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Level 2
Model Answers
Series 3 2008 (Code 2007)
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Book-Keeping & Accounts Level 2
Series 3 2008
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additional information and guidance to Centres, teachers and candidates as they prepare for LCCI
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plus a fully worked example or sample answer (where applicable)
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Page 1 of 13
Page 2 of 13
Book-Keeping & Accounts Level 2
Series 3 2008
QUESTION 1
The following figures extracted from the books for the month ended 31 July 2007:
£
Cash purchases 57,309
Credit purchases 316,773
Returns outwards 5,499
Payments by cheque to creditors 289,440
Carriage charged to debtors 14,805
Transfers of debit balances in sales ledger to purchases ledger 12,825
Interest charged to debtors 1,467
Credit sales 597,804
Returns inwards 8,721
Bad debts written off 3,840
Discounts received 7,728
Cash sales 343,446
Debtors cheque dishonoured 11,877
Discount allowed 16,647
Payments from debtors by cheque 651,690
Allowance to a debtor, Jenny, for damaged goods 2,250
REQUIRED
(a) Prepare the following for the month ended 31 July 2007:
(Total 25 marks)
2007/3/08/MA Page 3 of 13
MODEL ANSWER TO QUESTION 1
2007 £ 2007 £
July 01 Balance b/d 1,458 July 01 Balance b/d 111,129
July 31 Returns outwards 5,499 July 31 Purchases 316,773
July 31 Bank 289,440 July 31 Balances c/d 2,535
July 31 Contra 12,825
July 31 Discount received 7,728
July 31 Balances c/d 113,487
430,437 430,437
Aug 01 Balance b/d 2,535 Aug 01 Balance b/d 113,487
2007 £ 2007 £
July 01 Balance b/d 196,326 July 01 Balance b/d 5,580
July 31 Carriage 14,805 July 31 Contra 12,825
July 31 Interest 1,467 July 31 Returns inwards 8,721
July 31 Sales 597,804 July 31 Bad debts 3,840
July 31 Dishonoured cheque 11,877 July 31 Discount allowed 16,647
July 31 Balance c/d 9,693 July 31 Bank 651,690
July 31 Jenny – allowance 2,250
July 31 Balance c/d 130,419
831,972 831,972
Aug 01 Balance b/d 130,419 Aug 01 Balance b/d 9,693
The location of errors via control accounts eliminates the need to consider the sales and
purchases ledgers when errors are revealed by the trial balance.
An audit of staff efficiency where control accounts are prepared independently by a senior
member of staff.
For management purposes, control account balances can be taken to equal debtors and creditors
without the extraction of individual balances.
2007/3/08/MA Page 4 of 13
QUESTION 2
Joe and Sue have been in partnership for some years sharing profits in the ratio 3:2 respectively.
On 30 September 2007 their Balance Sheet was as follows:
£ £
Fixed Assets
Plant and Equipment 30,000
Fixtures and Fittings 14,000
44,000
Current Assets
Stock 19,100
Debtors 12,000
Bank 6,100
37,200
Current Liabilities
Creditors 6,400
30,800
74,800
Capital Accounts
Joe 30,000
Sue 40,000
70,000
Current Accounts
Joe 1,000
Sue 3,800
4,800
74,800
On 1 October 2007, Lyn joined the partnership. She introduced a vehicle valued at £5,000 and paid
£10,000 into the partnership bank account.
Plant and equipment was revalued at £56,000, fixtures and fittings at £24,000 and stock at £17,710.
Goodwill was valued at £15,000, although no account was retained for goodwill. Joe, Sue and Lyn
agreed to share profits and losses in the ratio 3:2:1 respectively.
REQUIRED
(b) Capital Accounts for Joe, Sue and Lyn in columnar format (10 marks)
(Total 25 marks)
2007/3/08/MA Page 5 of 13
MODEL ANSWER TO QUESTION 2
(a)
Revaluation Account
£ £
Provision for doubtful debts 360 Plant and equipment 26,000
(12,000 x 3%) (56,000 - 30,000)
Stock (19,100 - 17,710) 1,390 Fixtures and fittings 10,000
Capital a/c Joe (3/5) 20,550 (24,000 - 14,000)
Capital a/c Sue (2/5) 13,700
36,000 36,000
(b)
Capital Accounts
Joe Sue Lyn Joe Sue Lyn
£ £ £ £ £ £
Goodwill (3 : 2 : 1) 7,500 5,000 2,500 Balances b/d 30,000 40,000
Balances c/d 52,050 54,700 12,500 Vehicle 5,000
Bank 10,000
Goodwill (3 : 2) 9,000 6,000
2007/3/08/MA Page 6 of 13
MODEL ANSWER TO QUESTION 2 CONTINUED
£
Fixed Assets
Plant and Equipment 56,000
Fixtures and Fittings 24,000
Vehicle 5,000
85,000
Current Assets
Stock 17,710
Debtors 12,000
Less Provision for doubtful debts (360) 11,640
Bank 16,100
45,450
Current Liabilities
Creditors 6,400
Net Current Assets 39,050
124,050
Capital Accounts
Joe 52,050
Sue 54,700
Lyn 12,500
119,250
Current Accounts
Jo 1,000
Sue 3,800
4,800
124,050
2007/3/08/MA Page 7 of 13
QUESTION 3
Lucy West depreciates her motor vehicles at of 25% per annum using the reducing balance method.
She provides a full year's depreciation on assets in the year of purchase and provides no depreciation
in the year of disposal.
On 30 November 2007, she traded in the vehicle purchased in 2005 for a new vehicle. The old vehicle
was traded in for £22,000 and the purchase price of the replacement vehicle was £42,000, the balance
being paid by cheque.
REQUIRED
Prepare the following accounts, for each of the years ended 31 December 2005, 2006 and 2007:
Items which appear in a Sales Ledger Control Account or a Purchase Ledger Control Account could
include the following:
REQUIRED
(e) List the numbers (i) to (viii) in your answer book and against each number state the name of the
appropriate book of prime entry. The first is completed as an example.
(Total 25 marks)
2007/3/08/MA Page 8 of 13
MODEL ANSWER TO QUESTION 3
2007/3/08/MA Page 9 of 13
QUESTION 4
Jeremy sells goods at a mark-up of 25% on cost. During the year ended 31 December 2007 there
was a fire which damaged a quantity of his stock.
Jeremy needs to identify the amount of the stock lost for an insurance claim.
REQUIRED
(a) Prepare a Trading Account for Jeremy for the year ended 31 December 2007, showing the stock
loss resulting from the fire.
(11 marks)
Samantha has six lines of stock in her business. At 31 March 2008, the following information is
available regarding her stock:
Stock type Number of units in stock Cost per unit Selling price per unit
£ £
Skirts 10 32 0
Dresses 17 48 37
Jeans 15 36 48
Jumpers 12 24 28
Trousers 24 44 48
Cardigans 11 32 44
(ii) The stock of trousers needs an additional cost of £2 per unit to be incurred in bringing the
stock into a saleable condition
REQUIRED
(b) Calculate the value of Samantha’s stock, at 31 March 2008. (14 marks)
(Total 25 marks)
2007/3/08/MA Page 10 of 13
MODEL ANSWER TO QUESTION 4
(a) Jeremy
Trading Account for the year ended 31 December 2007
£ £
Sales 320,000
Less Sales returns 8,000
312,000
Opening stock 34,000
Purchases (284,600 + 14,400 - 17,000) 282,000
Stock loss (30,400)
Less Closing stock (36,000)
Cost of sales (312,000 x 80%) 249,600
Gross profit (312,000 x 20%) 62,400
(b)
Stock type Units Value per unit Total
£ £
Skirts 10 0 0
Dresses 17 37 629
Jeans 15 36 540
Jumpers 12 24 288
Trousers 24 44 1,056
Cardigans 31 32 992
3,505
2007/3/08/MA Page 11 of 13
QUESTION 5
Jack Brown’s book-keeper prepared his trial balance at 31 May 2008. The trial balance contained the
balances for the Sales Ledger Control Account and the Purchase Ledger Control Account. The book-
keeper was unable to make the trial balance totals agree and therefore opened a suspense account.
(i) Discounts allowed of £60 had been incorrectly credited to the discount received account.
(ii) A credit note from Black, a supplier, for £120 was incorrectly entered in the Purchases Return
Journal as £160.
(iii) A vehicle had been sold during the year for which Jack had received a cheque for £5,000. This
had been entered on the wrong side of the cash book although treated correctly in the disposal
account.
(iv) It is company policy not to depreciate vehicles in the year of disposal. An entry of £250 had been
incorrectly entered in the provision for depreciation account for a vehicle sold on 8 April 2008.
(v) Jack had taken goods amounting to £1,200 at cost for his own use. No entries had been made in
the books.
(vi) Rent paid by Jack Brown of £580 was correctly entered in the cash book but entered in the rent
payable account as £850.
(vii) Cash of £200 was received from a debtor with regard to a debt which had been written off in
March 2007. This had been correctly entered in the cash book but no other entry had been
made.
Once these errors had been corrected the trial balance totals agreed.
REQUIRED
(a) Prepare journal entries to correct the above errors. Narratives are not required. (17 marks)
(b) Prepare the Suspense Account, correcting the errors above, and showing the opening balance.
(8 marks)
(Total 25 marks)
2007/3/08/MA Page 12 of 13
MODEL ANSWER TO QUESTION 5
(a) Dr Cr
£ £
Discounts received 60
Discounts allowed 60
Suspense 120
Purchases returns 40
Purchases ledger control account 40
Bank 10,000
Suspense 10,000
Drawings 1,200
Purchases 1,200
Suspense 270
Rent 270
Suspense 200
Bad debts recovered 200
Sales 900
Sales ledger control account 900