Marsiling Secondary School GCE N-Level Graduation Examination (II) 2016

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Subject: Principles of Accounts Level: 4 Stream: Normal

Paper 2 (7088/02) (Academic)

Date: 21 July 2016 Duration: 2 hours

Name: Index No: Class:

Additional Materials:4 sheets of multi-column accounting paper1 piece of string

READ THESE INSTRUCTIONS FIRST

Write your name, index number and class on all the work you hand in.Write in dark blue or black ink.All calculations must be shown adjacent to the answer.Do not use staples, paper clips, highlighters, glue or correction fluid.The use of an approved calculator is allowed.

Answer all questions.

The businesses described in this question paper are entirely fictitious.

At the end of examination, fasten all your work securely together.The number of marks is given in brackets [ ] at the end of each question or part question.

For Examiner’s Use

Setter: Mr Alfred Wee

Total

This question paper consists of 6 printed pages, including the cover page.

60

Answer all questions

1 The following balances were extracted from the books of Pico Trading on 31 March 2016.

$Cost of sales 80 100Sales revenue 149 800Sales returns 2 050Insurance expenses 10 300Interest paid on 8% bank loan 1 400Wages and salaries 14 850Selling expenses 15 400Capital, 1 April 2016 47 050Drawings 800Motor vehicles at cost 50 000Fixtures and fittings at cost 37 500Accumulated depreciation: Motor vehicles 11 000Accumulated depreciation: Fixtures and fittings 8 500Cash at bank 1 510 (Cr)8% bank loan, repayable on 31 July 2023 25 000Inventory 22 000Trade receivables 16 200Trade payables 6 750Allowance for impairment of trade receivables 990

Additional information:

1 At 31 March 2016:(i) Ending inventory was valued at $20 380, net realisable value.(ii) Wages outstanding was $1 950.(iii) Insurance of $750 was prepaid. (iv) Interest on the 8% bank loan was not fully paid up.

2 Depreciation policy as follows:(i) Motor vehicles at 20% per annum using the reducing balance method.(ii) Fixtures and fittings at 10% per annum using the straight-line method.

3 $250 owed by trade receivables is confirmed irrecoverable.

4 Following a review, $870, from Moothy Ltd was estimated to be uncollectible.

5 A repayment of $5 000 on the 8% bank loan is to be made on 31 July 2016.

2

REQUIRED

(a) Prepare the income statement for the year ended 31 March 2016. [10]

(b) Prepare the balance sheet as at 31 March 2016. [12]

(c) (i) State the accounting equation. [1](ii) Name the financial statement that applies the accounting equation. [1]

[Total: 24]

2 Jason’s financial year ends on 31 December. The following information relates to his trade receivables.

31 December 2014 31 December 2015

Trade receivables $20 000 $15 600

Amount estimated to be uncollectible

Peirre $600Cody $530

Gallant $230

Additional information:

On 5 June 2015, Cody was declared bankrupt.

REQUIRED

(a) Prepare the allowance for impairment of trade receivables account for the two years ended 31 December 2014 and 2015. [4]

(b) Prepare the impairment loss on trade receivables account for the two yearsended 31 December 2014 and 2015. [3]

(c) Prepare the income statement for the year ended 31 December 2015, showing the expenses portion only. [2]

(d) Name an accounting theory applied when a business provides for allowancefor impairment of trade receivables. [1]

[Total: 10]

3

3 The following balances appeared in the books of R Sean on 1 August 2013.

Motor vehicles $95 200 Accumulated depreciation $25 600

Motor vehicles are depreciated at 20% per annum using the reducing (diminishing) balance method. A full year’s depreciation is charged in the year of purchase. R Sean purchased a new van for $24 000 on 12 September 2013, paid by cheque.

REQUIRED

(a) Define depreciation. [1]

(b) State two common causes of depreciation. [2]

(c) Prepare the motor vehicles account for the year ended 31 July 2014. Balance the account and bring down the balance at 1 August 2014. [2]

(d) Prepare the accumulated depreciation of motor vehicles account for the two years ended 31 July 2014 and 2015. Balance the account and bring down the balance at 1 August 2015. [4]

R Sean purchased new equipment on 5 October 2015. The following amounts were incurred during the purchase of the equipment and paid by cheque:

$Purchase price of equipment 17 400Installation cost of equipment 1 300Electricity charges to run the equipment 550Delivery charges for transporting the equipment in 300

The estimated useful life of the equipment was 8 years with a residual value of $1 600. The equipment is depreciated using the straight-line method. A full year’s depreciation is charged in the year of purchase.

REQUIRED

(e) Identify one capital expenditure item and one revenue expenditure item. [2]

(f) Calculate the cost of the new equipment. Hence, calculate the annual depreciation charge on the equipment. [2]

(g) Name the accounting theory applied when determining if an expenditure on anon-current asset is capital expenditure or revenue expenditure. [1]

[Total: 14]

4

Section B

Answer one question from this section

4 After preparing her business’ trial balance on 30 November 2015, Tricia discovered the following errors.

1 Receipt of payment of $2 700 from Maxi Trading, a debtor, was wrongly recorded in Mini Trading account.

2 Payment for Tricia’s house utilities bill of $280 was recorded in the utilities account of her business.

3 A credit note of $982 sent to Li Wen, a debtor, had been recorded in the accounts as $928.

REQUIRED

(a) Identify the above errors. [3]

(b) Prepare journal entries to correct the errors. Narrations are not required. [6]

(c) State the effect on the profit for the year ended 30 November 2015 (whether it would increase, decrease or will have no effect) upon correction of each of theerrors. [3]

[Total: 12]

5

5 The following information was extracted from the books of Kings Enterprise on 1 November 2015:

. $Trade receivables control account 51 000Trade payables control account 34 600

Transactions for the month of November 2015 were as follows: $

Cash sales 10 600Invoices issued to trade customers 25 400 Invoices received from trade suppliers 18 800Credit notes issued to trade customers 3 180 Credit notes received from trade suppliers 4 600Cheques received from trade customers Cheques paid to trade suppliers

35 000 12 600

Discount received 1 300Offset between the sales ledger and the purchases ledger

9 400

REQUIRED

(a) Prepare the trade receivables control account for November 2015. [5]

(b) Prepare the trade payables control account for November 2015. [6]

(c) State in which ledger the trade receivables control account would be kept. [1]

[Total: 12]

END OF PAPER

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MARSILING SECONDARY SCHOOLPOA

MARKING SCHEME FOR 4NA GRADUATION EXAM - Paper 2 (7088/02)

Question 1(a) Pico Trading

Income Statement for the year ended 31 March 2016$ $

Sales revenue 149 800 [1]Less: sales returns 2 050Net sales revenue 147 750 [1]Less: Cost of sales 80 100Gross profit 67 650 [1]Less: Expenses

Insurance expenses (10 300-750) 9 550 [1]Wages and salaries (14 850+1 950) 16 800 [1]Selling expenses 15 400Depreciation - motor vehicles ( 20%*(50K-11K) ) 7 800 [1]Depreciation – F&F (10%*37 500) 3 750 [1]Impairment loss on inventory 1 620 [1]Impairment loss on TR ( 870-(990-250) ) 130 [1]Loan interest (8% * 25 000) 2 000 [1]

57 050Profit for the year 10 600

Sub total: [10]

(b)

7

Pico TradingBalance Sheet as at 31 March 2016

$ $ $Non-current assets

Cost Acc depn

NBV

Motor vehicles 50 000 18 800 31 200 [1]Fixtures and fittings 37 500 12 250 25 250 [1]

56 450Current assets

Trade receivables (16 200-250) [1] 15 950Less: Allowance for Impairment of TR 870Net trade receivables [1] 15 080Inventory [1] 20 380Prepaid insurance [1] 750 36 210

Total assets 92 660

Equity and liabilitiesEquity

Capital, 1 July 2014 [1] 47 050Add: Profit for the year 10 600Less: Drawings [1] ( 800)Ending equity 56 850

Liabilities Non-current liabilities

Long-term borrowings (25 000-5 000) [1] 20 000

Current liabilitiesCurrent portion of long-term borrowings 5 000Short-term borrowings [1] 1 510Trade payables 6 750Accrued wages and salaries [1] 1 950Accrued interest expenses (2 000-1 400) [1] 600 15 810

Total equities and liabilities 92 660

(max 12m) Sub total: [12]

(c) Accounting equation: Assets = Liabilities + Equity [1]

(d) Balance sheet [1]

[Total Q1: 24]

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Question 2(a)

Allowance for impairment of trade receivables a/cDate Particulars Dr ($) Cr ($) Balance ($)

2014        Jan 1 Balance b/d 0

Dec 31 Impairment loss on trade receivables   1 130 [1] 1 130 Cr         

2015        Jan 1 Balance b/d     1 130 CrJun 5 Trade receivable - Cody 530 [1]   600 Cr

Dec 31 Impairment loss on trade receivables 370 [1]   230 Cr         

2016        Jan 1 Balance b/d     230 Cr [1]

[4]

(b) Impairment loss on trade receivables a/cDate Particulars Dr ($) Cr ($) Balance ($)

2014        

Dec -31 Allowance for impairment of trade receivables 1 130 [1]   1 130 Dr

Dec -31 Profit and Loss   1 130 [1] -         

2015        

Dec -31 Allowance for impairment of trade receivables   370 [1] 370 Cr

Dec -31 Profit and Loss 370   -         

[3]

(c)Jason

Income statement for the year ended 31 December 2015 (extract) $

Less: Expenses Reversal of impairment loss on trade receivables [1] (370) [1]

(d) Prudence concept [1]

[Total Q2: 10]

9

Question 3

(a) Define depreciation.[1]

Depreciation is the cost allocation of non-current asset over its useful life. (1) It is to account for the cost of using the non-current asset for the respective accounting periods.

(b) State two common causes of depreciation.[2]

- Wear and tear (physical deterioration)- Obsolescence- Usage (depletion)- Legal limits (any 2 causes, 2x1m = 2m)

(c) Prepare the motor vehicles account for the year ended 31 July 2014.Balance the account and bring down the balance at 1 August 2014. [2]

Motor vehicles a/cDate Particulars Dr ($) Cr ($) Balance ($)

2013         Aug 1 Balance b/d 95 200 Dr

Sep 12  Cash at bank [1] 24 000 119 200 Dr2014

Aug 1 Balance b/d [1] 119 200 Dr

[2](d) Prepare the accumulated depreciation of motor vehicles account for

the two year ended 31 July 2014 and 2015. Balance the accountand bring down the balance at 1 August 2015. [4]

Accumulated depreciation of motor vehicles a/cDate Particulars Dr ($) Cr ($) Balance ($)

2013         Aug 1 Balance b/d [1] 25 600 Cr2014

Jul 31 Deprecation ( 20% x (95200-25600) + 20% x 24000 ) or (13920 + 4800) [1] 18 720 44 320 Cr

Aug 1 Balance b/d 44 320 Cr 2015

Jul 31 Deprecation ( 20% x (95200-39520) + 20% x (24000-4800) ) or (11136 + 3840) [1] 14 976 59 296 Cr

Aug 1 Balance b/d [1] 59 296 Cr [4]

(e) Identify one capital expenditure item and one revenue expenditure item. [2] - Capital expenditure:

* Purchase price of equipment or Installation cost or Delivery charges for brining in the equipment. (any one, 1m)

- Revenue expenditure:

10

* Electricity charges to run the equipment. (1m)

(f) Calculate the cost of the new equipment. Hence calculate the annual depreciationcharge on the equipment. [2]- Cost of equipment: $ (17 400 + 1 300 +300) = $19 000 (1m)- Depreciation charge per annum = $ (19 000 -1 600) / 8 = $2 175 (1m)

(g) Materiality concept (is the basis to decide whether an expenditure as capitalexpenditure or revenue expenditure.) [1]

[Total Q3: 14]

Section B

Question 4

(a) 1 Error of commission. (1)2 Error of principle. (1)3 Error of original entry. (1) [3]

(b) General journalDate Particulars Dr ($) Cr ($)

2015Nov 30

(1) Mini Trading 2 700 Maxi Trading 2 700 (2)

(2) Drawings 280 Utilities expenses 280 (2)

(3) Sales returns (982-928) 54 Li Wen (Trade receivable) 54 (2)

[6]

(e) Effect on Profit for the year

Error 1 No effect (1)Error 2 Increase by $280 (1)Error 3 Decrease by $54 (1)

[3]

[Total Q4: 12]

11

Question 5

(a) Trade receivables control a/c2015 Dr ($) Cr ($) Balance ($)Nov 1 Balance b/d [1] 51 000 Dr

30 Sales revenue 25 400 [1]Sales returns Cash at bankTrade payables control (contra)

3 180 [1]35 000 [1] 9 400 [1] 28 820 Dr

Dec 1 Balance b/d 28 820 Dr

(b) Trade payables control a/c2015 Dr ($) Cr ($) Balance ($)

Nov 1 Balance b/d [1] 34 600 Cr 30 Inventory (Purchases) 18 800 [1]

Inventory (Purchases returns) 4 600 [1]Cash at bank Discount received

12 600 [1] 1 300 [1]

Trade receivables control (contra) 9 400 [1] 25 500 Cr

Dec 1 Balance b/d 25 500 Cr

(c) General ledger [1]

[Total Q5: 12]

END OF PAPER

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