4.1. Capital and revenue expenditure and receipts
A subsection of Accounting, 7707, through 4. Accounting procedures
Listing 10 of 85 questions
Stella started in business as a retailer on 1 April 2023. She sells one type of good only. She has not kept a full set of accounting records but has provided the following information. Half of Stella’s purchases were on cash terms and half on credit terms. During the year ended 31 March 2024, Stella paid $34 250 to credit suppliers. On 31 March 2024, she owed $2960 to credit suppliers. Unlike her competitors, Stella made all of her sales for cash. Stella’s mark-up was 32%. The following amounts were paid for expenses during the year to 31 March 2024. $ Rent and insurance Wages Other expenses At 31 March 2024, $300 was unpaid for wages and $500 was paid in advance for rent. Insurance is $2400 per annum. On 1 April 2023, Stella paid $3000 for insurance for the following 15 months. Other expenses included $120 paid for vases and flowers. One third of these were for Stella’s own home. Stella treats business costs of under $150 as revenue expenditure. Inventory was valued at $6420 at 31 March 2024. REQUIRED Calculate total purchases for the year ended 31 March 2024. Prepare Stella’s income statement for the year ended 31 March 2024. Stella Income Statement for the year ended 31 March 2024 $ $ Stella’s sales revenue was the same each month for the year to 31 March 2024. She is now considering selling on credit terms as well as for cash. REQUIRED Advise Stella whether or not to start selling on credit terms. Justify your answer by providing points for and against starting selling on credit. State: the accounting principle which Stella is following when she treats payments for small items which may last longer than one year, as revenue expenditure. one advantage of following the principle in 5. State two advantages of maintaining a full set of double entry accounting records.
7707_s24_qp_21
THEORY
2024
Paper 2, Variant 1
View
BH Sports Club provides sporting facilities and a café for the use of its members and guests. The club’s financial year ends on 31 July. The following information is available. Assets and liabilities At 1 August $ At 31 July $ Bank Café inventory Sports hall at book value 17 000 16 560 Insurance prepaid – sports hall and sports equipment Sports equipment at book value ? Subscriptions in arrears Subscriptions received in advance – Wages accrued – café staff Receipts and Payments Account for the year ended 31 July 2020 Details $ Details $ Balance b/d Purchases of café supplies 8 190 Subscriptions received 9 960 Wages – café staff 2 750 Café takings 13 520 Wages – sports staff 5 220 Insurance – sports hall and sports equipment 1 430 Sports equipment 2 100 Sports hall expenses 3 360 Balance c/d 1 270 24 320 24 320 Additional information Sports equipment is depreciated at 10% per annum using the reducing balance method. REQUIRED Prepare the subscriptions account for the year ended 31 July 2020. Balance the account and bring down the balances on 1 August 2020. BH Sports Club Subscriptions account Date Details $ Date Details $ Calculate the café profit for the year ended 31 July 2020. Prepare the income and expenditure account for the year ended 31 July 2020. BH Sports Club Income and Expenditure Account for the year ended 31 July 2020 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. $ ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. State what the balance on BH Sports Club’s accumulated fund represents. State the effect that the surplus or deficit on BH Sports Club’s income and expenditure account for the year ended 31 July 2020 will have on the accumulated fund.
7707_w20_qp_22
THEORY
2020
Paper 2, Variant 2
View
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.
7707_w21_qp_23
THEORY
2021
Paper 2, Variant 3
View
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?
7707_w22_qp_23
THEORY
2022
Paper 2, Variant 3
View
Questions Discovered
85