MyStudyBro - Revision Exercise Tool

This Revision Handout includes the Questions and Answers of a total of 4 exercises!

Chapters:
Concepts and Covenventions - Unit 1 (Pearson Edexcel)
Page 1 (WAC01 or WAC11) 2016 Winter
Page 2 (WAC01 or WAC11) 2016 Winter - Answer
Page 3 (WAC01 or WAC11) 2015 Winter
Page 5 (WAC01 or WAC11) 2015 Winter - Answer
Page 7 (WAC01 or WAC11) 2013 Winter
Correction of Errors

Page 9 (WAC01 or WAC11) 2013 Winter - Answer

Also Includes:
Correction of Errors

Page 13 (WAC01 or WAC11) 2011 Summer

Accruals and Prepayments

Page 15 (WAC01 or WAC11) 2011 Summer - Answer

Also Includes:
Accruals and Prepayments
Winter 2016 www.mystudybro.com Accounting Unit 1
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SOURCE MATERIAL FOR USE WITH QUESTION 6

6 Cade is in business buying and selling goods on credit.
His draft profit for the year ended 31 December 2015 had been calculated at £37 000
before taking the following in to account:
(1) No adjustment had been made for prepaid expenses, £1 360, and expenses
owing, £2 100, at the end of the year.
(2) In previous years motor vehicles had been depreciated at the rate of 20% per
annum using the reducing balance method. At 31 December 2015, motor vehicles
had a carry-over (net book value) of £30 000 before applying this method. The
method of depreciation that had been charged this year was the revaluation
method. The motor vehicles had a revaluation of £28 000.
(3) The provision for doubtful debts balance of £3 800, had not been adjusted.
Cade should maintain the provision for doubtful debts at 5% of his £68 000
trade receivables.
(4) The Statement of Comprehensive Income had been credited with £5 000
representing the increased skills of the staff.
(5) The closing inventory had been included in the financial statements at selling
price of £24 000. Cade uses a 50% mark up on cost.
(6) Cade had included his drawings of £3 200 as an expense in the Statement of
Comprehensive Income.
Required:
(a) Name the accounting concept or convention which has not been complied with
in each of (1) to (6) above.
(12)
(b) Calculate the revised profit for the year following the correction of (1) to (6)
above.
(16)
(c) Evaluate the use of accounting concepts or conventions.
(4)

(Total for Question 6 = 32 marks)

Answer space for question 6 is on pages 31 to 33 of the question paper.

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6(a)(1) Accrual/Matching √√
(2) Consistency √√
(3) Prudence √√
(4) Money measurement √√
(5) Historic cost √√
(6) Business entity √√
(12)

(b) £ £
Draft profit for the year 37 000
Plus Expenses 1360 √√
PDD Decrease 400 √√
Drawings 3 200 √√
41 960
Less Expenses 2 100 √√
Depreciation (2 000 – 6 000) 4 000 √√√ (√√ if added)
Skill value 5 000 √√
Inventory valuation 8 000 √√
19 100
Revised profit for the year 22 860 √of

Note: Expenses (2 100) – 1 360 = (740) √√√√

(16)

(c) Valid answers may include:

Arguments for
• Provides a framework for the preparation of accounts
• Prepared accounts can be relied upon
• Can compare financial statements.

Arguments against
• Concepts can be contradictory
• Require professional skill to apply.

√√ per valid point. Maximum one valid points for and one valid points
against.
(4)

(Total: 32 marks)

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SOURCE MATERIAL FOR USE WITH QUESTION 7

7 The following summary financial statements were prepared by Biman for his business.
Biman has limited accounting knowledge.
Biman
Statement of Comprehensive Income for the year ended 30 November 2014

£ £
Revenue 115 000
Less cost of sales (63 000)
Gross profit 52 000
Less
General expenses 15 000
Depreciation 9 000 (24 000)
Profit for the year 28 000

Statement of Financial Position at 30 November 2014

£
Non-current Assets
Premises 90 000
Equipment 27 000
Staff skill 15 000
132 000
Current Assets
Inventory 20 000
Trade receivables 18 000
Bank 11 000
181 000
Equity and Capital
Capital 95 000
Profit for the year 28 000
123 000

Current Liabilities
Trade payables 58 000
181 000

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Biman failed to apply the correct accounting principles and concepts to the following:
1. The revenue contains a sum of £6 000 for goods on credit, sale or return. On
30 November 2014 the customer had not returned the goods or stated his
intention to buy them. Biman uses a 50% mark up on goods.
2. General expenses of £15 000 were paid by cheque. On 30 November 2014, there
was £3 200 owing and £450 was prepaid.
3. When calculating the depreciation on equipment Biman changed the method of
depreciation from 20% diminishing balance to 10% straight line. On 1 December
2013 the equipment was purchased new and cost £30 000.
4. Biman had increased his capital by valuing the skill of his staff at £15 000.
5. Premises costing £80 000 had been included in the financial statements at the
market value of £90 000. The correct depreciation on premises was charged.
6. Biman had removed the provision for doubtful debts of £1 500 from the accounts.
Required:
(a) Name the accounting principle or concept that has not been correctly applied in
each of (1) to (6) on page 12.
(12)
(b) Redraft the corrected financial statements of Biman for the year ended
30 November 2014, in order to comply with the accounting concepts that you
have identified. You should show your workings.
(16)
(c) Evaluate the use of accounting principles and concepts.
(4)

(Total for Question 7 = 32 marks)

Answer space for question 7 is on pages 38 to 42 of the question paper.

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7(a)
1. Realisation / Accrual
2. Accrual / matching
3. Consistency
4. Money measurement
5. Historic cost / cost
6. Prudence
√√ x each correct name (12)
(b)
Biman
Statement of Comprehensive Income for the year ended 30 November 2014.
£
Revenue 115 000 – 6 000 109 000 √
Less Cost of sales 63 000 – 4 000 (59 000) √√
Gross profit 50 000
Less
General expenses 15 000 + 3 200 – 450 17 750 √
Depreciation - 9 000 + 3 000 12 000 √√
Provision for doubtful debts 1 500 √
(31 250)
Profit for the year 18 750

Statement of Financial Position at 30 November 2014

£
Non-current Assets
Premises 80 000 √
Equipment 30 000 – 6 000 24 000 √
Staff skill 15 000 – 15 000 0 √
104 000

Current Assets
Inventory 20 000 + 4 000 24 000 √
Trade receivables 18 000 – 6 000 √ – 1 500 √ 10 500
Other incomes 450 √
Bank 11 000
149 950
Equity and capital:
Capital 95 000 – 15 000 – 10 000 70 000 √
Profit for the year 18 750
88 750
Current liabilities
Trade payables 58 000
Other payables 3 200 √
149 950 (16)
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(c)
Valid answers may include:
In favour
• Standardises approach / allows comparisons
• Reader can rely upon the information e.g. investors
• True and fair view of profit and valuing assets and liabilities
• Provides a framework to prepare financial statements.
Against
• Requires professional input
• Concepts can contradict each other
• Does not consider non-financial factors e.g. quality of management.

√√ x 2 points (MAX one point for and one point against) (4)

(Total 32 marks)
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SOURCE MATERIAL FOR USE WITH QUESTION 3

3. Xevena commenced business on 1 January 2012 buying and selling goods on credit. She commenced
business with fixtures and fittings £2 000 and bank £10 000.

She has little accounting knowledge, but has prepared a draft Statement of Comprehensive Income
for the year ended 31 December 2012:
£ £
Revenue 110 000
Less
Purchases 103 500
Less Purchase returns 0(2 300)
101 200
Less Inventory (at selling price) (20 000)
(81 200)
Gross profit 28 800
Plus other income:
Sale of fixtures and fittings 1 200
Rent receivable 31 000
31 000
Less expenses:
Carriage of goods 3 600
Rent and rates 4 000
Wages 6 000
General running expenses 4 550
Purchase of fixtures and fittings 2 800
Purchase of motor van 009 000
(29 950)
Profit for the year 001 050

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Additional information:

1. Revenue included goods with a selling price of £2 000 sent to a customer on ‘sale or return’.
On 31 December 2012 the customer had not advised an intention to keep or return the goods.
The transaction had been recorded as a credit sale.
2. Xevena used a 25% mark up on cost throughout the year.
3. Half of the fixtures and fittings brought into the business on 1 January 2012 were sold during
the year for £1 200. Additional fixtures and fittings were purchased during the year.
4. Part of the premises were sub-let on 1 July for a rent receivable of £1 000 per 3 months.
5. One third of the carriage related to collecting purchases and two thirds to deliveries to
customers.
6. General running expenses included £750 prepaid, but did not include £470 owing.
7. During the year Xevena paid suppliers by cheque £93 030 and received a discount of £1 870.
8. Other balances on 31 December 2012:
£
Motor van (at valuation) 7 500
Fixtures and fittings (at valuation) 3 400
Trade receivables 12 870
Trade payables ?
Bank overdraft 18 450
Drawings 4 800

Required:

(a) Explain the following accounting concepts. For each concept give one example from the draft
Statement of Comprehensive Income prepared by Xevena and from the additional information
given, where the concept has not been correctly applied:

(i) Realisation
(3)
(ii) Accrual (matching)
(3)
(iii) Going concern.
(3)

(b) Redraft the corrected Statement of Comprehensive Income after taking into account the
additional information given for the year ended 31 December 2012.
(14)

(c) Prepare the Purchases Ledger Control Account, calculating the trade payables balance at
31 December 2012.
(6)

(d) Prepare the Statement of Financial Position at 31 December 2012.

(15)

(e) Evaluate the use of accounting concepts when preparing financial statements.
(8)
(Total 52 marks)

Answer space for question 3 is on pages 17 to 21 of the question paper.

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Question Answer Mark

Number
2(g)(ii) Machinery – Provision for Depreciation account
£ £
Balance b/d 13 600 √of
Income Statement-
Adjustment 2 150 √of
Balance c/d 23 213 2012 charge 7 463 √√
23 213 23 213
Balance b/d 23 213 √of
(if on credit)
Note: If Balance b/d stated as £15 750 award √√ (£13 600 + £2 150) (5)
If charge to income statement £9 613 award √√√ (£2 150 + £7 463)

Question Answer Mark

Number
2(h) Valid answers may include:
Points for
• Greater depreciation will be charged in the early years which
reflects the situation with machinery
• Carry over value will be closer to market value resulting in
more accurate financial statement value.
• Evens out total cost of ownership when repair costs are
added to depreciation.
• Provides a more realistic book value
Points against:
• Distorts profit calculation
• Not consistent with previous practice.
• Not appropriate if machine used equally from year to year

√√ per valid point x 4 points. MAX 2 points for and MAX two points
against.

NOT
• Difficult to calculate
• Time consuming (8)
• Costly

Question Answer Mark

Number
3(a)(i) Realisation – Profit is regarded as having been earned when the
goods are passed to the customer and he incurs liability for
them.√√
Breach- The sale or return has not realised the profit as the (3)
customer has not incurred liability for them.√

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Question Answer Mark

Number
3(a)(ii) Accrual (matching)-Net profit is the difference between income
and expenditure rather than cash receipts and cash (3)
expenditure. Revenues matched with expenses for a period. √√

Breach-Adjustments for general expenses.√

Question Answer Mark

Number
3(a)(iii) Going concern-Unless it is known to the contrary, it is assumed
that the business will exist and operate for an indefinitely long
period of time.√√
Breach- Charging the full cost of non-current assets to a single (3)
accounting period.√

Question Answer Mark

Number
3(b) Xevana – Statement of Comprehensive Income for the year ended 31 December 2012

£ £
Revenue (110 000 – 2 000) 108 000 √
Less
Purchases 103 500
Less Purchase returns (2 300)
101 200
Carriage inwards 1 200 √
102 400
Less Closing inventory (16 000 + 1 600)(17 600) √√(√of other than 20 000)
Cost of sales (84 800)
Gross profit 23 200
Plus other income:
Profit on sale of fixtures and fittings 200 √
Rent receivable (1 000 + 1 000) 2 000 √
Discount received 1 870 √
27 270
Less expenses:
Carriage outwards 2 400 √
Rent and rates 4 000 √
Wages 6 000 √
General expenses (4 550 + 470 √ – 750 √) 4 270
Depreciation: Fixtures and fittings 400 √
Motor vehicles 1 500 √
(18 570)
Profit for the year 8 700

If discount received is deducted from purchases (103 500 – 1 870) = 101 630 √

(14)

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Question Answer Mark

Number
3(c) Purchases Ledger Control Account
£ £
Purchase returns 2 300 √ Balance b/d -
Payments to trade creditors 93 030 √ Purchases 103 500 √
Discount received 1 870 √
Balance c/d 6 300 √
103 500 103 500
Balance b/d 6300 √of

If purchases reduced by discount received (103 500 – 1 870) = 101 630 √√ (6)

Question Answer Mark

Number
3(d) Statement of financial position at 31 December 2012 √
Cost Aggregate Carry over
Depreciation
£ £ £
Non-current assets
Motor vehicles 9 000 1 500 7 500 √
Fixtures and fittings 3 800 400 3 400 √
12 800 1 900 10 900 √
Current assets
Inventory 17 600 √of (other than 20 000)
Trade receivables (12 870 √– 2 000 √) 10 870
Rent receivables owing 1 000 √
General expenses prepaid 750 √
30 220
41 120

£ £
Equity and Capital:
Opening capital 12 000 √
Plus Profit for the year 8 700
20 700
Drawings (4 800)√
15 900
Current liabilities
Trade payables 6 300 √√(√of)
General expenses accrued 470 √
Bank overdraft 18 450 √
25 220
41 120
(15)

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Question Answer Mark

Number
3(e) Valid answers may include:
Points for
• Provides a framework of consistency in preparing all financial
statements
• Provides assurance to users about the preparation of the
accounts
• Can be used internationally to compare business
• True and fair view
• Meets legal requirements
• Profit can be relied upon
Points against:
• Concepts can be contradictory
• Many non-financial aspects of a business are not considered (8)
by accounting concepts
• Open to wide interpretation

√√ per valid point x 4 points. MAX 2 points for and MAX two points
against.

Do NOT accept
• Costly
• Time consuming

Question Answer Mark

Number
4(a) Profitability is the difference between the income and
expenditure√√ for a period of time.
The profit is compared with a common yardstick such as revenue or
capital employed.√√
(4)

Question Answer Mark

Number
4(b)(i) Molara – Statement of Comprehensive Income for the year ended
31 December 2012
£ £
Revenue 140 000
Less
Opening inventory 12 000
Purchases 119 000
131 000
Closing inventory (27 000) √√
Cost of sales (104 000)
Gross profit 36 000

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SOURCE MATERIAL FOR USE WITH QUESTION 2

2. Haider is in business as a travel consultant. She sells holidays and collects the payment from
customers. She receives from the travel company a commission of 10% of the revenue (sales) value
of the holidays.

Haider operates a single Sales Ledger Control Account for her business. The following information
is available:
£
Trade receivables (Debtors) 1 April 2010 19 900
Receipts from customers 425 000
Refunds to customers 8 350
Dishonoured cheques 1 600
Trade receivables (Debtors) 31 March 2011 24 850

Required:

(a) Prepare the Sales Ledger Control Account for the year ended 31 March 2011, showing the total
value of the revenue (sales) for the year.
(7)

On 1 April 2010, the following balances were in the books of Haider:

£
Commission receivable, owing to Haider: 4 800
Rent, 3 months prepaid: 1 250
Wages, prepaid: 400
Marketing expenses, owing: 750

The following is a summary of some of the transactions of the business for the year ended 31 March
2011:

£
Receipts of commission from the travel company 43 500
Payment of 9 months rent 3 750
Wages paid 17 800
Marketing expenses paid 11 250

At 31 March 2011:

Wages £350 were owing

Marketing expenses – there was a closing inventory (stock) of brochures £2 150

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Required:

(b) Prepare the following ledger accounts for the year ended 31 March 2011, showing the transfers
to the statement of comprehensive income (profit & loss account). Balance the accounts as
necessary.

(i) Commission receivable account

(ii) Rent account
(iii) Wages account
(iv) Marketing expenses account
(23)

In addition to the incomes and expenses above, Haider also incurred the following for the year
ended 31 March 2011:

Sundry expenses £3 600

Depreciation on non-current (fixed) assets £4 600

(c) Prepare the statement of comprehensive income (profit & loss account) for the year ended
31 March 2011.
(8)

At a meeting with her accountant, Haider was informed that her accounts would need to comply
with the accounting concepts of accruals and going concern.

(d) Explain the meaning of:

(i) accounting concepts

(ii) the accounting concept of accruals
(iii) the accounting concept of going concern.
(6)

(e) Evaluate the use of accounting concepts when preparing financial statements (final accounts).
(8)

(Total 52 marks)

Answer space for question 2 is on pages 9 to 15 of the question paper.

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Question Answer Mark

Number
2(a) Sales Ledger Control Account
£ £
Balance b/d 19 900 √ Bank 425 000 √
Refunds to customers 8 350 √
Dishonoured cheques 1 600 √
Revenue (sales) 420 000 √√ Balance c/d 24 850
449 850 449 850
Balance b/d 24 850 √ (7)

2 (b) Commission Receivable Account

£ £
Balance b/d 4 800 √ Bank 43 500 √
Income statement (P/L) √ 42 000 √√OF Balance c/d 3 300
46 800 46 800
Balance b/d 3 300 √OF

Rent Account
£ £
Balance b/d 1 250 √ Income statement (P/L)√ 5 000 √√
Bank 3 750 √
5 000 5 000

Wages Account
£ £
Balance b/d 400 √ Income statement (P/L)√18 550 √√
Bank 17 800 √
Balance c/d 350 √ .
18 550 18 550
Balance b/d 350
Marketing Expenses Account
£ £
Bank 11 250 √ Balance b/d 750 √
Income statement (P/L)√ 8 350 √√
Balance c/d 2 150 √
11 250 11 250
Balance b/d 2 150 (23)

2 (c) Statement of comprehensive income (profit and loss account )

for the year ended 31 March 2011
£ £
Revenue (sales) 420 000 x 10% 42 000 √√OF
Less
Rent 5 000 √OF
Wages 18 550 √OF
Marketing 8 350 √OF
Sundry expenses 3 600 √
Depreciation 4 600 √ 40 100
Profit for the year (net profit) 1 900 √OF
42 000 (8)

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Question Answer Mark

Number
2(d) Accounting concepts - In the search for objectivity, the rules which lay down
the way in which the financial information of the
business is recorded. √√

Accruals concept - Calculates profit for the year on the basis of the
difference between revenues and expenses for the year
rather than the difference between cash receipts and
expenditures. √√

Going concern concept- Unless the opposite is known accounting always

assumes that the business will continue to operate for
an indefinite period. Therefore, it is not necessary to
show what assets would fetch. √√ (6)

Question Answer Mark

Number
2(e) Valid answers may include:
In favour
• Profit figures can be relied upon/asset values are accurate
• Comparison between accounts is possible
• Users can trust the accounts prepared/make decisions based on the
accounts
Against
• Use of concepts often open to a wide interpretation
• Different interpretation in different businesses e.g. materiality
• Concepts can contradict each other
(8)
√√ per point x 2 in favour plus √√ per point x 2 against

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