Book-Keeping & Accounts Level 2

Model Answers Series 2 2005 (Code 2006)

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Book-Keeping & Accounts Level 2 Series 2 2005

How to use this booklet

Model Answers have been developed by Education Development International plc (EDI) to offer additional information and guidance to Centres, teachers and candidates as they prepare for LCCI International Qualifications. The contents of this booklet are divided into 3 elements: (1) Questions – reproduced from the printed examination paper (2) Model Answers – summary of the main points that the Chief Examiner expected to

see in the answers to each question in the examination paper, plus a fully worked example or sample answer (where applicable)

(3) Helpful Hints – where appropriate, additional guidance relating to individual

questions or to examination technique Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success. EDI provides Model Answers to help candidates gain a general understanding of the standard required. The general standard of model answers is one that would achieve a Distinction grade. EDI accepts that candidates may offer other answers that could be equally valid.

© Education Development International plc 2005 All rights reserved; no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the Publisher. The book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover, other than that in which it is published, without the prior consent of the Publisher.

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Book-Keeping & Accounts Level 2 Series 2 2005 QUESTION 1 A trainee with a local firm of accountants has been given two unrelated tasks to undertake: Task One James Smith who does not maintain double-entry records supplied the following information: £ £ Creditors at 29 February 2004 16,500 Creditors at 28 February 2005 17,530 Debtors at 29 February 2004 31,810 Debtors at 28 February 2005 39,237 Year ended 28 February 2005 £ Cash received from debtors 219,000 Cash sales 41,900 Cash paid to creditors 108,470 Discounts allowed 1,900 Discounts received 745 Cash purchases 26,100 Sales ledger/Purchase ledger contra 2,500 Goods taken by the owner without payment 1,100 REQUIRED (a) Calculate the value of both total sales and total purchases for the year ended 28 February 2005.

(15 marks)

Task Two On 1 September 2002 a motor vehicle van AB1 was purchased by Seacamp Ltd and an inspection of the invoice for the transaction revealed the following information: £ List price of vehicle (before deduction of trade discount of 20%) 20,000 Sign-writing the vehicle 3,600 Cost of delivering vehicle to firm's warehouse 200 Annual road fund licence 250 Fitting of internal racks 1,200

Full tank of petrol 75 On 1 July 2004, AB1 was sold and Seacamp Ltd received a cheque for £10,800. The depreciation policy of the firm is to provide full years' depreciation in the year of purchase and to provide on a monthly basis in the year of sale. All vehicles are depreciated straight line at 25% per annum and AB1 was assumed to have a residual value of £6,600. Seacamp’s year-end is 30 September. REQUIRED (b) Prepare a schedule showing the value of the delivery vehicle, which should have been capitalised

by the firm on 1 September 2002. (5 marks)

(c) Prepare the Asset Disposals Account of Seacamp Ltd for the year ended 30 September 2004.

No other asset sales took place during the year. (5 marks)

(Total 25 marks)

CONTINUED ON NEXT PAGE

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Model Answer for Question 1 (a) Sales £ £

Closing sales ledger balance 39,237 Cash received 219,000

Cash sales 41,900 Discounts allowed 1,900 Purchase ledger contra 2,500 304,537 Less: Opening sales ledger balance 31,810 Total sales 272,727 Purchases Closing purchases ledger balance 17,530 Cash paid 108,470 Cash purchases 26,100 Discounts received 745 Sales ledger contra 2,500 155,345 Less: Opening purchase ledger balance 16,500 Goods taken by owner - drawings 1,100 17,600 Total purchases 137,745

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Model Answer for Question 1 continued (b) £ £

Vehicle List Price 20,000 Less: 20% 4,000 16,000 Add: Signwriting 3,600 Delivery cost 200 Internal racks 1,200 5,000 Capitalised value of AB1 21,000 (5 marks)

(c)

Asset Disposals 2004 £ 2004 £ 01 Jul Motor vehicle 21,000 01 Jul Bank 10,800 Depn Prov 9,900 30 Sep Profit & Loss 300 21,000 21,000

[1] Depreciation workings:

£ £

Capital value of AB1 21,000 Less: residual value 6,600

14,400

Depreciated over 4 years = 3,600 per year 300 per month

Total depreciation provided Year end

2002 3,600 2003 3,600 2004 2,700 (9 months)

9,900

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QUESTION 2 The following balances appeared in the books of D Cullum on 31 December 2004: £ Purchases for re-sale 88,283 Sales 191,005 Wages and salaries 32,006 General operating expenses 55,100

Returns inwards 648 Returns outwards 376 Premises 120,000 Stock 7,521 Discounts allowed 359 Discounts received 494 Debtors 11,272 Creditors 9,980 Cash in hand 810 Bank (in hand) 8,656 Vehicle – cost 8,200 Vehicle – provision for depreciation 4,100 Capital account 127,000 When the Trial Balance was prepared, it did not agree and the difference was posted to a suspense account whilst provisional final accounts were prepared. REQUIRED (a) Calculate the opening balance on the Suspense Account clearly stating whether this is a debit or a credit.

(2 marks)

The following errors were subsequently discovered: (1) A £70 discount, given by a supplier, was correctly dealt with in the supplier's account but entered in the discounts allowed column of the cash book.

(2) Stationery, costing £50, had been posted to the Office Equipment Account. (3) The sales day book had been over-added by £220. (4) A purchases invoice from M Gann for £165 had been entered in the day book as £156. (5) A credit note for £320, issued to customer P Jewell, had been posted to the wrong side of his account. (6) No entries had been made in the books in respect of a cash purchase for £90. REQUIRED (b) Prepare Journal entries to correct the above errors and omission. Narratives are not required.

(15 marks) (c) Write up the Suspense Account to reflect the journal corrections.

(6 marks) Correction of the above errors and omission did not result in the Suspense Account being cleared. REQUIRED (d) State 2 alternative ways in which D Cullum may treat the remaining balance on the Suspense Account at 31 December 2004.

(2 marks)

(Total 25 marks)

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Model Answer for Question 2 (a) £

Total credit balances 332,955 Total debit balances 332,855 Suspense Account balance - Dr 100

(b) £

DR £

CR

Suspense 140 Discounts allowed 70 Discounts received 70 Stationery 50 Office equipment 50 Sales 220 Suspense 220 Purchases 9 M Gann 9 Suspense (2 x 320) 640 P Jewell (2 x 320) 640 Purchases 90 Cash 90

(c)

Suspense Account 2004 £ 2004 £

31 Dec Difference 100 31 Dec Sales 220 31 Dec Discount allowed 70 31 Dec Bal c/d 660 31 Dec Discount recv'd 70 31 Dec P Jewell 640 880 880

(d) D Cullum may either: [1] Write off the balance as an expense to profit & loss or [2] Include the balance under current assets to await further investigations

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QUESTION 3 Evening and Primrose are in partnership sharing profits and losses in the ratio 2:1. Following completion of their accounts for year ended 31 December 2004 the following balances remained in the books: Dr Cr £ £ Capital Accounts: Evening 180,000 Primrose 90,000 Current Accounts: Evening 12,745 Primrose 9,225 Fixed Assets at net book value: Freehold Property 133,250 Vehicles 80,000 Office Equipment 30,000 Debtors 3,770 Creditors 2,070 Stock 19,130 Bank 2,400 On 1 January 2005, Olba was admitted into the partnership sharing profits and losses equally with Evening and Primrose. Olba’s capital contribution to the partnership was £60,000 in cash, paid into the partnership bank account, stock of £3,000 and a vehicle valued at £15,000. At the same date, certain partnership assets were revalued as follows: Revised Values £ Freehold Property 160,500 Vehicles 70,000 Debtors 3,500 Goodwill of the partnership was considered to be worth £90,000, although no goodwill account was to be either opened or retained in the partnership books. It was also agreed that the current account balances of Evening and Primrose at 31 December 2004 should be transferred to their respective capital accounts. REQUIRED (a) The Revaluation Account in the books of the partnership.

(5 marks) (b) The partners’ Capital Accounts, in columnar form, to reflect the above transactions.

(14 marks) (c) The opening Balance Sheet of Evening, Primrose and Olba.

(6 marks)

(Total 25 marks)

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QUESTION 4 The accounts of W Thrush are prepared on a monthly basis. Owing to staff holidays the usual month end stocktaking for July 2004 did not take place. The following information was subsequently obtained: (1) The accounts for the month ended 30 June 2004 showed stock in trade at that date of £56,800. Stock is always valued at cost price. (2) The stock sheets at 30 June 2004 had been over-added by £850. (3) Sales during July 2004 amounted to £42,600. All sales include a mark-up of 25%. (4) Goods purchased by W Thrush during July 2004 cost £29,800. (5) Returns made by customers during July 2004 amounted to £725 at selling price. (6) Returns of goods to suppliers during July 2004 amounted to £1,350 at cost price. (7) It was decided that a quantity of stock, valued at full cost at 30 June 2004, and which would normally sell for £2,400, could now only be sold at half cost price. (8) Included in the July 2004 sales figure were goods on sale or return with a sales value of £650. The customer has still not indicated her intention with regard to the goods. REQUIRED (a) Prepare a calculation showing W Thrush’s stock valuation at 31 July 2004. Your answer should

commence with the value of stock at 30 June 2004 of £56,800 and finish with your stock valuation at 31 July 2004. Marks will be awarded for presentation.

(15 marks) (b) Prepare, in vertical format, the Trading Account of W Thrush for the month ended 31 July 2004.

(10 marks)

(Total 25 marks)

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Model Answer for Question 4 (a) £ £ £

Opening stock at 1 July 2004 56,800 Less: Over-added stock 850 July sales 42,600 1.25 34,080 Purchases returns 1,350 Reduced price 2,400 = 1,920 x 50% = 960 1.25 37,240 19,560 Add: July purchases 29,800 Sales returns 725 1.25 580 Sale or return 650 1.25 520 30,900 Closing stock at 31 July 2004 50,460 (15 marks)

(b) W Thrush

Trading Account for the month ended 31 July 2004 £ £ £ Sales (42,600 - 650) 41,950 Less: returns 725 41,225 Cost of Sales **Opening stock (56,800 - 850) 55,950 Purchases 29,800 Less: returns 1,350 28,450 84,400 Closing stock 50,460 33,940 Gross Profit 7,285

** Assumed that June accounts will have been adjusted for stock overvaluation

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