7707_w22_qp_22
A paper of Accounting, 7707
Questions:
5
Year:
2022
Paper:
2
Variant:
2
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1
BC a sole trader prepared the following trial balance from his accounts on 31 August 2022. Dr Cr $ $ Purchases 120 000 Revenue 231 500 Sales returns 3 600 Inventory 1 September 2021 11 100 Capital 111 900 Bank 4 100 Non-current assets at cost Premises 98 000 Machinery 52 000 Provision for depreciation of non-current assets Machinery 28 400 Commission receivable 2 200 Trade receivables 19 200 Trade payables 7 300 Discount allowed Discount received 1 400 Insurance 9 600 Repairs 12 400 Salaries 53 900 Rates 6 000 Carriage inwards 386 800 386 800 Additional information The closing inventory at 31 August 2022 was valued at $12 000. Commission received of $800 was owing at 31 August 2022. The balance shown for salaries covers the 11 months to 31 July 2022. Salaries for August 2022 are due and unpaid. There have been no salary increases over the previous 12 months and an equal amount is paid each month. At 31 August 2022 rates were prepaid by $300. The insurance included $700 covering a private insurance premium for BC. The repairs included $4000 that related to a new attachment for machinery. Machinery is to be depreciated at the rate of 20% per annum by the reducing balance method. A full year’s depreciation is charged regardless of the date of any purchases. There were no disposals during the year. Premises are not depreciated. REQUIRED Prepare the income statement of BC for the year ended 31 August 2022 BC Income Statement for the year ended 31 August 2022 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Calculate the working capital at 31 August 2022. BC has been making future plans for the business and he needs to purchase $6000 of machinery immediately. There are two options to finance the purchase. Option 1 On credit with the full amount of $6000 payable in 60 days Option 2 Obtain a $6000 8% loan repayable in 5 years REQUIRED Advise BC on which option he should use. Justify your answer.
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
4. Accounting procedures  →  4.2. Accounting for depreciation and disposal of non-current assets
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2
MC is a trader who maintains a full set of accounting records and prepares control accounts at the end of each month. REQUIRED Complete the table to name the book of prime entry which MC would use to obtain information when preparing control accounts. Item Book of prime entry Discount received from credit suppliers Purchases returns Contra entries Interest charged by credit suppliers Explain how a contra entry is treated in the ledger accounts. MC has provided the following information for the month of July 2022. $ On 1 July 2022 Purchases ledger control account credit balance b/d 21 400 Purchases ledger control account debit balance b/d Totals for the month Credit purchases 259 600 Credit purchases returns 9 800 Cash purchases Cheques paid to credit suppliers 228 200 Discount received 12 900 Cash paid to credit suppliers Interest charges by credit suppliers Contra sales ledger 2 260 At 31 July 2022 the purchases ledger control account had a credit balance c/d of $180. REQUIRED Prepare the purchases ledger control account for the month of July 2022. Balance the account and bring down the balances on 1 August 2022. MC Purchases ledger control account Date Details $ Date Details $ Currently MC purchases all goods from a local supplier. He has been offered a monthly price reduction of $2000 if he changes to an annual contract purchasing all goods from a new overseas supplier. REQUIRED Advise MC whether he should change to the new overseas supplier. Justify your answer.
3. Verification of accounting records  →  3.4. Control accounts
2. Sources and recording of data  →  2.1. The double entry system of book-keeping
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3
MG has been in business for a number of years as a furniture manufacturer. On 31 August 2022 the bank column of his cash book showed the business had $25 600 in the bank account. The bank statement on this date showed a credit balance of $24 815. The following transactions were included only in the cash book. $ Cheque paid to JW Cheque received from TH In addition, an error had been identified. A standing order for rates of $205 had incorrectly been recorded in the cash book as $255. The following transactions were included only on the bank statement. $ Dishonoured cheque received from RJ Insurance paid by direct debit Bank charges REQUIRED Update the cash book of MG. Bring down the updated balance on 1 September 2022. MG Cash book (bank columns only) Date Details $ Date Details $ Prepare a bank reconciliation statement at 31 August 2022. MG Bank reconciliation statement at 31 August 2022 State two reasons why a business would prepare a bank reconciliation statement. State two possible reasons why the cheque from RJ was dishonoured. Explain the differences between a direct debit and a standing order. A potential new customer has asked MG for a 5% discount on any orders placed. Advise MG on whether to accept or decline these terms. Justify your answer.
3. Verification of accounting records  →  3.3. Bank reconciliation
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
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4
PG a trader sells electrical components. She has provided the following information for the year ended 31 July 2022. $ Sales journal for the year ended 31 July 2022 360 000 Sales returns journal for the year ended 31 July 2022 13 300 Trade receivables at 1 August 2021 28 500 Provision for doubtful debts at 1 August 2021 1 140 Cash book extract of totals for the year ended 31 July 2022 Discount Allowed Cash Bank Bank $ $ $ $ Trade receivables 6 500 335 100 Trade receivables (dishonoured cheques) 4 000 Sales 17 000 Additional information $900 of trade receivables were written off as irrecoverable debts on 31 July 2022. There were no other irrecoverable debts during the year. The provision for doubtful debts is to be set at 4% of trade receivables at 31 July 2022. REQUIRED Prepare the following ledger accounts for the year ended 31 July 2022. Where appropriate show the balance brought down on 1 August 2022. PG Sales account Date Details $ Date Details $ Provision for doubtful debts account Date Details $ Date Details $ Prepare a relevant extract from PG’s statement of financial position at 31 July 2022. PG Extract from statement of financial position at 31 July 2022 List three ways in which PG could reduce the possibility of irrecoverable debts. State two factors PG should consider when setting the provision for doubtful debts.
4. Accounting procedures  →  4.4. Irrecoverable debts and provision for doubtful debts
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5
Sian and Tom are in partnership sharing profits and losses in proportion to capital invested. The partnership agreement states the following: interest on capital is allowed at 6% per annum Sian is allowed a salary of $20 000 per annum interest on drawings is charged at 3% per annum, charged for each proportion of the year The profit for the year before appropriation for the year ended 31 March 2022 was $59 190. Drawings made during the year were: Sian Tom $ $ 1 April 2021 8 000 10 000 1 October 2021 6 000 12 000 The capital account balances on 1 April 2021 were: $ Sian 150 000 Tom 100 000 REQUIRED Prepare the profit and loss appropriation account for Sian and Tom for the year ended 31 March 2022. Sian and Tom Profit and loss appropriation account for the year ended 31 March 2022 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… The current account balances on 1 April 2021 were: $ Sian 3 000 credit Tom 7 000 debit REQUIRED Prepare the extract from the statement of financial position of Sian and Tom that shows the capital accounts and the full details of their current accounts at 31 March 2022. Sian and Tom Statement of financial position at 31 March 2022 ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… ………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Explain the significance of a debit balance in a partner’s current account. Sian and Tom prepare their financial statements on a going concern basis. Explain the accounting principle of going concern.
5. Preparation of financial statements  →  5.2. Partnerships
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
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