L1 Book-Keeping S2 2000

Examiner’s Report and

Model Answers for

Book-keeping

LCCI Examinations Board MH N T131 9 RNM>f2[EW2r@o2`5^B^3]E]2r2[SV#

FIRST LEVELSeries 2 (Code 1006) 2000

LCCI Examinations Board MH N T131 9 RNM>f2[EW2r@o2`5^B^3]E]2r2[SV#

Book-keeping First LevelSeries 2 2000

How to use this booklet

Examiners’ Reports and Model Answers have been developed by LCCIEB to offer additional information and guidance to Centres, teachers and candidates as they prepare for LCCIEB examinations. The contents of this booklet are divided into 5 elements:

(1) General Comments – assessment of overall candidate performance in this examination, providing general guidance where it applies across the examination as a whole

(2) Questions – reproduced from the printed examination paper

(3) Model Answers – summary of the main points that the Chief Examiner expected to see in the answers to each question in the examination paper

(4) Examiner’s Report – constructive analysis of candidate error, areas of weakness and other comments that apply to each question in the examination paper

(5) 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.

The London Chamber of Commerce and Industry Examinations Board provides Model Answers to help candidates gain a general understanding of the standard required. The Board accepts that candidates may offer other answers that could be equally valid.

Note

LCCIEB reserves the right not to produce an Examiner’s Report, either for an examination paper as a whole or for individual questions, if too few candidates were involved to make an Examiner’s Report meaningful.

© LCCI CET 2000

All rights reserved; no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the Publisher. The book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover, other than that in which it is published, without the prior consent of the Publisher.

Typeset, printed and bound by the London Chamber of Commerce and Industry Examinations Board.

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GENERAL COMMENTS

The performance at this examination produced a pass rate broadly in line with others in recent series. The following comments are intended to be of help to both candidates and tutors alike:

Each of the 4 set questions should be answered. Even though a candidate may find a particular question difficult, an attempt should always be made at an answer as marks are usually available for such things as headings and preliminary calculations. Examiners prefer to pass rather than fail a candidate and are always looking for justifying evidence.

An incorrect answer can still earn a substantial proportion of the available marks and it is therefore important for a candidate to show all of their workings and thus enable the Examiner to award those marks.

First Level Book-keeping represents an introduction to the subject. It is here that a candidate learns the good habits necessary for success not only at this First Level but also at higher levels. Particular attention should be paid to presentational matters such as ledger account narratives, dates and the headings for final accounts. It is important, for example, to remember that the narrative in a ledger account indicates where the opposite side of the double entry is to be found. Sloppy and incomplete work will lead to a heavy loss of marks in the examination.

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QUESTION 1

Delia Tremett commenced in business on 1 April Year 9. She decided to offer to credit customers a

cash discount of 2 % for payment within 14 days of the sale or 1 % for payment within 15 to

30 days.

The following details are from the books of Delia Tremett:

Year 9

2 April Bought goods on credit from County Services at a list price of £480, subject to a trade

discount of 10% and a cash discount of 2 % for payment within 30 days.

4 April Sold goods on credit to M Foxley at a list price of £320, subject to a trade discount of 12

%.

7 April Sold goods on credit to K Weston, at a list price of £480, subject to a trade discount of 12

%.

10 April K Weston returned goods purchased on 7 April with a list price of £80.

13 April Bought goods on credit from Kingseast Limited at a list price of £360, subject to a trade

discount of 15% and a cash discount of 2 % for payment within 14 days or 1 % for

payment within 15 to 30 days.

20 April Sold goods to M Foxley at a list price of £600, subject to a trade discount of 15%.

21 April Received a cheque from M Foxley in settlement of the invoice dated 4 April.

24 April Sent Kingseast Limited a cheque in settlement of the invoice dated 13 April.

29 April Sent County Services a cheque in settlement of the invoice dated 2 April.

30 April Received a cheque from M Foxley in settlement of the invoice dated 20 April.

REQUIRED

(a) Show the entries for the above transactions in the:

(i) Purchases Day Book(ii) Sales Day Book(iii) Sales Returns Day Book

(7 marks)

(b) From the above transactions, record the entries in the accounts of the two debtors and two creditors. Balance the accounts at 30 April Year 9.

(15 marks)

(c) Show the transfer of the totals of the three Day Books to the respective General Ledger Accounts at 30 April Year 9.

(3 marks)

(Total 25 marks)

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Model Answer to Question 1

(a) Purchases Day Book

(i) Year 9 £

2 April County Services 432.0013 April Kingseast Limited 306.00

To Purchases Account 738.00

Sales Day Book

(ii) Year 9 £

4 April M Foxley 280.00 7 April K Weston 420.0020 April M Foxley 510.00

To Sales Account 1,210.00

Sales Returns Day Book(iii) Year 9 £

10 April K Weston 70.00To Sales Returns Account

(b) Sales Ledger M Foxley

Year 9 £ Year 9 £

4 April Sales 280.00 21 April Bank 276.5020 April Sales 510.00 21 April Discount allowed 3.50

30 April Bank 497.25 30 April Discount allowed 12.75 790.00 790.00

K Weston

Year 9 £ Year 9 £

7 April Sales 420.00 10 April Sales Returns 70.00 30 April Balance c/d 350.00420.00 420.00

1 May Balance b /d 350.00

CONTINUED ON NEXT PAGE6

Model Answer to Question 1 continued

Purchases Ledger

County Services

Year 9 £ Year 9 £

29 April Bank 421.20 2 April Purchases 432.0029 April Discount received 10.80

432.00 432.00

Kingseast Limited

Year 9 £ Year 9 £

24 April Bank 298.35 13 April Purchases 306.0024 April Discount received 7.65

306.00 306.00

(c) General Ledger

Purchases

Year 9 £

30 April Sundries 738.00

Sales

Year 9 £

30 April Sundries 1,210.00

Sales Returns

Year 9 £

30 April Sundries 70.00

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Examiner’s Report on Question 1

Many candidates provided good answers to this question and as a result they achieved high marks.

Common errors were:

(i) Producing ledger accounts in part (a) rather than day books. This resulted in the loss of the entire 7 marks allowed for the section.

(ii) Deducting settlement discount when calculating the value of invoices to be included in the day books. This resulted in the loss of between 1 and 7 marks.

(iii) Part (b) required the posting of the day books to accounts in the Sales Ledger, however some candidates were guilty of reversing the entries. Sales were therefore posted to the credit of the personal accounts and returns and cash received to the debit side. This resulted in the loss of all the available 15 marks.

(iv) Candidates frequently rounded up cash discount values to produce whole pounds and no pence. This resulted in the loss of 1 mark for each occurrence.

(v) In part (c), a number of candidates were guilty of reversing entries in the Purchases, Sales and Sales Returns Accounts and, as a consequence, lost 1 mark for each error. Descriptions were often inadequate and this also resulted in the loss of marks.

Question 1 Helpful Hints

Candidates must provide the Examiner with what the question requires. Offering unrealistic alternatives, such as ledger accounts in place of day books or journals, will not impress the Examiner but will result in the loss of marks.

Understand what is required to provide adequate descriptions in ledger accounts. Simply repeating the name of the account in which the entry is appearing will fail to earn any marks even though the figure being entered is both correct in value and entered on the correct side of the account.

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QUESTION 2

James Moorhead, a trader, had the following transactions during the financial year ended 31 December Year 5.

(1) 17 May Purchased a motor vehicle for £13,700 from Cheshunt Motors. James Moorhead paid a deposit of £4,000 by cheque, the balance of the purchase being on credit.

(2) 23 July Henry Small, a debtor, paid £270 towards a debt of £630. The balance of the debt was written off as irrecoverable.

(3) 11 Oct James Moorhead took from stock, for his own private use, goods which had been purchased during Year 5, for £510.

At 31 December Year 5, James Moorhead prepared a Trial Balance but it did not balance. After investigation he found the following errors:

(4) A payment of £738 to a creditor, T Larken, had been posted to another creditor’s account in the name of K Ladburn.

(5) The payment by cheque of an invoice for £465 for motor vehicle repairs had been recorded correctly in the Cash Book but had been debited to Motor Vehicles Account.

(6) The total of the discount column on the credit side of the Cash Book, £63, had been posted to the debit of Discount Received Account.

(7) Rent receivable of £650 for the month of November had been correctly entered in the Cash Book but was posted to the credit of Rent Payable Account.

REQUIRED

Prepare Journal entries, without narrations:

(a) to record each of the transactions (1), (2) and (3)

(b) to correct, at 31 December Year 5, the errors stated in (4), (5), (6) and (7).(25 marks)

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James MoorheadJournal

Year 5 Dr Cr

£ £(1) 17 May Motor vehicle 13,700

Bank 4,000Cheshunt Motors 9,700

(2) 23 July Bank 270Bad Debts 360Henry Small 630

(3) 11 Oct Drawings 510Purchases 510

(4) 31 Dec T Larken 738K Ladburn 738

(5) 31 Dec Motor vehicle repairs 465Motor vehicles 465

(6) 31 Dec —Discount received 126

(7) 31 Dec Rent payable 650Rent receivable 650

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Candidates often find questions involving journal entries difficult to tackle but such questions are popular with Examiners. Journal entries examine a candidate’s knowledge of double entry without the need to spend time on neatly drawing up ledger accounts.

Common errors made by candidates were:

(i) Reversing journal entries and thereby doubling the effect of the original error. This resulted in the loss of all the marks available for the entry/entries concerned.

(ii) Incorrect usage of account names. Debt Gone Bad Account, for example, is not an acceptable alternative for Bad Debts Account and would have resulted in the loss of half a mark. A half mark would also have been lost for every other account incorrectly/inadequately named.

(iii) Goods removed by an owner for his/her own personal use should be credited to the Purchases Account and not to the Sales Account. It is also incorrect to credit the Stock Account. The loss of 1½ marks would have resulted from crediting sales or stock.

(iv) An original entry placed on the wrong side of an account will need to be “doubled up” in order to correct it. This was the case in respect of the Discount Received Account where a required credit entry of £63 was incorrectly posted as £63 debit. Many candidates corrected this error by posting a credit of £63 to the account, which simply resulted in the discount not being recorded at all. As a result, 1 mark was lost.

(v) Far too many candidates produced ledger accounts rather than journal entries. This would have resulted in the loss of all marks.


Questions of this type appear regularly at First Level and candidates should therefore be prepared to tackle them.

Remember that simply repeating existing incorrect entries will result in a “doubling up” of the error and a heavy loss of marks.

It is often useful to draw up simple T accounts that reflect the entry/entries described in the question. This will help the candidate to understand what entries are needed to correct any errors.

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QUESTION 3

On 1 May Year 4, the Cash Book balances of Claire Stewart, a trader, were:

Cash £236Bank (Current Account) £6,154 (Dr)

During May Year 4, the following transactions took place:

(1) Cheques were received from the following debtors who all took advantage of the cash discount available

Amount Cash discount Amountowed allowed received£ £

17 May T Lake 320 2 % 312

21 May W Ruscombe 960 5% 912

27 May N Paul 240 2 % 234

29 May F Anderson 1,280 5% 1,216

(2) Cheques were paid to the following suppliers; and Claire Stewart took advantage of the cash discount available

Amount Cash discount Amountowed allowed paid£ £

22 May R Felton 560 2 % 546

28 May K Dougall 740 5% 703

29 May D Beaney 280 2 % 273

(3) Cash payments £

7 May Stationery 7812 May Into bank 80014 May Drawings 10020 May Into bank 1,50026 May Into bank 1,800

(4) Other payments made by cheque £

10 May Equipment repairs 14530 May Salaries 412

(5) Cash sales amounted to £

11 May 98019 May 1,76025 May 1,920

In addition, on 27 May Claire Stewart drew a cheque for £5,000 on the firm’s Current Account and paid this into the firm’s Deposit Account at the bank.


QUESTION 3 CONTINUED

REQUIRED

(a) Write up the 3-column Cash Book of Claire Stewart for May Year 4, bringing down the closing balances.

(22 marks)

(b) Prepare the Bank Deposit Account for May Year 4 in the General Ledger. On 1 May Year 4 the balance on the Bank Deposit Account was £11,208 (Dr)

(3 marks)

(Total 25 marks)

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(a) CLAIRE STEWART CASH BOOK

Year 4 Discount Cash Bank Year 4 Discount Cash Title Case Allowed Received Bank

£ £ £ £ ££

1 May Balance b/d 236 6,154 7 May Stationery 78

11 May Sales 980 10 May Equipment repairs 145

12 May Cash 800 12 May Bank 800

17 May T Lake 8 312 14 May Drawings 100

19 May Sales 1,760 20 May Bank 1,500

20 May Cash 1,500 22 May R Felton 14 546

21 May W Ruscombe 48 912 26 May Bank 1,800

25 May Sales 1,920 27 May Bank Deposit 5,000

26 May Cash 1,800 28 May K Dougall 37 703

27 May N Paul 6 234 29 May D Beaney 7 273

29 May F Anderson 64 1,216 30 May Salaries 412

31 May Balance c/d 618 5,849

126 4,896 12,928 58 4,896 12,928 1 June Balance b/d 618 5,849


Model Answer to Question 3 continued

(b) General Ledger

Bank Deposit Account

Year 4 £ Year 4 £

1 May Balance b/d 11,208 31 May Balance c/d 16,20827 May Bank Current 5,000

16,20816,208 1 June Balance b/d 16,208


The writing up of a cash book usually proves a popular question with candidates and this question was no exception.

Common errors made by candidates were:

(i) Poor or incorrect descriptions resulting in the loss of the marks allocated to the entry. An example of this was the treatment of the £5,000 transfer to the firm’s Deposit Account which many candidates recorded as being transferred to drawings. A half mark was lost as a result.

(ii) Classifying bank entries as cash entries and vice versa and, as a result, losing the marks available for each one.

(iii) Reversing the entries required to record the three cash/bank contras. This resulted in the loss of up to 3 marks.

(iv) Adding the various discounts allowed and discounts received figures to the net cash received and net cash paid amounts and then entering the resultant gross receipts/gross payments in the cash book. This resulted in the loss of up to 7 marks.

(v) Failure to bring cash and bank balances down to the beginning of the new period, 1 June, thereby losing 1 mark.

(vi) Many candidates omitted to tackle part (b) of the question, entering up the Deposit Account and, as a result, lost 3 marks.


Examiners will reward a neat presentation but struggle to award marks where a candidate produces untidy and, at times, unreadable work.

Pay attention to dates and brought down balances as these will always attract marks.

Remember that the details column must state the name of the account in which the opposite side of the double entry will be found.

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QUESTION 4

The following Trial Balance was extracted from the books of Tim Paradine at 30 June Year 6:

Dr Cr£ £

Stock, 1 July Year 5 4,612Purchases and sales 147,380 212,630Returns inwards and outwards 340 3,962Debtors and creditors 36,350 8,520Bank 5,510Cash in hand 125Fixtures and fittings at cost 21,400Provision for depreciation on fixtures and fittings 5,350Motor vehicles at cost 36,000Provision for depreciation on motor vehicles 7,200Discounts 3,640 1,620Wages and salaries 32,240Insurances 3,680Motor vehicle running costs 4,790Advertising 1,100Bad debts written off 730Provision for doubtful debts 960Drawings 15,600Capital 73,255

313,497 313,497

The following points applied at 30 June Year 6:

(1) Closing stock valued at cost £13,940

(2) Wages and salaries accrued £1,480

(3) Insurance prepaid £360

(4) Depreciation was to be provided as follows:

Fixtures and fittings - 12 % on cost

Motor vehicles - 40% on reducing balance.

(5) It was decided to write off a further £550 as a bad debt and to adjust the provision for doubtful debts to 4% of the remaining balance of debtors.

REQUIRED

Prepare for Tim Paradine:

(a) a Trading and Profit & Loss Account for the year ended 30 June Year 6(13 marks)

(b) the Balance Sheet at 30 June Year 6.(12 marks)

(Total 25 marks)

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(a) Tim ParadineTrading and Profit & Loss Account for the year ended 30 June Year 6

£ £ £

Stock, 1 July Year 5 4,612 Sales 212,630Purchases 147,380 Less Returns inwards 340 Less Returns outwards 3,962 212,290

143,418148,030

Less Stock 30 June Year 6 13,940 Cost of goods sold 134,090Gross Profit c/d 78,200

212,290 212,290

Discount allowed 3,640 Gross Profit b/d 78,200Wages and salaries (+1,480) 33,720 Discount received 1,620Insurances (-360) 3,320Motor vehicle running costs 4,790Advertising 1,100Bad debts written off (+550) 1,280Provision for doubtful debts 472Depreciation:Fixtures and fittings 2,675Motor vehicles 11,520 14,195Net Profit 17,303

79,820 79,820

(b) Balance Sheet at 30 June Year 6

Fixed Assets Cost Aggregate Net bookdepreciation value

£ £ £

Fixtures and Fittings 21,400 8,025 13,375Motor vehicles 36,000 18,720 17,280

57,400 26,745 30,655Current AssetsStock 13,940Debtors 35,800Less Provision for doubtful debts 1,432 34,368Prepayment (insurance) 360Bank 5,510Cash 125

54,303Less Amounts due within 1 year (Current Liabilities)

Creditors 8,520Accrual (wages and salaries) 1,480 10,000

Net Current Assets 44,30374,958

Financed as follows:

Capital £ £Balance at 1 July Year 5 73,255Add Net Profit 17,303Less Drawings 15,600 1,703

74,958

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The preparation of final accounts is examined very regularly at this level but, unfortunately, the same mistakes keep recurring.

Common errors made by candidates at this examination were:

Using incorrect titles and thereby losing an easy 1½ marks. The Trading and Profit & Loss Account reports on the results of trading for the year ending whilst the Balance Sheet reports on the value of assets and liabilities at the specific year end date.

Trading and Profit & Loss Account

(i) Returns inwards and returns outwards should be deducted from sales and purchases respectively and the result clearly shown as a separate and identifiable figure. Failure to do so at this examination resulted in the loss of up to 2 marks.

(ii) The Cost of Goods Sold or, alternatively, Cost of Sales must be clearly shown or the loss of marks will result.

(iii) A large number of candidates added prepayments to, and deducted accruals from, given trial balance figures. This resulted in the loss of up to 3 marks.

(iv) The Provision for Doubtful Debts was often included at the revised account balance. It is only the difference between the opening and the closing balance that should appear in the Profit & Loss Account. This error resulted in the loss of 1 mark.

(v) Those candidates who reflected the adjustment correctly, frequently omitted to deduct the additional bad debts before calculating the revised provision. This resulted in the loss of up to 2 marks.

(vi) Discounts allowed and discounts received were often reversed resulting in the loss of 1 mark.

(vii) The straight line method of calculating depreciation was frequently applied to motor vehicles despite the question stating that the reducing balance method was to be used. This resulted in the loss of 1 mark.

Balance Sheet

(i) Failure to increase the aggregate depreciation by the amount charged in the Profit & Loss Account resulted in the loss of a maximum of 2½ marks.

(ii) The same mistake was made in relation to the Provision for Doubtful Debts thus resulting in the loss of 1 mark.

(iii) Omitting to reduce the value of Debtors by the value of the additional bad debt write off resulted in the loss of 1 mark.

(iv) Including accruals under Current Assets and prepayments under Current Liabilities/Creditors – amounts due within one year resulted in the loss of 2 marks.

(v) Failing to show sub-totals for both Current Assets and Current Liabilities resulted in the loss of 2 marks.

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Given the popularity of this type of question, candidates should thoroughly revise the topic.

Accruals and prepayments must be accurately dealt with not only in the Profit & Loss Account but also in the Balance Sheet. The same comment applies to both depreciation and doubtful debts.

Pay close attention to the presentational style used in this model answer. Although a horizontal format is acceptable for the Balance Sheet, the vertical format allows for the calculation of Net Current Assets and is to be preferred.

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L1 Book-Keeping S2 2000

Documents

industry examinations

firms deposit

common errors

bank deposit

discount received

motor vehicles

tim paradine

doubtful debts