Code 2007 Accounting Level 2 2010 Series 4

Model Answers Series 4 2010 (2007)

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LCCI International Qualifications

Book Keeping & Accounts Level 2

2007/4/10MA Page 1 of 13

Book Keeping & Accounts Level 2 Series 4 2010

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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:

(1) Questions – reproduced from the printed examination paper (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)

(3) Helpful Hints – where appropriate, additional guidance relating to individual

questions or to examination technique 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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2007/4/10/MA Page 2 of 13

QUESTION 1 The following balances appeared in the books of David Flynn on 30 June 2010: £

Debtors 22,544 Creditors 19,960 Cash 1,620 Bank (Dr) 17,312 Motor vehicle at cost 16,400 Provision for depreciation on motor vehicle 8,200 Capital 254,000 Purchases 176,566 Sales 382,010 Wages and salaries 64,012 General expenses 110,200 Returns inwards 1,296 Returns outwards 752 Premises 240,000 Stock 15,042 Discount allowed 718 Discount received 988

When the Trial Balance was prepared it did not agree. The difference was posted to a Suspense Account before the final accounts were prepared. REQUIRED (a) Calculate the balance on the Suspense Account, clearly stating whether it is a debit or a credit

(trial balance is not required).

(6 marks) The following errors were subsequently discovered: (1) £140 discount, given by a supplier, was correctly entered in the supplier's account but entered

in the Discount Allowed column of the Cash Book. (2) The Sales Day Book had been over-cast by £1,760. (3) A purchases invoice from M Bird for £330 had been entered in the Purchases Day Book as £303. (4) A credit note for £640, issued to customer P Scott, had been posted to the wrong side of her

account. REQUIRED (b) Prepare the Journal entries to correct (1) to (4) above. Narratives are not required. (11 marks) (c) Prepare the Suspense Account to account for the journal entries. (5 marks) REQUIRED (d) Name three types of errors that would not be revealed by the Trial Balance. (3 marks) (Total 25 marks)

2007/4/10/MA Page 3 of 13

MODEL ANSWER TO QUESTION 1 (a) £

Total credit balances 665,910

Total debit balances 665,710

Suspense Account balance 200 Dr

(6 marks) (b) £

£

DR

CR

Suspense 280

Discount allowed

140

Discount received

140

Sales 1,760

Suspense

1,760

Purchases 27

M Bird

27

Suspense (2 x 640) 1,280

P Scott (2 x 640)

1,280

(11 marks)

(c) Suspense Account

2010 £

2010 £

Jun 30 Difference 200 Jun 30 Sales 1,760

Jun 30 Discount allowed 140

Jun 30 Discount received 140

Jun 30 P Scott 1,280

1,760

1,760

(d)

[1] Omission of entries

[2] Commission

[3] Principle

[4] Reversal of entries

[5] Original entry

[6] Compensating

2007/4/10/MA Page 4 of 13

QUESTION 2 Jane Lee maintains double-entry records; she has supplied the following information:

£ £

Creditors at 30 June 2009 33,000 Creditors at 30 June 2010 ? Debtors at 30 June 2009 63,620 Debtors at 30 June 2010 ? Additional information for the year ended 30 June 2010:

£

Cash received from debtors 438,000 Cash sales 83,800 Credit sales 462,654 Cash paid to creditors 216,940 Discount allowed 3,800 Discount received 1,490 Cash purchases 52,200 Sales ledger contra/Purchases ledger contra 5,000 Credit purchases 228,490 Returns inwards 1,000 Returns outwards 3,000 REQUIRED (a) Prepare for the year ended 30 June 2010 the:

(i) Sales Ledger Control Account (9 marks)

(ii) Purchases Ledger Control Account. (9 marks) The Purchases Ledger balances at 30 June 2010 were: £

Supplier A 9,550

Supplier B 14,610

Supplier C 10,900

REQUIRED (b) Reconcile the balance on the Purchases Ledger Control Account with the total balance of the

Purchases Ledger. (2 marks)

(c) Suggest five reasons why there may be a difference between the Purchase Ledger balances

and a Ledger Control Account balance. (5 marks)

(Total 25 marks)

2007/4/10/MA Page 5 of 13

MODEL ANSWER TO QUESTION 2

Sales Ledger Control Account

(a) (i)

£

£

Balance b/d 63,620 Cash 438,000

Credit sales 462,654 Discount allowed 3.800

Purchases ledger contra 5,000

Returns in 1,000

Balance c/d 78,474

_______

_______

526,274

526,274

Balance b/d 78,474

(ii)

Purchases Ledger Control Account

£

£

Cash

216,940 Balance b/d 33,000

Discounts received 1,490 Credit purchases 228,490

Sales ledger contra 5,000

Returns out 3,000

Balance c/d

35,060

_______

261,490

261,490

Balance b/d

35,060

(b) Purchases Ledger balances £

Supplier A 9,550

Supplier B 14,610

Supplier C 10,900

35,060

Balance per Purchases Ledger Control Account

£

Credit balance

35,060

35,060

(c)

1. Errors in the Control Account or Ledger Accounts 2. The source records are incorrect, eg the Day Book or Cash Book might have been added

up incorrectly. 3. Adjustments have been posted to the ledger accounts but not to the control account, eg a

bad debt might have been written off in a customer's ledger account but not included in the control account.

4. The control account has been sub-totalled incorrectly. 5. Entries could have been omitted or posted incorrectly to an individual ledger account. 6. Individual ledger accounts have been incorrectly sub-totalled. 7. The list of ledger balances might be incomplete, i.e. one or more of the individual

balances have been omitted from the list.

2007/4/10/MA Page 6 of 13

QUESTION 3 Leon and Alan are in partnership sharing profits and losses in the ratio 3:2 respectively. The following Trial Balance was extracted from their books at 31 October 2010: Dr Cr £ £

Premises 600,000 Motor vehicles, at cost 100,000 Plant and machinery, at cost 160,000 Fixtures and fittings, at cost 36,000 Capital at 1 November 2009:

Leon 326,000 Alan 418,000

Drawings: Leon 77,000 Alan 39,400

Rent 56,000 Salaries 202,000 Carriage in 9,400 Carriage out 17,900 Returns in 19,000 Purchases 1,218,000 Sales 2,010,000 Insurance 18,600 Light and heat 15,600 Debtors 252,000 Creditors 182,000 General expenses 30,700 Motor vehicle expenses 19,800 Bad debts 3,600 Provision for doubtful debts at 1 November 2009 7,400 Discount received 3,600 Discount allowed 16,600 Interest on bank loan 7,500 Bank loan 150,000 Bank 133,900 Telephone expenses 16,000 Stock at 1 November 2009 135,800 Provisions for depreciation 1 November 2009:

motor vehicles 20,000 plant and machinery 60,600 fixtures and fittings 7,200

3,184,800 3,184,800

2007/4/10/MA Page 7 of 13

QUESTION 3 CONTINUED The following additional information was made available at 31 October 2010: (1) Stock was valued at £117,800. (2) Accrued expenses were:

Salaries 2,000 Interest on loan 7,500 Motor vehicle expenses 1,200 Telephone 1,100 Light and heat 900

(3) Prepaid expenses were:

Rent 8,000 Insurance 100

(4) Depreciation is to be provided at the following rates using the straight line method:

Motor vehicles 20% per annum Plant and machinery 15% per annum Fixtures and fittings 10% per annum

(5) The Provision for doubtful debts is 2% of debtors. (6) Alan is to receive a salary of £50,000. (7) The partners are to receive interest on capital at the rate of 5%. (8) There were no balances on the partners' current accounts at 1 November 2009. REQUIRED Prepare for the year ended 31 October 2010, the: (a) Trading, Profit & Loss and Appropriation Account. (20 marks) (b) Partners' Current Accounts. (5 marks)

(Total 25 marks)

2007/4/10/MA Page 8 of 13

MODEL ANSWER TO QUESTION 3 (a)

Leon and Alan

Trading, Profit & Loss and Appropriation Account

for the year ended 31 October 2010

£ £ £ £

Sales 2,010,000

Less Returns in 19,000

1,991,000

Less: Cost of goods sold

Opening stock 135,800

Purchases 1,218,000

Carriage in 9,400

1,363,200

Less: Closing stock

117,800

1,245,400

Gross Profit 745,600

Discount received 3,600

Provision for doubtful debts (7,400 - 5,040) 2,360

5,960

751,560

Less: Expenses

Rent (56,000 - 8,000) 48,000

Salaries (202,000 + 2,000) 204,000

Carriage out

17,900

Insurance (18,600 - 100) 18,500

Light and heat (15,600 + 900) 16,500

General expenses

30,700

Motor vehicle expenses (19,800 + 1,200) 21,000

Bad debts

3,600

Discounts allowed

16,600

Telephone expenses (16,000 + 1,100) 17,100

Loan interest (7,500 + 7,500) 15,000

Depreciation:

Motor vehicles 20,000

Plant and machinery 24,000

Fixtures and fittings 3,600 47,600

456,500

Net profit

295,060

Less:

Salary: Alan

50,000

Interest on capital:

Leon (326,000 x 5%)

16,300

Alan (418,000 x 5%)

20,900

37,200 87,200

207,860

Share of profit:

Leon (207,860 x 3/5)

124,716

Alan (207,860 x 2/5)

83,144

207,860

2007/4/10/MA Page 9 of 13

QUESTION 3 CONTINUED

(b) Current Accounts

Leon Alan

Leon Alan

£ £

£ £

Drawings 77,000 39,400

Interest on capital 16,300 20,900

Bal c/d 64,016 114,644

Salary

50,000

______ ______

Profit

124,716 83,144

141,016 154,044

141,016 154,044

Bal b/d 64,016 114,644

2007/4/10/MA Page 10 of 13

QUESTION 4 Jack Briars, a clothing retailer, valued his stock on 30 June 2009 at £71,600. All his goods are sold at a mark-up of 20%. On reviewing the results of the stock-take, the following adjustments need to be made: (1) On 10 May, 2009, goods costing £4,600 were sent on a sale or return basis to a customer. On

7 July, the customer returned all the goods to Jack Briars.

(2) Some shoes, with a sales value of £240, were proving unpopular. It was decided to sell them at half the cost price.

(3) A pair of trousers, with a selling price of £90, had been omitted from the stock records.

(4) A total of one stock sheet, of £6,400, had been carried forward to the next stock sheet as £4,600.

(5) Several dresses, with a total selling price of £3,600, were ‘out of fashion’ and unsaleable.

(6) Twenty shirts had been included at their selling price of £24 each.

(7) Three tops, costing a total of £120, were ‘shop soiled’ and would need to be sold for £30 each. REQUIRED (a) Commencing with the original stock value of £71,600 at 30 June 2009, calculate the revised value

of stock at that date. (21 marks)

When Jack carried out his next stock take at 30 June 2010, he discovered that £4,000 worth of stock at cost had been stolen. He is insured for theft, by the Premier Insurance Company REQUIRED (b) Show the Journal entries to record the claim.

Note: Narratives are not required. (4 marks)

(Total 25 marks)

2007/4/10/MA Page 11 of 13

MODEL ANSWER TO QUESTION 4 (a)

£ £ £

Original stock value at 30 June 2009 71,600

Add Deduct

(1) Sale or return 4,600

(2) Shoes 240 x 100 = 200 x 50% = 100 100

120

(3) Trousers 90 x 100 = 75

75

120

(4) Stock sheet 6,400 - 4,600 = 1,800

1,800

(5) Dresses 3,600 x 100 = 3,000

3,000

120

(6) Shirts 20 x 24 = 480 x 20 = 80 80

120

(7) Tops 120 - (3 x 30) = 30

30

6,475 3,210

Net adjustment to original stock value 3,265

_____

Revised stock value at 30 June 2009 74,865

(b) £ £

Dr Cr

Premier Insurance Company 4,000

Stock Loss Account

4,000

Bank/Cash Account 4,000

Premier Insurance Company 4,000

2007/4/10/MA Page 12 of 13

QUESTION 5 Sue Ball prepares accounts on 31 October and 30 April of her accounting year. The following information was extracted from her records: Light and Heat Account

£

1 May 2009 Paid in advance 230 The following payments were made:

£

12 August 2009 3 months to 31 October 370 13 December 2009 4 months to 28 February 360 14 April 2010 3 months to 31 May 378

At 30 April 2010, £180 was paid in advance.

Rates Account

£

1 May 2009 3 months’ rate prepaid 1,200 The following payments were made:

£

27 September 2009 3 months’ rates 1,200 20 January 2010 3 months’ rates 1,200

Rent Receivable Account A tenant paid rent of £6,000 per quarter, three monthly in advance, on 1 July 2009, 1 October 2009, 1 January 2010 and 1 April 2010. REQUIRED (a) Prepare and balance the following accounts at 31 October 2009 and 30 April 2010, clearly

showing the transfers to the Profit & Loss Account. (i) Light and Heat Account (3 marks) (ii) Rates Account (7 marks) (iii) Rent Receivable Account. (10 marks) (b) Prepare a Balance Sheet extract for Sue Ball, showing both the accruals and prepayments, at

30 April 2010. (5 marks)

(Total 25 marks)

2007/4/10/MA Page 13 of 13 © Education Development International Plc 2010

MODEL ANSWER TO QUESTION 5 (a) (i) Light and Heat Account

£ £ May 1 09 Balance b/d 230 Aug 12 09 Bank 370 Oct 31 09 P & L A/c 600 600 600 Dec 13 09 Bank 360 Apr 30 10 P & L A/c 558 Apr 14 10 Bank 378 Apr 30 10 Balance c/d 180 738 738 May 1 10 Balance b/d 180 (a) (ii) Rates Account

£ £ May 1 09 Balance b/d 1,200 Oct 31 09 P & L A/c 2,400 Sep 27 09 Bank 1,200 2,400 2,400 Jan 20 10 Bank 1,200 Apr 30 10 P & L A/c 2,400 Apr 30 10 Balance c/d 1,200 2,400 2,400 May 1 10 Balance b/d 1,200 (a) (iii) Rent Receivable Account

£ £

Oct 31 09 P & L A/c 8,000 Jul 1 09 Bank 6,000 Oct 31 09 Balance c/d [W1] 4,000 Oct 31 09 Bank 6,000 12,000 12,000 Apr 30 10 P & L A/c 12,000 Nov 1 09 Balance b/d 4,000 Apr 30 10 Balance c/d [W2] 4,000 Jan 1 10 Bank 6,000 Apr 1 10 Bank 6,000 16,000 16,000 May 1 10 Balance b/d 4,000

[W1] 2 months (Nov and Dec) x 2,000 = 4,000 [W2] 2 months (May and June) x 2,000 = 4,000

(b) Sue Ball

Balance Sheet Extract at 30 April 2010

£

£

Current Assets

Prepayment: Light and Heat 180

Creditors: amounts falling due within one year

Accrual: Rates

1,200 Prepayment: Rent receivable

4,000

5,200

1517/2/10/MA Page 14 of 12 © Education Development International plc 2010

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UK

Tel. +44 (0) 8707 202909

Fax. +44 (0) 2476 516505

Email. [email protected]

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