cheque. These fixtures had originally been purchased on 1 January 2018 for $20 000. Jas depreciates fixtures on a straight-line basis. She assumes fixtures will have a useful life of four years, at which time the residual value will be 10% of original cost. Depreciation is charged for each part of the year for which the fixtures are owned. REQUIRED Prepare the following accounts for the year ended 31 December 2020. Balance each account and bring down the balance on 1 January 2021. Jas Fixtures account Date Details $ Date Details $ Jan 1 Balance b/d 115 000 Provision for depreciation of fixtures account Date Details $ Date Details $ Jan 1 Balance b/d 77 625 Prepare the fixtures disposal account for the year ended 31 December 2020. Jas Fixtures disposal account Date Details $ Date Details $ Workings:
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
5. Preparation of financial statements  →  5.1. Sole traders
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3
Anil is a trader. The totals of the trial balance he prepared on 31 December 2020 did not agree. The debits exceeded the credits by $5140. The following errors were later discovered. The sales account had been undercast by $7100. Sales returns of $520 had been posted as a credit to the purchases account. The correct entry had been made in the customer’s account. Bank charges of $320 had been correctly entered in the cash book, but had not been entered in the bank charges account. A cheque refund of $600 for insurance overpaid had been entered on the wrong side of the bank account and no entry had been made in the insurance account. REQUIRED Prepare journal entries to correct errors 1 to 4. Narratives are not required. Anil Journal Error number Details Debit $ Credit $ Complete the suspense account. Anil Suspense account Date Details $ Date Details $ Difference on trial balance Name two types of error not disclosed by a trial balance.
3. Verification of accounting records  →  3.2. Correction of errors
3. Verification of accounting records  →  3.1. The trial balance
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4
Karishma runs her own business. The balances in her books on 1 October 2020 included the following. $ Insurance account 1700 prepaid Electricity account 1800 owing During the financial year ended 30 September 2021 Karishma made the following payments by cheque. Insurance payments $ 7 February 2021 13 August 2021 Electricity payments $ 14 October 2020 24 January 2021 26 May 2021 A refund of $300 for insurance overpaid was received by bank transfer on 28 February 2021. The insurance paid on 13 August 2021 covered a period of five months to 31 December 2021. At 30 September 2021, an amount of $2000 was owing for electricity. REQUIRED Prepare the following accounts for the year ended 30 September 2021. Balance the accounts and bring down the balances on 1 October 2021. Karishma Insurance account Date Details $ Date Details $ Electricity account Date Details $ Date Details $ Karishma is considering changing her electricity supplier. The new supplier has offered Karishma a two-year contract at a fixed monthly amount of $450 payable by direct debit. REQUIRED Advise Karishma whether she should change to the new electricity supplier. Justify your answer with two advantages and two disadvantages of changing supplier. On 1 October 2020 Karishma decided to rent out part of her premises to Noor at an annual rent of $1965. During the financial year ended 30 September 2021 Noor made the following payments to Karishma by cheque. $ 1 October 2020 2 March 2021 8 August 2021 The amount received on 8 August 2021 included rent of $510 covering the period 1 October 2021 to 31 December 2021. REQUIRED Prepare the rent receivable account for the year ended 30 September 2021. Balance the account and bring down the balance on 1 October 2021. Karishma Rent receivable account Date Details $ Date Details $ Identify the section of the statement of financial position at 30 September 2021 in which the balance on the rent receivable account would appear.
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
1. The fundamentals of accounting  →  1.2. The accounting equation
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5
The financial year of VL Sports Club ends on 31 December. The treasurer provided the following information about receipts and payments for the year ended 31 December 2020. Receipts $ Subscriptions 19 200 Competition receipts 7 300 Dinner dance ticket sales 6 500 Payments $ Competition prizes 4 100 Dinner dance costs 6 200 Equipment 12 000 General expenses 11 500 The treasurer also provided the following information. 1 January 2020 31 December 2020 $ $ Equipment at net book value 23 000 30 000 General expenses owing Subscriptions in arrears Subscriptions in advance 1 100 Of the subscriptions in arrears on 1 January 2020 an amount of $80 had not been paid by 31 December 2020 and is to be written off as irrecoverable. REQUIRED Prepare the subscriptions account for the year ended 31 December 2020. Balance the account and bring down the balances on 1 January 2021. VL Sports Club Subscriptions account Date Details $ Date Details $ REQUIRED Prepare the income and expenditure account for VL Sports Club for the year ended 31 December 2020. VL Sports Club Income and Expenditure Account for the year ended 31 December 2020 $ $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… The treasurer of VL Sports Club wants to encourage more members to pay their subscriptions in advance by offering a 10% reduction in annual subscription fees. Advise the treasurer whether or not VL Sports Club should offer this reduction in annual subscription fees to members who pay in advance. Justify your answer with one advantage and one disadvantage.
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
5. Preparation of financial statements  →  5.4. Clubs and societies
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