7707_w22_qp_23
A paper of Accounting, 7707
Questions:
5
Year:
2022
Paper:
2
Variant:
3
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1
Anika owns property which she rents out to university students. She has made a consistent profit for each year she has been in business. Her trial balance at 31 August 2022 was as follows. Debit Credit $ $ Capital 400 000 Rent receivable 162 000 General expenses 26 500 Bank 39 400 Rates 38 200 Insurance 12 400 Repairs 32 000 Drawings 18 500 Non-current assets at cost Premises 418 000 Fittings 90 000 Provision for depreciation of non-current assets Premises 42 000 Fittings 71 000 675 000 675 000 Additional information At 31 August 2022, rent received of $8100 has been paid in advance. At 31 August 2022, general expenses of $1300 have been paid in advance and rates of $3400 were owing. The insurance includes $1800 paid for the 15 month period ending 30 November 2022. Expenditure of $9000 for new fittings has been recorded in repairs. Depreciation is to be provided as follows: Premises by equal instalments on cost each year over a 50 year period Fittings 20% per annum by the reducing balance method A full year’s depreciation is charged on fittings during the year of purchase. REQUIRED Prepare the income statement of Anika for the year ended 31 August 2022. Anika Income Statement for the year ended 31 August 2022 $ $ Workings: Prepare the capital account for the year ended 31 August 2022 showing the balance brought down at 1 September 2022. Anika Capital account Date Details $ Date Details $ Anika plans to buy more property to rent out. She will need additional capital for this. She has savings earning 3% per annum which she could use for the additional capital. Alternatively, she could invite Janos, a builder, to provide the capital and join her to form a partnership. REQUIRED Advise Anika on her plans and whether she should provide her own additional capital or form a partnership with Janos. Justify your answer. Explain to Anika the difference between capital expenditure and revenue expenditure. Why is this difference between the two important when preparing the financial statements?
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
5. Preparation of financial statements  →  5.6. Incomplete records
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2
Rasheed started a business on 1 October 2021. He maintains a petty cash book in the business. A monthly imprest of $100 is restored on the first day of each month. REQUIRED State two advantages of maintaining a petty cash book. Rasheed’s transactions for the month of September 2022 were as follows. $ September 2 Paid taxi fare 7 Paid purchases ledger account of Crystal 13 Bought postage stamps 18 Paid purchases ledger account of Kalpa 25 Paid bus fare 29 Paid cleaner REQUIRED Complete Rasheed’s petty cash book for the month of September 2022 on the next page. Balance the petty cash book and bring down the balance on 1 October 2022. Clearly show the amount required to restore the imprest. Record the entries which would be made in the following accounts in September 2022. It is not necessary to total or balance the accounts. Rasheed Postage account Date Details $ Date Details $ Purchases ledger Crystal account Date Details $ Date Details $ At the end of his first year in business Rasheed had a closing inventory of $8600. REQUIRED Prepare the inventory account at 30 September 2022. Balance the account and bring down the balance on 1 October 2022. Rasheed Inventory account Date Details $ Date Details $ At the end of his first year in business Rasheed would like to compare his financial performance with other businesses. Explain to Rasheed three problems of inter-firm comparison.
2. Sources and recording of data  →  2.1. The double entry system of book-keeping
2. Sources and recording of data  →  2.3. Books of prime entry
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3
The following balances have been taken from the accounts of RB, a trader. 1 April 2021 31 March 2022 $ $ Insurance 2500 prepaid 850 prepaid Commission receivable 700 owing 630 owing The following transactions relate to the year ended 31 March 2022. All receipts and payments were through the bank account. $ Insurance paid 15 300 Insurance refund Commission receivable 7 200 REQUIRED Prepare the following ledger accounts for the year ended 31 March 2022. Balance the accounts and bring down the balances on 1 April 2022. RB Insurance account Date Details $ Date Details $ Commission receivable account Date Details $ Date Details $ Prepare the entries for insurance and commission receivable in RB’s statement of financial position at 31 March 2022. RB Extract from statement of financial position at 31 March 2022 Explain why the matching principle is important in the preparation of RB’s income statement. RB has arranged with his suppliers to receive a 25% trade discount off list price and a 2% cash discount. The cash discount is only for payments made within 10 days. On 5 March 2022 RB received an invoice from JP for the supply of goods with a list price of $3000. The invoice was paid on 13 March 2022. REQUIRED Calculate each of the following: the trade discount the cash discount the amount paid to the supplier JP Complete the table below indicating with a tick (✓) the effect of each type of discount on gross profit and profit for the year. Discount allowed increase decrease no effect gross profit profit for the year Discount received increase decrease no effect gross profit profit for the year
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
2. Sources and recording of data  →  2.3. Books of prime entry
5. Preparation of financial statements  →  5.6. Incomplete records
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4
The following information is taken from the statement of financial position of C Limited at 1 September 2021. $ 5% Debentures (2024) 60 000 Equity Ordinary share capital ($0.50) 240 000 General reserve 36 000 Retained earnings 22 000 During the year ended 31 August 2022: A final dividend payment of $12 000 was made for the year ended 31 August 2021. An interim dividend payment of $0.02 per share was made for the year ended 31 August 2022. A transfer of $11 000 was made to general reserve. At 31 August 2022 the company proposed a final dividend of $10 000 for the year ended 31 August 2022. The revenue for the year ended 31 August 2022 was $310 000 and the profit (before debenture interest) was $23 000. REQUIRED Prepare the statement for the changes in equity for the year ended 31 August 2022. C Limited Statement of Changes in Equity for the year ended 31 August 2022 Details Share capital $ General reserve $ Retained earnings $ Total $ Calculate to two decimal places the return on capital employed for the year ended 31 August 2022. (Use closing capital employed). Calculate to two decimal places the profit margin for the year. Suggest two ways in which the profit margin could be improved. C Limited plans to buy additional premises. Two options are being considered to raise the finance required. Option 1 Issue 6% debentures to raise $65 000 Option 2 Issue additional ordinary shares to raise $65 000 REQUIRED Evaluate the two options and advise the company on which one they should choose. Justify your answer.
6. Analysis and interpretation  →  6.2. Interpretation of accounting ratios
5. Preparation of financial statements  →  5.6. Incomplete records
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5
NT started in business on 1 September 2020. All sales are on credit and payment is required from customers within 25 days. On 5 May 2021, LW a trade receivable was declared bankrupt and a debt of $600 was written off as irrecoverable at that date. REQUIRED Prepare a journal entry to write off the amount owed by LW. A narrative is required. NT General Journal Date Details Debit $ Credit $ In addition to the irrecoverable debt of LW, other irrecoverable debts of $4100 were written off during the year ended 31 August 2021. Trade receivables at 31 August 2021 were $91 500 and NT decided to create a provision for doubtful debts of 5% of trade receivables. REQUIRED Prepare an extract from the expenses section of NT’s income statement for the year ended 31 August 2021. NT Extract from income statement for the year ended 31 August 2021 Prepare an extract from the assets section of NT’s statement of financial position at 31 August 2021. NT Extract from statement of financial position at 31 August 2021 During the financial year ended 31 August 2022, PB a trade receivable who owed $7000 had been declared bankrupt. On 17 July 2022, NT received payment of $2500 by cheque in final settlement of the debt. The remainder of the debt was written off as irrecoverable. Other irrecoverable debts of $8400 were written off at 31 August 2022. The remaining trade receivables at 31 August 2022 were $110 000 and NT decided to maintain the provision for doubtful debts at 5% of trade receivables. REQUIRED Prepare the following ledger accounts for the year ended 31 August 2022. Bring down the balance on 1 September 2022, where appropriate. NT ledger accounts PB account Date Details $ Date Details $ NT is concerned at the increase in irrecoverable debts during the second year of business. To reduce irrecoverable debts, he is planning to introduce one of the two following options. Option 1: To charge interest on all debts not paid within his standard terms of payment of 25 days. Option 2: To stop supplies to all customers who do not pay within his standard terms of payment of 25 days. Advise NT on which option he should introduce. Justify your answer.
4. Accounting procedures  →  4.4. Irrecoverable debts and provision for doubtful debts
5. Preparation of financial statements  →  5.1. Sole traders
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