7707_w23_qp_22
A paper of Accounting, 7707
Questions:
5
Year:
2023
Paper:
2
Variant:
2
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1
Seok buys and sells goods on credit. He has three credit customers and allows one of them, Naomi, trade discount of 10%. All customers pay Seok by bank transfer. The following balances were extracted from Seok’s sales ledger at 1 August 2023. $ Naomi Siena Bwana The following transactions took place in August 2023. Aug 3 Sold goods on credit, to Naomi, list price $410 Sold goods on credit, $89, to Bwana Naomi returned goods, list price $20 Naomi paid $423 in full settlement of the amount she owed at 1 August Sold goods on credit, $180, to Bwana Sold goods on credit, to Naomi, list price $230 Bwana returned goods, $19 Bwana paid $400 REQUIRED Prepare the sales journal for August 2023. Total the journal and indicate the ledger account where the total would be posted. Seok Sales journal Date Details $ $ Prepare the sales returns journal for August 2023. Total the journal and indicate the ledger account where the total would be posted. Seok Sales returns journal Date Details $ $ Prepare the account for Naomi for August 2023 as it would appear in the books of Seok. Balance the account and bring down the balance at 1 September 2023. Seok Naomi account Date Details $ Date Details $ On 31 August Seok decided to write off the amount owing by Siena as an irrecoverable debt. REQUIRED Prepare Seok’s sales ledger control account for August 2023. Balance the account and bring down the balance at 1 September 2023. Seok Sales ledger control account Date Details $ Date Details $
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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2
Sara owns a clothing factory. She sells the clothing to a small number of local shops. She allows 30 days credit. At 30 September 2023, Sara’s ledger account balances included the following. $ Inventory at 1 October 2022 Raw materials 4 875 Work in progress 8 125 Finished goods 12 890 Purchases of raw materials 56 400 Wages Machine operators 43 300 Factory supervisor 25 000 Delivery vehicle driver 14 250 Rates and insurance 29 600 General factory expenses 9 650 Factory machinery – at cost 80 000 Factory machinery – provision for depreciation 35 000 Trade receivables 27 000 Cash at bank 1 050 Additional information 1. Inventory at 30 September 2023 Raw material 5 110 Work in progress 7 365 Finished goods 13 725 2. At 30 September 2023 general factory expenses of $335 were unpaid. 3. Insurance of $8000 had been paid for the year July 2023 to June 2024. 4. Rates and insurance are to be apportioned equally between the factory and the office. 5. Factory machinery is depreciated at 25% per annum using the reducing balance method. REQUIRED Prepare Sara’s manufacturing account for the year ended 30 September 2023. Sara Manufacturing Account for the year ended 30 September 2023 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Prepare the current assets section of Sara’s statement of financial position at 30 September 2023. Sara Statement of financial position (current assets section) at 30 September 2023 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Sara’s factory supervisor is very efficient at running the factory. REQUIRED State which accounting principle Sara is complying with by not recording any value for this efficiency in her financial statements. Sara has now been asked to supply a local drama school with theatrical costumes. The drama school would place an order with Sara each month and would require 60 days credit. REQUIRED Advise Sara whether she should start supplying the drama school with costumes. Justify your answer by providing advantages and disadvantages of supplying the costumes.
5. Preparation of financial statements  →  5.5. Manufacturing accounts
5. Preparation of financial statements  →  5.6. Incomplete records
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3
Lionel started trading on 1 July 2022. He paid $15 000 of his own personal money into the business bank account. He did not keep full accounting records but has supplied the following information at 30 June 2023. 1. Cash sales of $90 000 were made and paid into the bank. No other money was received. Lionel marks up his goods by 50%. 2. Payments from the bank: $ Purchase of motor vehicle 8 000 Payments to credit suppliers 55 000 Wages 8 060 General expenses 1 140 Rent and insurance 5 585 Motor expenses 4 992 Cash drawn from bank 14 600 3. Purchases returns amounted to $3000. 4. Inventory at 30 June 2023 was valued at $4175. 5. One third of the motor expenses paid were for Lionel’s private car. 6. A full year’s depreciation at 25% is to be charged on the van using the reducing balance method. 7. Lionel withdrew $1000 each month from the business cash, for personal use. The remaining cash drawn from the bank was used to pay wages. REQUIRED Prepare Lionel’s income statement for the year ended 30 June 2023. Lionel Income Statement for the year ended 30 June 2023 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Prepare Lionel’s capital account for the year ended 30 June 2023. Balance the account and bring down the balance at 1 July 2023. Lionel Capital account Date Details $ Date Details $ State one reason why Lionel should keep double-entry bookkeeping records. Lionel currently makes cash sales only. He would like to start selling on credit and is considering whether to offer a 10% trade discount to regular customers or a 3% discount for payment within 21 days. REQUIRED Advise Lionel whether he should offer the 10% trade discount or the 3% cash discount. Justify your answer.
5. Preparation of financial statements  →  5.1. Sole traders
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
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4
Rachel is a trader. The totals of Rachel’s trial balance prepared on 30 September 2023 did not agree and the difference was placed in a suspense account. Rachel later discovered the errors shown in the following table. REQUIRED Complete the following table to show the entries required to correct each error. The first one has been completed as an example. Error Entries required to correct the error Debit Credit Account $ Account $ A payment for rent, $350, had been debited to the wages account. Rent payable Wages The sales journal for September had been overcast by $90. Sales returns, $110, had been recorded as purchases returns. A payment for office expenses, $18, had been recorded in the office expenses account as $81. A petty cash book payment, $29, to Cole, a supplier, had been recorded in the column for motor expenses. Prepare the suspense account. Include the balancing figure as the original difference on the trial balance. Rachel Suspense account Date Details $ Date Details $ Rachel’s draft profit before the errors were discovered was $18 243. REQUIRED Calculate Rachel’s profit for the year ended 30 September 2023 after the errors in the table have been corrected. State why financial statements may still be reliable even if errors are present.
3. Verification of accounting records  →  3.1. The trial balance
3. Verification of accounting records  →  3.2. Correction of errors
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5
Nala is a retailer who sells toys and games. All sales are on a cash basis and all purchases are on credit. She has provided the following information. $ At 31 August 2023: Inventory 6 265 Cash at bank Trade payables 4 880 Capital 125 000 For the year to 31 August 2023: Revenue 98 420 Purchases 78 130 Expenses 11 325 Inventory at 1 September 2022 was valued at $6175. REQUIRED Complete the following table. Ratio Working Answer (to 2 decimal places ) Gross margin Profit margin Return on capital employed (ROCE) Rate of inventory turnover Liquid (acid test) ratio Nala increased her advertising expenses over the year to 31 August 2023 and sells at a lower price than her nearest competitor. This has resulted in Nala selling her inventory faster than her nearest competitor. Nala and her nearest competitor buy inventory at the same prices. Nala is pleased with her results. REQUIRED Explain why Nala should not be entirely pleased with her results. Nala is planning to expand her business and to take out a bank loan to finance the expansion. The loan would be repayable after five years. REQUIRED Advise Nala whether she should obtain a bank loan to expand the business. Justify your answer by providing two points for and two points against obtaining the bank loan to expand the business. State why Nala’s bank manager would be interested in her financial statements if she requests the loan.
6. Analysis and interpretation  →  6.2. Interpretation of accounting ratios
4. Accounting procedures  →  4.1. Capital and revenue expenditure and receipts
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