SECOND TERM TEST 2007

PRINCIPLES OF ACCOUNTS
Grade 9
Paper - 2
D URATION : 1 HOUR 45 MINUTES

Information and instructions:

.
• Answer all the questions.

1. Reid Limited is a business which specializes in electrical equipment, selling to retailers

throughout the London region.

The company keeps a full accounting system which includes a cash book, ruled to
include columns for discount allowed, discount received, cash in hand and cash at bank.

On 23 April 2007, the following balances and totals appeared in the cash book.

$
Cash in hand 420
Cash at bank (debit) 765
Discounts allowed total 42
Discounts received total 95

The following transactions affecting the cash book occurred during the last week of April.

April 23 General expenses $92 were paid in cash.

24 Cash sales totaled $920.
25 A cheque for $304 was received from a debtor, K Ball, in
settlement of his account at this date, $320.
26 A paying-in slip counterfoil showed that cash $820 had been banked.
27 A cheque was sent to Reid Limited’s major supplier, Baker PLC, in
settlement of the amount due at this date, $1 400 less5% cash
discount.
28 Notification was received from Reid Limited’s bank that a cheque for
$221 received from T McDermot, a credit customer, during February
2007 was dishonoured.
30 A delivery van which had cost $15 000 on 1 April 2005 and on which
depreciation totalling $6 000 had been provided at the end of the
company’s last financial year (31 March 2007) was sold for $7100.
A cheque for this amount was received on this date.
30 A cheque was sent to a creditor, Ford Limited, in immediate
payment of an invoice received from this supplier on this date. The
invoice detailed stock at list price $800 less 25% trade discount,
and 5%cash discount.

(a) In the books of Reid Limited, prepare the three column cash book for the period
23 – 30 April 2007, recording all the information given above. Balance the cash and
bank accounts and total the discount columns at the end of the month. [10Marks]

Vsnl Second Term Accounts Grade 9 Paper 2 Page 1 of 5

 (b) Explain precisely where each of the discount totals is posted at the end of the
accounting period. How does discount affect the gross and net profit in that period?
[5Marks]

(c) Prepare the delivery van disposal account, giving all relevant entries and showing the
profit or loss on sale of the vehicle. [4Marks]

(d) State the effect and significance on the balance sheet of accounting for
depreciation. [3Marks]

2. (i) The Balance Sheet of C Wade’s business dated 31 March 2005 showed the working
capital to be $15 000 (current assets $45 000,current liabilities $30 000). Some of the
transactions and other events occurring in April 2005 are listed below.

You are asked to indicate how each separate transaction would change current assets,
current liabilities, working capital, fixed assets and net profit. Copy the table given
below into your answer book. Give your response to items (b) to (f) in your table. If
you feel the category would be unaffected by the transaction, write “no change”.

Transaction (a) has been done for you as an example.

Transaction Current Current Working Fixed Net Profit

Assets Liabilities Capital Assets
(a) +$120 No change +$120 No change +$120

(a) Goods sold for cash $700 (cost price was $580).
(b) Goods purchased on 1 month’s credit for $750.
(c) An old vehicle, book value $920, was sold for $1 000 cash.
(d) Borrowed $5 000 from Ball Finance Company. $2 000 is repayable in December 2005
and $3 000 in December 2006.
(e) Some stock was destroyed by fire. Cost price of this stock was $1100. Wade agreed
to accept $800 in full settlement of his claim on the insurance company with which
he had insured his stock.
(f) Cheques totaling $170 were received from credit customers and they were allowed
$30 cash discount. [13Marks]

(ii) Why is it necessary to account for accruals and prepayments of expenses

(a) in the profit and loss account; and
(b) in the balance sheet? [4Marks]

3. George and Mildred are partners. The terms of the partnership agreement include;
(i) Interest on fixed capital to be 10% p.a.;
(ii) Profits to be shared between George and Mildred in the ratio 2:1
(iii) Mildred to receive an salary of $8000.

The following information relates to the year ended 31 December 2006.

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 (1) Balances on 1 January 2006:

Capital accounts $
George 10 000
Mildred 12 000
Current accounts
George 150 Dr
Mildred 230 Cr
(2) Balances at 31 December 2006

Current accounts
George 800 Cr
Mildred 2900 Cr
Capital account balances were the same as at 1 January 2006

(3) Drawings during the year were:

Cash Goods
George $5750 $400
Mildred $8580 $1000

For the year ending 31 December 2006, prepare

(i) The current accounts of the partners; [10Marks]

(ii) Calculate the net profit before appropriation [2Marks]

(iii) Why do partners’ maintain current accounts? [2Marks]

4. The chief accountant of Warton Ltd has balanced the cash book of the company at
the year end, which was 31 March 2007. At that date the cash book showed a
credit balance of $4 560 as opposed to a debit balance on the same date in the
previous year. The company had made a profit for the year ended 31 March 2007.
When the monthly bank statement for March was received it did not agree with the
balance in the cash book so an investigation was carried out to establish the
reasons for the difference.

The following matters were revealed.

(i) A cheque paid for advertising on 10 March 2007 for $2 148 had been entered in the
cash book as $2 184.
(ii) On 20 March 2007 a debtor had informed the company that a direct transfer of $1 330
had been remitted to Warton Ltd’s bank account. This was in settlement of a sales
invoice for $1 400.the entry made in the cash book was $1 400.
(iii) A standing order from XYZ Ltd for $480 had been entered in the bank statement on
2 March 2007 but no entry appeared in the cash book.
(iv) Cheques amounting to $12 444 had been sent to suppliers and entered in the cash
book during March 2007 but had not yet been presented to the bank.
(v) Cheques received from customers amounting to $20 160 had been received by
branches of the company, paid into local branches of the bank on 31 March 2007
and entered in the cash book. The bank had not credited these on the March
statement.

Required

(a) Adjust the cash book of Warton Ltd and bring down the corrected balance as at 31
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 March 2007. [10marks]

(b) Prepare a bank reconciliation statement as on 31 March 2007 which clearly shows
the original balance on the March bank statement. [3Marks]

(c) Give five reasons which could explain why the cash book and bank statement
balances differed on 31 March 2007. [5Marks]

5. The following trial balance has been extracted from the books of Idyia Evans.

$ $
Stocks at 1 May 2006 25 187
Personal drawings 18 500
Trade debtors and creditors 22 776 10 238
Rent and rates 12 800
Advertising and promotion 1 750
Insurance premiums 1 900
Purchases and sales 99 817 182 208
Bad debts written off 218
Development agency loan 50 000
Repairs and modifications to plant 1 581
Vehicle operating expenditure 2 575
Wages and salaries 45 012
Loan interest at 15% 3 750
Provision for doubtful debts 500
Heating and lighting 7 500
Plant and machinery - cost 63 260
- provision for depreciation 18 925
Office expenses 5 817
Owner’s capital account at 1 May 2006 53 000
Motor vehicles - cost 21 557
- provision for depreciation 11 317
Bank overdraft 7 812
334 000 334000

Additional information is to be taken account of as follows:

(i) Stock at 30 April, 2007 was valued at $27 515.

(ii) Loan interest for the six months ended 30 April, 2007 is outstanding. Reconciliation of
the bank account with statements received from the bank indicate that interest of
$851 and charges of $1 025 have been entered by the bank. These amounts had
not been included in the cash book at 30 April 2007.
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 (iii) Rent paid in advance at 30 April, 2007 amounts to $870. Rates assessed as due but
not yet paid are to be included at $1 200.

(iv) Of the repairs and modifications to plant, $1 000 was expended on safety equipments
as required by government health and safety regulations.
(v) Depreciation of plant is to be provided for at 10% of cost and of motor vehicles at
20% of their written-down values.
(vi) Advertising costs of $250 and wages and salaries due of $415 are to be allowed for.

Required
Trading and profit and loss accounts for the year ended 30 April, 2007 and the
balance sheet as at that date. [29Marks]

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