SEC Accounting 2012 Paper I

Answer ALL questions. Question 1-10 are multiple choice and carry 2 marks each.Questions 11-14 carry 20 marks each.

Write on the booklet the correct answer for each of the following.

1. The main source of information for the purchase returns day book is obtained froma) Invoices receivedb) Invoices sent outc) Credit notes receivedd) Debit notes sent out.

Answer : C

2. Joanna owes you €600 but cannot pay cash. She offers you new office equipment inpayment, which you accept. The journal entries should be

Debit Credita) Cash account Joanna’s accountb) Joanna’s account Office equipment accountc) Office equipment account Joanna’s accountd) Bank account Office equipment account.

Answer : C

3. The information for the control accounts is obtained from thea) Ledgerb) Books of original entryc) Bank statementsd) Documents.

Answer: B

4. A club’s loss is often referred to asa) A balanceb) A deficitc) A surplusd) Accumulated fund.

Answer: B

5. A club has 100 members and the subscription is €2 per year. All have paid the rightamount except three members who paid €4 each because they still had to pay the fee of lastyear, and one member who also paid the fee for next year. The income from subscriptionsfor the year in the income and expenditure account should be

a) €192b) €200c) €206d) €208.

Answer: B

6. The rate of turnover of stock is thea) Total value of turnoverb) Average stock divided by the cost of salesc) Number of times the average stock is soldd) Average of the opening and closing stock.

Answer: C

7. During a year a business sells €50,000 and expenses are 20% of the gross profit. If 25% isadded to the cost price of goods to obtain the selling price, the net profit isa) €2,500b) €5,500c) €8,000d) €10,000.

Answer: C

8. Cash discount allowed to May Ltd, €50, was entered correctly in the personal account butwas credited to the discount received account by mistake. The correct journal entries are

Debit € Credit €a) Discount allowed account 100 Suspense account 100b) Discount received account 50 Discount allowed account 50c) Discount allowed account 50 Discount received account 50d) Discount allowed account and 50 Suspense account 100

discount received account 50

Answer: D

9. An alternative expression for indirect expenses isa) Prime costb) Production costc) Work in progressd) Overheads.

Answer: D

10. The issued capital of a company is €50,000 made up of shares of 50c each. If the directorspaid an interim ordinary dividend of 5c per share, the total dividends paid that year wouldamount toa) €25,000b) €5,000c) €2,500d) €10,000.

Answer: B

11. a) What is a partnership profit and loss appropriation account?

A partnership would have an extra section shown under the profit and loss account calledthe profit and loss appropriation account and which shows the distribution of profits,interest on drawings, interest on capitals and salaries of partners.

(2 marks)

b) Distinguish between capital and current accounts in the books of a partnership.

The capital account reflects the investment of each partner and remains year by year at thefigure of capital put into the firm by the partners.

(2 marks)The profits, interest on capital and the salaries to which the partner may be entitled arecredited to a separate current account for the partner and the drawings and the interest ondrawings are debited to it. The balance of the current account at the end of the financialyear will then represent the amount of undrawn profits. The current account is a currentcapital account.

(2 marks)

c) List one reason for a debit balance in a partner’s current account.

Any ONE of:

A debit balance will be the result of drawings in excess of the profits to which the partnermay be entitled; or

Losses have been made.(2 marks)

d) What is meant by the nominal value of a share and share premium?

The nominal value of a share is the “face” value of the share e.g. share can be of €1 each.This could be different from the market value or real value.

(1 mark)

Share premium is used whenever shares are issued at a price higher than their normal valuee.g. €1 ordinary shares issued at €1.50, the amount of excess of the nominal value (i.e. 50cents per share) is credited to a share premium account.

(1 mark)

e) Donald is one of three partners in a business. The partnership agreement includes thefollowing:

i. Donald is entitled to an annual salary of €15,000.ii. Interest on capital is to be at the rate of 5% annually.

iii. Any remaining profits and losses are shared equally between the partners.

€1 April 2010 Capital account balance 50,000

Current account balance(Dr) 5001 October 2010 Capital introduced 10,00031 March 2011 Drawings for the year 16,50031 March 2011 Donald’s total earnings for the year 28,750

Required

Donald’s capital and current accounts.

Capital AccountBal c/d 60,000 Bal b/d 50,000 1

Bank 10,000 160,000 60,000

Current Account1 Bal b/d 500 Salary 15,000 11 Drawings 16,500 Interest on capital 2,750 21 Bal c/d 11,750 Share of profit 11,000 2

28,750 28,750

12. a) Distinguish between bad debts and allowances for doubtful debts.

Bad debts are clients who never pay for goods sold to them on credit. Trade receivable accountsare written off.

(1 mark)Also known as Provision for Bad Debts and this account is used only for estimates of the amountof the debtors at the year-end that are likely to finish up as bad debts.

(1 mark)

b) Name and explain two accounting concepts that are applied in the accounting forallowances for doubtful debts.

Prudence concept – the accountant should always be on the side of safety and this is known asprudence. The prudence concept means that normally one will take the figure which willunderstate rather than overstate the profit.

(2 marks)

Accruals concept - net profit is the difference between the income and expenses for the financialperiod. Hence, the entry in the income statement represents the increase or decrease in theallowance for the year.

(2 marks)c) Define depreciation and explain its purpose.

Depreciation is the part of the original cost of the fixed asset consumed during its period of useby the firm. Physical deterioration – wear and tear, erosion, rust, rot and decay, obsolescence,inadequacy, time and depletion are possible causes of depreciation.

(1 mark)

Purpose:Allocate the cost of a non-current asset, less its estimated residual value over its economic usefullife.

(1 mark)

d) Name three methods of depreciation and explain how the choice of method is made.

Straight line method - fixed installment method. It is used for those fixed assets that areexpected to generate equal economic benefits over their useful life.

Reducing balance method – it is used for those fixed assets that are expected to generate higherreturns in their early years.

Revaluation method – it is suitable for small, low value fixed assets.

Accept any of the methods listed below.

Depletion unit method = cost of fixed assets/expected total contents in unitsMultiplied by number of units taken in period

Units of output methodMachine hour method

(3 marks)

e) The statement of financial position of Smartfit Ltd at 31 December 2009 included thefollowing:

Cost Depreciation€ €

Equipment 52,000 20,000

During the year ended 31 December 2010 the following non-current assettransactions took place:1 April 2010 Old equipment bought on 1 July 2007 for €8,000 was sold for €3,000.

1 July 2010 The purchase of a new equipment costing €20,000.It is the policy of the company to provide a whole year’s depreciation at the rate of20% per annum using the straight line method applied to the equipment held at theend of the financial year.

Requiredi.The equipment account.

Equipment Account½ Bal b/d 52,000 Disposal 8,000 11 Bank 20,000 Bal c/d 64,000 ½

72,000 72,000

ii.Allowance for depreciation account.

Accumulated Depreciation Account1 Disposal 4,800 Bal b/d 20,000 ½½ Bal c/d 28,000 P & L 12,800 1

32,800 32,800

iii. The asset disposal account.

Disposal Account½ Equipment 8,000 Depreciation 4,800 ½

Bank 3,000 1P & L 200 1

8,000 8,000

13. a) What is the purpose of the books of original entry?

These are books in which the first record for transactions are made.Their purpose is to provide book-keeping with a system of control. Control accounts areprepared from these books.

(2 marks)

b) Distinguish between a sales ledger and a sales ledger control account.

Sales ledger – this is kept just for customers’ personal accounts- Accounts of debtors

(1 mark)

Sales ledger control account – applies to the complete sales ledger and it is used to locate errorsand control fraud.

(1 mark)c) Suggest one reason for a debit balance in a purchases ledger account.

Accept any ONE of:Advance payment by a creditorReturns of goods after the account had been settledOverpayment.

(1 mark)d) Explain the following terms:

Dishonoured cheque – funds not held in drawer’s account. Cheque is returned by the bank. Set-off - debtor’s balance set-off against amount due by the business. Trade discounts – discount offered to traders who buy a lot of goods from the business. Cash discounts - amount of reduction of the sum to be paid if settlement is made within a

certain period of time.(1 mark each)

e) Martina set up a business on 1 January 2009. The following information is available:

2009 2010€ €

Credit sales for the year 400,000 450,000Cash sales for the year 8,000 10,000Bad debts written off during the year 4,000 2,000Receipts from debtors during the year 376,000 428,000

Martina felt that a specific allowance for doubtful debts of €2,500 was required in2009 and in 2010 the allowance was adjusted to represent 2% of the tradeaccounts receivable balances outstanding at the end of the year.

Requireda) A sales ledger control account for 2010 only.

Sales Ledger Control Account2 Bal b/d 20,000 Bad debts 2,000 12 Sales 450,000 Receipts 428,000 1

Bal c/d 40,000 1470,000 470,000

b) An allowance for doubtful debts account for 2010 only.

Allowance for doubtful debts Account1 P & L 1,700 Bal b/d 2,500 21 Bal c/d 800

2,500 2,500

14. a) Distinguish between the allocation and the apportionment of costs. Illustrate eachwith an example.

Allocation of expenses is that each expense is allocated to the relevant department.When expense is made specifically for a department it is allocated to that department.E.g. Wages are allocated to the department where staff is engaged.

(Accept any correct example).(2 marks)

Apportionment is where an expense is divided between the departments on what isconsidered to be the most logical basis. Expenses made for the business in general areapportioned to the departments on the most equitable basis, e.g. apportion renttogether with air conditioning and lighting in accordance with the floor space,occupied by each department

(2 marks)

b) Why are departments allowed to run at a loss?

Accept any ONE of:

Some stores deliberately allow parts of their business to lose money so that customerscome to the store to buy the cheap goods and then spend money in the otherdepartments; or

A department may be providing a contribution but once it absorbs fixed costs itmakes a loss. However, fixed costs are not relevant to decision making since closingthe department would not save any of the fixed costs for the business.

(2 marks)c) Why are accounting ratios useful?

Any TWO of the following:

Using ratios can be useful to compare the trends to see if the ratios aregetting better or worse as each period passes.

They are essential for proper control. Ratios can be used to compare results to those of similar businesses. They give indication on liquidity, profitability and gearing and prompt

action needs to be taken where the trend in a ratio is deteriorating.(2 marks)

d) What is a bank reconciliation statement?

A bank reconciliation statement should show whether or not errors have been madeeither in the bank columns of the cash book or on the bank statement. It helps toreconcile cash book balances with bank statement balances.

(2 marks)

e) On 31 March 2011 the bank balance in the cash book of Mora Bruna shows a debitbalance of €1,255. On examining the bank statement she notices the following:i. Bank charges of €170 are not recorded in the cash book.

ii. A direct debit of €485 for the payment of communication expenses had notbeen included in the cash book.

iii. Deposits into the bank of €2,110 were not yet recorded in the bank statement.iv. A receipt from a debtor of €540 was only recorded in the bank statement.v. Cheques paid to suppliers €1,260 had not been presented to the bank for

payment.

Required(a) An up-dated cash book.

Up-dated bank Account1 Bal b/d 1,255 Bank charges 170 11 Debtor 540 Communication expenses 485 1

Bal c/d 1,140 11,795 1,795

(b) A bank reconciliation statement at 31 March 2011 showing the balance in thebank statement.

Bank reconciliation statement at 31 March 2011

€Balance as per up-dated cash book 1,140 ½add unpresented cheques 1,260 2less deposits not in bank statement (2,110) 2Balance as per bank statement 290 ½

SEC Accounting 2012 Paper IIA

Question 1.

(a)Cash Account

½ Bal b/d 500 Bank 16,800 11 Sales 37,000 Cleaning expenses 2,600 1

Drawings 18,000 1Bal c/d 100 ½

37,500 37,500

(b)Sales Ledger Control Account Purchases Ledger Control

Account

½ Bal b/d 62,500 Receipts 480,000 1 1 Dis Rec’d 3,500 Bal b/d43,500 11 Credit Sales 492,200 Discounts 3,000 1 1 Payments 342,000 Purchases352,500 1

Bad debt 700 1 1 bal c/d 50,500Bal c/d 71,000 ½

_______ ______ _____________

554,700 554,700 396,000396,000

(c)

Capital

Dr 111,500 1Cr 57,300 1Capital at start 54,200 1

RentBank 8,200 Bal b/d 600Bal c/d 800 P & L 8,400

9,000 9,000

Income statement for the year ended 31 March2011

€ €Sales (492,200 + 37,000) 529,200

less cost of sales

½ Opening stock 22,000Purchases 352,500

374,500½ less closing stock (25,200) (349,300)

179,900Discount received 3,500

½ Gross profit 183,400

less expenses½ Discounts allowed 3,000½ Depreciation: equipment 7,0001 Rent 8,400½ Wages 76,500½ Selling expenses 11,400½ Bad debts 700½ General expenses 14,000½ Insurance 5,9001 Allowances for doubtful debts 400½ Cleaning 2,600 (129,900)

Net profit 53,500

Statement of financial position as at 31 March 2011€ €

1 Non-currentassets

(35,000 - 19,000) 16,000

Current assets½ Inventories 25,2001 Receivables (71,000 – 1,600) 69,400½ Bank 30,300

Cash 100

Total current assets 125,000Total assets 141,000

Capital and liabilitiesCapital, 1 April 2010 54,200Net profit 53,500

1 Drawings (18,000)

Capital, 31 March 2011 89,700Current liabilities

½ Payables 50,500½ Accruals 800

Total liabilities 51,300Total capital and liabilities 141,000

Question 2

Allowance for doubtful debts2 Bal c/d 1,800 Bal b/d 1,500 1

P & L 300 21,800 1,800

Rent receivable1 Bal b/d 250 Bank

3,5001

1 P & L 3,0001 Bal c/d 250

3,500 3,500

Stationery Account1 Bal b/d 760 P & L 2,360 1½ Bank 2,520 Bal c/d 920 ½

3,280 3,280

Travel expenses Account½ Bank 5,150 Bal b/d 290 1½ Bal c/d 510 P & L 5,370 1

3,280 5,660

Machinery Account1 Bal b/d 60,000 Asset Disposal 15,000 1

Bal c/d 45,000 160,000 60,000

Depreciation of machinery Account½ Disposal 5,400 Bal b/d 20,000 ½

Bal c/d 20,680 P & L 6,080 226,080 26,080

Disposal of machineryAccount

1 Machinery 15,000 Bank 8,000 1Depreciation 5,400 1P & L 1,600 1

15,000 15,000

Office equipmentBal b/d 26,000 Bal c/d 38,000Bank 12,000

38,000 38,000

(Not required)

Depreciation of office equipment1 Bal c/d 12,800 Bal b/d 8,000 1

P & L 4,800 212,800 12,800

26,000 x 15% = 3,90012,000 x 15% = 900

2 4,800

Question 3

(a) Sales 3,000Suspense 3,000

(b) Creditors 150Returns out 150

(c) Insurance 50Suspense 50

(d) Discount received 450Discount allowed 450

Suspense 900

(e) Sales 1,200Furniture AssetDisposal

1,200

(f) Cash 500Debtor 250Suspense 250

1 mark each (14 )

Suspense Account1 Bal b/d 4,200 Sales

3,0001

Insurance 50 1Discount received 450 1Discount allowed 450 1Cash 250 1

4,200 4,200

Question 4

(i) Cost of Sales

Sales 2,500Less Gross Profit (900) = 1,600 2 marks

(ii) Working Capital

Current Assets 380,000Current Liabilities (158,000) = 222,000 2 marks

(iii) Gross Profit mark-up = Gross Profit = 900Cost of sales 1,600 = 56.25% 2 marks

(iv) Net Profit margin = 4202,500 = 16.8% 2 marks

(v) Current Ratio = Current Assets = 380,000Current Liabilities 158,000 = 2.40:1 2 marks

(vi) Quick Ratio = Current assets – Stock = 380 – 160Current liabilities 158 = 1.39:1 2 marks

(vii) ROCE = Net Profit = 420 x 100Capital employed 1,722 = 24.39% 4 marks

Accept also: 420 x 100/ 1,650 = 25.46%Accept also: Profit before interest ÷ Capital employed

(viii) Stock Turnover = Cost of Sales = 1,600 = 1,600Average stock (160+240) ÷ 2 200 = 8 times

4 marks

Question 5

i)

Correction of profit and profit and loss appropriation accountNet profit 219,060add purchases reversal 22,800 1add expense reversal 690 1Correct net profit 242,550 1less interest on capital

Farrugia (4,860) 1

Micallef (10,800) 1Caruana (8,910) (24,570) 1

217,980

Share of profitsFarrugia

43,596 1

Micallef

87,192 1

Caruana

87,192 1 217,980

Current AccountF M C F M C

Drawings:Cash ½ 16,500 ½ 18,600 ½ 14,700 Bal b/d 27,93

0½ 13,950 ½ 6,510 ½

Purchases

½ 9,600 ½ 5,700 ½ 7,500 Capitalinterest

4,860 1 10,800 1 8,910 1

Insurance

½ 690 Profits 43,596

½ 87,192 ½ 87,192 ½

Bal b/d ½ 50,286 ½ 87,642 ½ 79,72276,386 111,94

2102,612

76,386

111,942

102,612

SEC Accounting 2012 Paper 2B

Question 1

(a) Accumulated fund at 1 January 2010

€ €Assets

Bank balance 2,300 1Sports equipment 20,000 1Subscription owing 1,200 23,500 1less:Subscription prepaid 950 1General expenses owing 130 1,080 1Accumulated fund 22,420

(c)Subscriptions Account

1 Bal b/d 1,200 Bal b/d 950 11 Income &

expenditure8,380 Bank 8,300 1

1 Bal c/d 870 Bal c/d 1,200 1

10,450 10,450

(c) Income and expenditure for the year ended 31December 2010

€ €Income

Subscription 8,380 2Donations 900 1

less: ExpensesRent on premises 1,400 1Rent sports complex 2,900 1Postage 330 1General expenses 325 4,955 2

4,325 1

Question 2

a)Sean Balzan

½ Bal b/d 680 Bank 646 ½½ Sales 850 Discounts allowed 34 ½

Bal c/d 850 ½1,530 1,530

Sam Attard½ Bal b/d 565 Bank 500 ½½ Sales 600 Discounts allowed 15 ½

Bal c/d 650 ½1,165 1,165

Paul Lia½ Bal b/d 400 Bad debts 400 1

Tanya Dingli½ Sales 115 Set-off 115 1

Katya Kirkop½ Bank 437 Bal b/d 460 ½½ Discounts

allowed23 Purchases 720 ½

½ Bal c/d 7201,180 1,180

Tanya Dingli1 Set-off 115 Bal b/d 180 ½½ Bal c/d 530 Purchases 465 ½

645 645

b)

Trade Receivables (Debtors)1 Bal b/d 1,645 Bank 1,146 11 Sales 1,565 Discounts

allowed49 1

Bad debts 400 1Offset 115 1Bal c/d 1,500 1

3,210 3,210

Question 3Fixtures

2 Bal b/d 27,000 Asset Disposal 15,000 1Bal c/d 12,000 1

27,000 27,000

Depreciation of Fixtures1 Disposal 4,500 Bal b/d 8,100 11 Bal c/d 4,800 P & L 1,200 1

9,300 9,300

Depreciation of EquipmentBal b/d 15,520 2

1 Bal c/d 19,616 P & L 4,096 119,616 19,616

Asset Disposal Fixtures1 Fixtures 15,000 Cash 10,000 1

Bal c/d Depreciation 4,500 1P & L 500 1

15,000 15,000

Question 4

Journal€ €

(i) 1 Suspense 8001 Sales 800

(ii) 1 Equipment 1,000

1 Office expenses 1,000(iii) 1 Bank 1,000

1 Debtors 1,000(iv) 1 Bank charges 80

1 Bank 80(v) 1 Suspense 200

1 Returns In 1001 Returns Out 100

Suspense Account1 Sales 800 Bal b/d 1,000 11 Returns In 1001 Returns Out 100

1,000 1,000Question 5

Income Statement

Valletta Birkirkara

1 Sales 2,881,444

1,440,722

less cost of sales1 Opening stock 1,380,000 602,4001 Purchases 1,948,664 974,332

3,328,664 1,576,732

1 less closing stock (1,046,208)

2,282,456

584,880 991,852

2 598,988 448,8701 Discounts

allowed16,000 8,000

1 Office salaries 18,920 18,9201 Administration

exp14,400 14,400

1 Wages 214,132 107,0661 Rent 3,840 1,9201 Maintenance 4,104 2,0521 Depreciation 40,500 40,500

311,896 192,8582 Net profit 287,092 256,012

Question 6

(i) Manufacturing Account for the year ended 31 December 2010

€Raw materials -Purchases 631,400 ½add carriage in 5,400 ½

636,800

less closing stock 120,800 ½

Cost of raw materials used 516,000 1Direct wages (290,400 + 660) 291,060 1Direct expenses 4,820 ½

Prime cost 811,880 1

Factory overhead expensesMaintenance 2,900 ½Factory power 7,120 ½Superivisor’s wages 3,980 ½Factory lighting 830 ½Factory rent (-240) 960 ½Factory cleaning 4,260 ½Depreciation of machinery 24,400 ½Factory insurance 1,320 ½Indirect materials 3,340 ½

860,990Work-in-progress

less closing stock (990) ½

Cost of production 860,000 1

(ii) 860,000 ÷ 1,720 = €500

40 x €500 = €20,000 closing stock of finished goods 3

Sales 1,680 x €900 = €1,512,000 1

Question 7

Petty cash book

Receipts Date Details Total Postage & Transport Office MotorStationery Cleaning Expenses

€ € € € € €600 1 Oct Cash 1

2 Oct Postage 20 20 14 Oct Transport 15 15 15 Oct Off.cleaning 20 20 15 Oct Stationery 45 45 17 Oct Diesel van 40 40 18 Oct Transport 12 12 19 Oct Postage 14 14 1

11Oct D.van service 85 85 112Oct Off.cleaning 20 20 113Oct Diesel van 40 40 115Oct Stationery 21 21 1

332 100 27 40 165 115Oct Bal c/d 268 1

600 600268 Bal/bd332 Cash 1