Professional Documents
Culture Documents
Model Answers
Series 4 2008 (2006)
Model Answers have been developed by 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:
(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)
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.
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Page 1 of 12
QUESTION 1
The following balances appeared in the ledger of P Tong plc following the preparation of the
Profit & Loss Account for the year ended 31 December 2007:
£000 £000
Ordinary shares £0.25 12,000
3% £1 preference share capital 600
Interim ordinary dividend paid 560
Preference dividend paid 18
Freehold land and buildings at cost 10,400
Provision for depreciation of land and buildings 80
Plant and machinery at cost 13,880
Provision for depreciation of plant and machinery 1,632
Motor vehicles at cost 3,720
Provision for depreciation of motor vehicles 860
Fixtures and fittings at cost 3,420
Provision for depreciation of fixtures and fittings 580
Debtors 5,920
Creditors 3,840
Bank 1,750
Cash in hand 260
Stock 4,292
Share Premium 2,640
Prepayments 290
Accruals 262
8% Loan (repayable 30 June 2012) 2,800
Loan interest accrued 112
5% debenture (repayable 31 March 2008) 1,600
Profit & Loss Account 8,656
Net profit 3,880
Revaluation Reserve 1,468
42,760 42,760
The directors of P Tong plc have decided to pay a final dividend of £0.04 per ordinary share.
REQUIRED
(a) Prepare the Appropriation Account for the year ended 31 December 2007. (7 marks)
(b) Prepare, in vertical format, the Balance Sheet at 31 December 2007. (14 marks)
(Total 25 marks)
2006/4/08/MA Page 2 of 12
MODEL ANSWER TO QUESTION 1
(a)
P Tong plc
Appropriation Account
for the year ended 31 December 2007
£000 £000
2006/4/08/MA Page 3 of 12
MODEL ANSWER TO QUESTION 1 CONTINUED
(b)
P Tong plc
Balance Sheet at 31 December 2007
Current assets
Stock 4,292
Debtors 5,920
Prepayments 290
Cash 260
10,762
Shareholders' funds
Capital and reserves
Called up ordinary share capital:
48,000,000 £0.25 ordinary shares 12,000
Share premium account 2,640
Revaluation reserve 1,468
Profit & Loss (8,656 + 1,382) 10,038
Ordinary shareholders funds 26,146
600,000 3% £1 preference shares 600
Total shareholders' funds 26,746
(d) Illustrates the company's ability to repay its short term debts
2006/4/08/MA Page 4 of 12
QUESTION 2
A Choo, B Chang and C Mei have been in partnership sharing profits and losses in the proportion
2:2:1 respectively. The partnership Balance Sheet at 31 January 2008 was as follows:
£ £
Fixed Assets
Goodwill 54,000
Fixtures and fittings 144,900
Motor vehicles 82,200
281,100
Current Assets
Stock 33,300
Debtors 80,100
Cash 300
113,700
Current Liabilities
Creditors 5,400
Bank overdraft 26,100
31,500
82,200
363,300
Capital accounts:
A Choo 105,780
B Chang 136,110
C Mei 121,410
363,300
On 31 January 2008, A Choo, B Chang and C Mei decided to dissolve the partnership and close the
books on the following terms:
(1) The goodwill and fixtures and fittings were sold to D Woo for £162,000. By agreement, D Woo
paid each partner £54,000 and these amounts were paid into the partners’ private bank accounts.
£
A Choo 27,300
B Chang 25,800
C Mei 30,600
(3) All the cash in hand was used to pay dissolution expenses. The creditors were settled for an
agreed sum of £5,370.
(4) The remaining assets were sold for £146,400. This amount was paid into the partnership bank
account.
(5) The bank informed the partners that £660 interest was accrued on the bank overdraft.
This amount has not been entered in the books.
2006/4/08/MA Page 5 of 12
QUESTION 2 CONTINUED
REQUIRED
Prepare the following accounts on 31 January 2008 for the partnership of A Choo, B Chang and
C Mei:
(Total 25 marks)
2006/4/08/MA Page 6 of 12
MODEL ANSWER TO QUESTION 2
£ £
Goodwill 54,000 Discount on creditors 30
Fixtures & fittings 144,900 D Woo 162,000
Motor vehicles 82,200 Bank 146,400
Stock 33,300 Capital accounts (MV):
Debtors 80,100 Choo 27,300
Cash: dissolution expenses 300 Chang 25,800
Bank: interest charges 660 Mei 30,600
Capital accounts:
Choo 1,332
Chang 1,332
Mei 666
395,460 395,460
2006/4/08/MA Page 7 of 12
MODEL ANSWER TO QUESTION 2 CONTINUED
£ £
Dissolution account 146,400 Bal b/d 26,100
Dissolution account: interest 660
Creditors 5,370
Capital accounts:
Choo 23,148
Chang 54,978
Mei 36,144
146,400 146,400
(d) D Woo
£ £
Dissolution account 162,000 Capital accounts:
Choo 54,000
Chang 54,000
Mei 54,000
162,000 162,000
2006/4/08/MA Page 8 of 12
QUESTION 3
The following information for the month of February 2008 was extracted from the ledgers of Ho Chang:
At 1 February 2008: £
Purchases ledger Dr balances 291
Purchases ledger Cr balances 16,428
Sales ledger Dr balances 27,066
Sales ledger Cr balances 495
Provision for doubtful debts 690
At 1 March 2008:
Purchases ledger Dr balances 399
Sales ledger Cr balances 642
Provision for doubtful debts 750
REQUIRED
(b) Prepare, at 29 February 2008, a Balance Sheet extract showing the debtors’ and creditors’
figures under the current assets and current liabilities.
(4 marks)
(Total 25 marks)
2006/4/08/MA Page 9 of 12
MODEL ANSWER TO QUESTION 3
2006/4/08/MA Page 10 of 12
QUESTION 4
Maggie Kan owns a business in Hong Kong and has a branch in London.
Branch sales are all on credit, and all cash received at the branch is remitted to the head office. All
purchases are made by the Hong Kong office, with goods sent to the branch being invoiced at cost
plus 25%.
For the year ended 31 December 2007, the following information was entered in the head office
books:
£
Balances at 1 January 2007:
Branch debtors 37,800
Branch stock at selling price 44,100
Branch adjustment account 8,820
REQUIRED
Prepare the following accounts, relating to the London branch, in the head office books for the year
ended 31 December 2007:
(Total 25 marks)
2006/4/08/MA Page 11 of 12
MODEL ANSWER TO QUESTION 4
2006/4/08/MA Page 12 of 12
EDI
International House
Siskin Parkway East
Middlemarch Business Park
Coventry CV3 4PE
UK
2006/4/08/MA Page 12 of 12