Test cope 01239020 FORM 2006124 MAY/JUNE 2006 CARIBBEAN EXAMINATIONS COUNCIL SECONDARY EDUCATION CERTIFICATE EXAMINATION PRINCIPLES OF ACCOUNTS Paper 02 ~ General Proficiency 3 hours 23 MAY 2006 (a.m.) 1, Answer ALL the questions in Section I and TWO questions from Section II. 2, Begin EACH answer on a separate page. 3. Keep ALL parts of EACH answer together. 4, Silent electronic calculators may be used, but ALL necessary working should be clearly shown. 5. Each question is worth 20 marks. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO. Copyright © 2005 Caribbean Examinations Council ®. All rights reserved. geatansiun eke:-2- SECTION I ‘Answer the THREE questions in this section. 1. Armstrong and Bamett are in partnership, sharing profits in the same proportion as their capital. Interest on the capital is to be paid at the rate of 10 per cent per annum. Armstrong is to receive a salary of $3 000 per annum. No interest is allowed or charged on drawings or current account balances. ‘The following is the Trial Balance of Armstrong and Barnett as at December 31, 2005. $ $ Capital Account (Armstrong) 40.000 Capital Account (Barnett) 60 000 Current Account (Armstrong) 10 000 Current Account (Barnett) 7.000 Drawings (Armstrong) 12.000 ‘Drawings (Barnett) 5.000 Buildings 153 000 Fixtures and Fittings 30 000 Motor Vehicles 80 000 Gross Profit 230 000 Debtors and Creditors 70.000 60 000 Operating Expenses 55:00 Goodwill 80 000 Provision for Depreciation (Motor Vehicles) 40.000 Provision for Depreciation (Buildings) 20 000 Bank Overdraft 3.000 Loan at 15% 35.000 495.000 495 000 GO ON TO THE NEXT PAGE 012730070/F 2006-3- ‘The following information is to be taken into account: Depreciation on motor vehicles is to be provided at the rate of 12.per cent per annum. Depreciation on buildings is to be provided at the rate of 10 per cent per annum. ‘The interest on the loan has not been paid. ‘A provision for bad debts is to be made at the rate of 5 per cent. Required: (a) b) © Prepare a Profit and Loss and Appropriation Account for the partnership, for the year 2005. (Please note that you are not required to do a Trading Account.) ( marks) Prepare the Current Accounts for the partners. (5 marks) Prepare the Balance Sheet as at December 31, 2005. (Do not show details of the current accounts of the partners in the Balance Sheet.) (6 marks) ‘Total 20 marks GO ON TO THE NEXT PAGE 01239020/F 2006-4- 2. (@)_ The Cash Book of L. Tracey at February 28, 2006, showed a debit balance of $10 030. ‘On comparing the Cash Book with the Bank Statement, the following differences were observed: = Accheque paid to a creditor for $ 1.894 was entered in the Cash Book as $1984 — Direct credits received by the bank but not entered in the Cash Book amounted to $500 — Bank charges not entered in the Cash Book amounted to $194 - A standing order of $36 for insurance premiums was not entered in the Cash Book — + © Unpresented cheques amounted to $6 936 ~ Bank deposits not credited by the bank amounted to $548 = Cheques returned by the bank marked “refer to drawer” were not adjusted in the ‘Cash Book and amounted to $112 Use the information above to: (@_—_update the Cash Book (6 marks) (ii) prepare a Bank Reconciliation Statement (5 marks) ()__M. Martin commences business on January 1, 2002. His debtors at December 31, 2003, were $15 000 December 31, 2004, were $12 000 December 31, 2005, were $14 000 ‘A provision for bad debts of 5 per cent is to be created on debis at the end of each year. Use the information above to answer the following questions. (i) Show the Provisions for Bad Debts Account for EACH of the three years. (7 marks) (i) Show the extracts from the second year's Balance Sheet. (2 marks) ‘Total 20 marks GO ONTO THE NEXT PAGE 01239020/F 20063. (@)_ Prepare the journal entries with appropriate narrations, for EACH of the following situations. The date to be used for each case is December 31, 2005. @ Gi) ii) Gv) w) A receipt of $2 300 from M. Ramadan was recorded in error to the account of M. Ramteet. Show the correction of the error in the journal entry. Office fixtures costing $1 700 previously bought from Office Fixtures Unlimited were returned to them as the wrong order. K. Shivnaraine’s debt of $2-000 was written off as a bad debt six months ago. Recently, the business received a cheque from him for $2,000 with anote attached “in full settlement of debt”. ‘The sale of used computers valued at $40 000 cash was recorded in the Sales ‘Account. Show the correction of the error in the journal entry. Discounts allowed to customers for the total sum of $300 were credited to the Discount Received Account. Show the correction of the error in the journal entry. (11 marks) (b) Use the relevant information from the data below to prepare EITHER accounts OR statements to show the amount for total purchases and sales for the period. May 30, 2005 May 30, 2006 $ s Debtors 3219 3.388 Creditors 1842 1891 Cash received from debtors. $24 264 — ‘Cash paid to creditors S18 624 Cash purchases $5 780 Cash sales $12 320 (9 marks) : Total 20 marks GO ON TO THE NEXT PAGE passant:SECTION 1 Answer any TWO questions in this section. 4, Sport Art makes frames for pictures of sports events mainly out of wood and metal strips. They employ both wood workers and metal workers. On June 30, 2005, the following information was extracted from its records. s Purchases: 16 800 1300 15 300 Stock at start: 1400 200 800 6.000 Stock at close: 1500 300 1.000 9.000 Factory wages - Wood workers 27000 Metal workers 12.000 Rent (Factory 2/3; Office 1/3) 6.000 Insurance on equipment 700 Foreman’s salary 10.000 Other factory expenses 2.100 Sales 122 200 Selling expenses 8.000 ‘Additional information: = Factory equipment valued at $32 000 is to be depreciated at the rate of 10% per annum. (@)__ Using the answer sheet provided as a guide, prepare the Manufacturing Account for Sport Art for the year ended June 30, 2005, to clearly show the following: — Prime Cost of Wood Used - Prime Cost of Metal Used = Total Prime Costs - Total Factory Overheads — Production Cost transferred to Trading Account (12 marks) GO ON TO THE NEXT PAGE 01239020/F 2006Te (b) Prepare the Trading and Profit and Loss Account for Sport Art for the year ended June 30, 2005, to clearly show the following: = Cost of Goods Sold ad = Gross Profit = Net Profit (8 marks) ‘Total 20 marks 5. (a) Thefollowing Balance Sheet of Price Rite Ltd. has several errors inthe way its presented. Redraft the Balance Sheet using the VERTICAL style, ensuring that sections of the Balance Sheet are clearly marked with appropriate headings. Balance Sheet Price Rite Ltd. as at December 31, 2005 Assets $ $ Liabilities s Stock 21500. Creditors 25 000 Land and Buildings 150 000 6% Debentures 20 000 Less Depreciation 30.000 120.000 Proposed Ordinary Dividend 9.000 Debtors 54.500 ‘Authorized Share Capital Less Provisions for bad debts 2725 S177. 20000 7% preference shares of $1 each 20.000 Cash in hand 700 125 000 ordinary shares of $i each ‘125 000 Investments 8000 General Reserve 31.000 Equipment 15.000 Issued Share Capital Less Depreciation 6000 9.000 20000 7% preference shares of $1 each 20000 Cash at Bank 5500 90.000 ordinary shares of $1 each 90 000 Motor Vehicles 7500 Proposed Preference Dividend 700 Less Depreciation 3750 3.750 Profit and Loss Account 23.925 Debenture Interest Owing 600 (9 marks) (©) What is the meaning of the “7%" placed in front of Preference Shares and the "6%" placed in front of Debentures? (mark ) ‘Total 20 marks GO ON TO THE NEXT PAGE 01239020/F 2006-8- 6. The following receipts and payments account for the year ended December 31, 2005, for the Kingstown Domino Club, has been prepared by the club's treasurer. $ $ Opening bank balance 1752 National Domino Tournament: Refreshment sales 3368 Purchase of tickets 7200 National Domino Tournament: Purchase of refreshments 3.800 Ticket sales 800 Purchase of domino sets for club 3.000 Sale of some old tables 7.600 Purchase of ables for lub 7800 ‘Subscriptions received 14380 Fees paid to coach 2.000 Closing bank balance 540 Rental of premises 1000 Purchase of magazines 980 Secretarial expenses 1880 Cleaning expenses 780 28 440 ‘The following additional information is available: Asat Jan 1,2005 As at Dec 31, 2005 $ $ weLand owned by club 10 000 10 000 ‘Stock of refreshments, at cost 500 1120 Debtors for tables sold 800° Subscriptions received in advance 480 780 ‘pCreditors: refreshment supplies 1.820 1.020. ‘Tables are to be depreciated at 10 per cent per annum. GO ON TO THE NEXT PAGE (0123900207 2006,-9- @ — @_ Prepare a Statement of Affairs to show the club’s accumulated fund as at January 1, 2005. (6 marks) Prepare the club’s Refreshment Account. 3 marks) (iii) Prepare the club’s Income and Expenditure Account for the year ended December 31, 2005. (8 marks) (b) If a Balance Sheet were prepared for the club as at December 31, 2005, where would the following items be recorded? @ Closing bank balance (| Subscriptions in advance Gi) Surplus/Deficit G marks) ‘Total 20 marks GO ON TO THE NEXT PAGE, 01239020/F 2006-10- Vv 7. The following is the summary final accounts of Maxie’s, a trader. Maxie’s ‘Trading and Profit and Loss Account for the year ended June 30, 2005. $ Sales Less cost of sales Opening stock 680 Purchases 81.070 81 750 Closing stock B10) Gross Profit Expenses - 37 830 Depreciation 3.620 Provision of bad debts 1860 Interest on loan 500 Net Profit Maxie’s Balance Sheet as at June 30, 2005. $ Fixed assets (at cost $22 890) Current Assets Stock Debtors Prepayments Cash at bank Cash in hand Less Current liabilities Sundry expenses 200 Loan interest 500 ‘Net current assets Loan 01239020F 2006 Capital July 1, 2004) Add profit Less drawings $ 154 610 80.940 73 670 43 810 29 860, $ $ 10 060, 810 4330 1350 8 370 150 15010 70014310 24.370 10 000 14 370 21: 110 29 860 50 970 36 600 14370 GO ON TO THE NEXT PAGE@) (b) © ; a ‘Use the statements given to calculate the following ratios. (Show your workings.) @ Current ratio Gi) Acid test Gii) Return on capital invested Gv) Rate of stock tmmover (¥) Net profit percentage (20 marks) Use the Trading and Profit and Loss Account and the Balance Sheet where applicable, to answer the following questions: @___ Give another term for “net current assets” as indicated on the Balance Sheet. Gi) Why does loan interest of $500 appear on the Balance Sheet even though it is recorded in the Profit and Loss Account? (iii) What does a “good” current ratio indicate? (iv) What is the term used for the fixed asset amount of $10 0607 (¥) __Itcan be reasonably assumed that Year 2005 is not the first year depreciation has been charged on fixed assets. Why is this assumption correct? Indicate whether the following statements are True or False: (@_—Amacid test ratio of 1:5 is good. Gi) A current ratio of 2:4 is not good. Gi) The purchase of fixed assets is a capital expenditure. (iv) Prepayments should be charged against profits for the current period. (v) Bad debts is written off in the Profit and Loss Account, and then subtracted from the debtors amount in the Balance Sheet. (10 marks) ‘Total 20 marks END OF TEST 01239020/F 2006