Book-Keeping & Accounts

Level 2

Model Answers
Series 2 2005 (Code 2006)

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Book-Keeping & Accounts Level 2

Series 2 2005

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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 Debtors at 29 February 2004 16,500 31,810 Creditors at 28 February 2005 Debtors at 28 February 2005 17,530 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%) Sign-writing the vehicle Cost of delivering vehicle to firm's warehouse Annual road fund licence Fitting of internal racks Full tank of petrol 20,000 3,600 200 250 1,200 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. Seacamps 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)

Model Answer for Question 1 (a) Sales Closing sales ledger balance Cash received Cash sales Discounts allowed Purchase ledger contra Less: Opening sales ledger balance Total sales Purchases Closing purchases ledger balance Cash paid Cash purchases Discounts received Sales ledger contra Less: Opening purchase ledger balance Goods taken by owner - drawings Total purchases 17,530 108,470 26,100 745 2,500 155,345 16,500 1,100 17,600 137,745 39,237 219,000 41,900 1,900 2,500 304,537 31,810 272,727

CONTINUED ON NEXT PAGE

Model Answer for Question 1 continued (b) Vehicle List Price Less: 20% Add: Signwriting Delivery cost Internal racks Capitalised value of AB1 20,000 4,000 16,000

3,600 200 1,200 5,000 21,000 (5 marks)

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

[1] Depreciation workings: Capital value of AB1 Less: residual value 21,000 6,600 14,400 3,600 per year 300 per month Year end 2002 2003 2004

Depreciated over 4 years =

Total depreciation provided

3,600 3,600 2,700 (9 months) 9,900

QUESTION 2 The following balances appeared in the books of D Cullum on 31 December 2004: Purchases for re-sale Sales Wages and salaries General operating expenses Returns inwards Returns outwards Premises Stock Discounts allowed Discounts received Debtors Creditors Cash in hand Bank (in hand) Vehicle cost Vehicle provision for depreciation Capital account 88,283 191,005 32,006 55,100 648 376 120,000 7,521 359 494 11,272 9,980 810 8,656 8,200 4,100 127,000

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)

Model Answer for Question 2 (a) Total credit balances Total debit balances Suspense Account balance - Dr 332,955 332,855 100

(b) Suspense Discounts allowed Discounts received Stationery Office equipment Sales Suspense Purchases M Gann Suspense (2 x 320) P Jewell (2 x 320) Purchases Cash

DR 140

CR 70 70

50 50 220 220 9 9 640 640 90 90

(c) 2004 31 Dec 31 Dec 31 Dec 31 Dec Suspense Account 2004 100 31 Dec 70 70 640 880 31 Dec 220 660

Difference Discount allowed Discount recv'd P Jewell

Sales Bal c/d

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

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 Capital Accounts: Evening Primrose Current Accounts: Evening Primrose Fixed Assets at net book value: Freehold Property Vehicles Office Equipment Debtors Creditors Stock Bank Cr 180,000 90,000 12,745 9,225 133,250 80,000 30,000 3,770 2,070 19,130 2,400

On 1 January 2005, Olba was admitted into the partnership sharing profits and losses equally with Evening and Primrose. Olbas 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 160,500 70,000 3,500

Freehold Property Vehicles Debtors

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)

Model Answer for Question 3

(a) Revaluation Account 2005 27,250 10,000 270 11,320 5,660 27,250 27,250 01Jan Freehold property

2005

01 Jan 01 Jan 01 Jan

Vehicles Debtors Capital: Evening 2/3rds Primrose 1/3rd

(b) Capital Accounts Olba 2005 01 Jan Bal b/d 30,000 104,885 48,000 01 Jan Revaluation A/c 01 Jan Goodwill Adjustment 01 Jan Bank 01 Jan Stock 01 Jan Vehicles 251,320 134,885 78,000 01 Jan Bal b/d 251,320 208,575 134,885 104,885 30,000 01 Jan Current A/c 11,320 60,000 180,000 Evening Primrose 90,000 9,225 5,660 30,000 60,000 3,000 15,000 78,000 48,000 Olba

2005 12,745 30,000 208,575

Evening Primrose

01 Jan

Current A/c

01 Jan

Goodwill Adjustment

01 Jan

Balance c/d

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 Thrushs 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 Less: Over-added stock July sales 42,600 1.25 56,800

850

34,080 1,350

Purchases returns Reduced price 2,400 = 1,920 x 50% = 1.25

960 37,240 19,560

Add: July purchases Sales returns 725 1.25 650 1.25

29,800

580

Sale or return

520 30,900 50,460 (15 marks)

Closing stock at 31 July 2004

(b)

W Thrush Trading Account for the month ended 31 July 2004 Sales (42,600 - 650) Less: returns Cost of Sales **Opening stock (56,800 - 850) Purchases Less: returns 55,950 29,800 1,350 28,450 84,400 50,460

41,950 725 41,225

Closing stock Gross Profit

33,940 7,285

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

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