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O Levels Accounts P2 (2018-2022)

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0% found this document useful (0 votes)

57 views345 pages

O Levels Accounts P2 (2018-2022)

Uploaded by

Taimoor

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

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O LEVEL

ACCOUNTS P2
2018-2022
QUESTION
PAPER
PAGE 1

Cambridge International Examinations

Cambridge Ordinary Level
* 6 8 8 6 7 5 3 9 8 4 *

PRINCIPLES OF ACCOUNTS 7110/22

Paper 2 May/June 2018
2 hours
Candidates answer on the Question Paper.
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Write your Centre number, candidate number and name on all the work you hand in.
Write in dark blue or black pen.
You may use an HB pencil for any diagrams or graphs.
Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.

Answer all questions.

You may use a calculator.

Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 21 printed pages and 3 blank pages.

DC (SCD (AC)) 148995/3

1 2Q0D\WKHEDODQFHLQWKHEDQNFROXPQRI1XUL·VFDVKERRNZDVGHELW

1XULUHFHLYHGDEDQNVWDWHPHQWGDWHG0D\ZKLFKVKRZHGDEDODQFHRIFUHGLW

Nuri compared her cash book with the bank statement and found the following differences.

1 Entries recorded in the cash book but not in the bank statement

$SULO &KHTXHQXPEHUSDLGWR-HJDQ

&KHTXHQXPEHUUHFHLYHGDQGEDQNHGIURP6RILD

&KHTXHQXPEHUGUDZLQJVWDNHQE\1XUL

&DVKVDOHVEDQNHG

2 Entries recorded in the bank statement but not in the cash book

Date Details Debit Credit

April 22 Christan – Cheque (Refer to drawer) 120
25 Dividend received 150
26 West Gas – Credit transfer (DD) 80
30 Bank charges 75

REQUIRED

(a) 8SGDWHWKHEDQNFROXPQVLQ1XUL·VFDVKERRN%ULQJGRZQWKHEDODQFHRQ0D\

Cash book (bank columns only)

Date Details Date Details

2018 2018
May 1 Balance b/d 350

[5]

© UCLES 2018 7110/22/M/J/18

PAGE 3

(b) Prepare a bank reconciliation statement at 30 April 2018. Start with the balance from the
EDQNVWDWHPHQWRIFUHGLW

Nuri
Bank Reconciliation Statement at 30 April 2018

...................................................................................................................................................

...............................................................................................................................................[5]

...................................................................................................................................................

...............................................................................................................................................[2]

© UCLES 2018 7110/22/M/J/18 [Turn over

PAGE 4

The following information relates to George, a credit customer of Nuri.

$SULO 7KHUHZDVQREDODQFHRQ*HRUJH·VDFFRXQW

6ROGJRRGVWR*HRUJHRQFUHGLW

6ROGJRRGVWR*HRUJHRQFUHGLWOHVVWUDGHGLVFRXQW

*HRUJHUHWXUQHGJRRGVSXUFKDVHGRQ$SULOZLWKDOLVWSULFHRI

23 George paid by cheque for the goods purchased on 10 April.

1XULRIIHUVSD\PHQWWHUPVRIôFDVKGLVFRXQWLISD\PHQWLVPDGHZLWKLQGD\VRIVDOH

REQUIRED

(d) Prepare the account of George in the ledger of Nuri. Balance the account and bring down the
balance on 1 May 2018.

George account

Date Details Date Details

[5]

(e) &RPSOHWHWKHWDEOHWRQDPHWKHVXEGLYLVLRQRI1XUL·VOHGJHUZKLFKZRXOGFRQWDLQeach of the

following accounts.

Account Subdivision of the ledger

Sales

George

Drawings

[3]

[Total: 20]

© UCLES 2018 7110/22/M/J/18

PAGE 5

2 Zarita prepared a trial balance at 31 March 2018. The trial balance totals agreed.
The following errors were later discovered.

6DOHVRQFUHGLWWR:LQFKHVWHUKDGEHHQUHFRUGHGLQWKHVDOHVMRXUQDODV

'
LVFRXQW DOORZHG WR %ORRP KDG EHHQ FUHGLWHG LQ WKH GLVFRXQW DOORZHG DFFRXQW DQG
GHELWHGLQ%ORRP·VDFFRXQW

&RPSXWHUH[SHQVHVKDGEHHQUHFRUGHGLQWKHFRPSXWHUDFFRXQW

$SXUFKDVHRIJRRGVIURP6WLOVRQKDGEHHQSRVWHGWRWKHDFFRXQWRI)LOWRQ

REQUIRED

(a) Name each type of error in 1 to 4.

1 .................................................................................................................................................

2 .................................................................................................................................................

3 .................................................................................................................................................

4 .................................................................................................................................................
[4]

(b) Explain why the trial balance totals agreed although there were four errors in the books.

...................................................................................................................................................

...............................................................................................................................................[2]

© UCLES 2018 7110/22/M/J/18 [Turn over

PAGE 6

(c) 3UHSDUHWKHHQWULHVLQWKHJHQHUDOMRXUQDOWRFRUUHFWHUURUVWR1DUUDWLYHVDUHnot required.

General Journal

Debit Credit

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

[8]

© UCLES 2018 7110/22/M/J/18

PAGE 7

%HIRUH=DULWDFRUUHFWHGWKHHUURUVVKHKDGFDOFXODWHGDGUDIWSURILWIRUWKH\HDURI

REQUIRED

(d) Complete the following table to show the effect of correcting each error on the draft profit for
the year.

:KHUHWKHUHLVQRHIIHFWZULWH¶1R(IIHFW·

Calculate the revised profit for the year.

Statement of Corrected Profit for the year ended 31 March 2018

Error Increase Decrease

Draft profit for the year 6800
1 Sales on credit to Winchester,
KDG EHHQ UHFRUGHG LQ WKH
VDOHVMRXUQDODV

2 'LVFRXQW DOORZHG WR %ORRP

had been credited in the discount
allowed account and debited in
%ORRP·VDFFRXQW
3 &RPSXWHU H[SHQVHV KDG
been recorded in the computer
account.

4 A purchase of goods from Stilson,

KDG EHHQ SRVWHG WR WKH
DFFRXQWRI)LOWRQ

Revised profit for the year

[6]

[Total: 20]

© UCLES 2018 7110/22/M/J/18 [Turn over

PAGE 8

3 The W Sports Club provides sporting facilities for members. The club also runs a shop for the sale
of sports clothing.

The following information is available.

Summarised Receipts and Payments Account

for the year ended 30 April 2018

Balance b/d 700 Shop purchases of sports clothing 1400
Subscriptions 1820 Catering for special event 600
Sale of tickets for special event 1080 Wages 1500
Shop sales of sports clothing 2600 General expenses 1900
Other income 1250 Rent 1150
Balance c/d 900
7450 7450
Balance b/d 900

Balances at: 1 May 2017 30 April 2018

Subscriptions in arrears 75 45
Subscriptions in advance 60 50
Inventory – sports clothing 400 550
Trade payables – sports clothing 200 140
Other payables – special event – 250
Non-current assets (at valuation) 6200 5900
Rent accrued – 100

Additional information

1 The subscriptions received in the year included all subscriptions in arrears on 1 May 2017.

7KHZDJHVLQFOXGHIRUWKHVSRUWVFORWKLQJVKRSDQGIRUWKHVSHFLDOHYHQW7KH
special event was organised in March 2018.

RIWKHUHQWDQGRIWKHJHQHUDOH[SHQVHVUHODWHWRWKHVSRUWVFORWKLQJVKRS

REQUIRED

(a) Calculate the subscriptions for the year ended 30 April 2018.

...................................................................................................................................................

...............................................................................................................................................[4]

© UCLES 2018 7110/22/M/J/18

PAGE 9

(b) Prepare the income statement of the sports clothing shop for the year ended 30 April 2018.

W Sports Club
Sports Clothing Shop Income Statement for the year ended 30 April 2018

...................................................................................................................................................

...............................................................................................................................................[5]

(c) Calculate the profit or loss on the special event.

...................................................................................................................................................

...............................................................................................................................................[2]

© UCLES 2018 7110/22/M/J/18 [Turn over

PAGE 10

(d) Prepare the income and expenditure account for the year ended 30 April 2018.

W Sports Club
Income and Expenditure Account for the year ended 30 April 2018

...................................................................................................................................................

...............................................................................................................................................[7]

© UCLES 2018 7110/22/M/J/18

PAGE 11

(e) Explain why subscriptions paid in advance will be shown as a liability in the statement of
financial position of the W Sports Club.

...................................................................................................................................................

...............................................................................................................................................[2]

[Total: 20]

© UCLES 2018 7110/22/M/J/18 [Turn over

PAGE 12

4 The following balances remained in the books of Dharma on 30 April 2018 after preparation of the
financial statements.

Non-current assets 25 000
'KDUPD·VFDSLWDO
Bank loan (repayable 2022) ?
Bank overdraft 2 000
Trade receivables 8 500
Trade payables 6 000
Inventory ?

Additional information

3URILWIRUWKH\HDULV

2 Working capital ratio (current ratio) is 2.5:1.

REQUIRED

(a) Calculate the value at 30 April 2018 of the:

(i) inventory

...........................................................................................................................................

.......................................................................................................................................[2]

(ii) bank loan (repayable 2022)

...........................................................................................................................................

.......................................................................................................................................[2]

© UCLES 2018 7110/22/M/J/18

PAGE 13

(b) Calculate the following ratios to twoGHFLPDOSODFHV7KHSUHYLRXV\HDU·VUDWLRVDUHVKRZQLQ

the last column.

Workings 30 April 2018 30 April 2017

Quick ratio (acid test ratio) 1.35:1

Profit for the year to capital

employed

[4]

(i) Quick ratio (acid test ratio)

Comment

...........................................................................................................................................

Reason

...........................................................................................................................................

...........................................................................................................................................
[2]

(ii) Profit for the year to capital employed

Comment

...........................................................................................................................................

Reason

...........................................................................................................................................

...........................................................................................................................................
[2]
© UCLES 2018 7110/22/M/J/18 [Turn over
PAGE 14

Dharma is considering four proposals for the next financial year but is concerned about the effect
on his working capital and his profit for the year.

Proposal 1 Sell some non-current assets on credit at book value.

Proposal 2 Convert the bank overdraft into a 5-year bank loan at a lower rate of interest.

3URSRVDO 2IIHUDFDVKGLVFRXQWWRWUDGHUHFHLYDEOHV,WLVH[SHFWHGWKDWDOORIWKHWUDGH
receivables will accept the offer.

Proposal 4 Reduce credit sales and increase cash sales.

REQUIRED

(d) Complete the table by placing a tick () to indicate the effect of eachSURSRVDORQ'KDUPD·V
working capital and his profit for the year. The first item has been completed as an example.

Proposal Working capital Profit for the year

increase decrease no effect increase decrease no effect

4
[6]

(e) State two advantages to Dharma of using International Accounting Standards (IAS) when
preparing his financial statements.

1 .................................................................................................................................................

...................................................................................................................................................

2 .................................................................................................................................................

...................................................................................................................................................
[2]

[Total: 20]

© UCLES 2018 7110/22/M/J/18

PAGE 15

5 Boris is in business as a sole trader. The following balances were extracted from his books on
30 April 2018.

Revenue 419 000
Purchases 242 000
Returns inwards 7 800
Returns outwards 6 200
Inventory at 1 May 2017 28 900
Disposal account 7 500 debit
%DQNORDQ UHSD\DEOH-XO\
Bank loan interest paid 2 400
Bank 4 000 debit
Trade receivables 37 400
Trade payables 19 000
Provision for doubtful debts 900
Premises (cost) 100 000
Computer equipment (cost) 40 000
)L[WXUHVDQGILWWLQJV FRVW
Provisions for depreciation at 1 May 2017
Premises 64 000
Computer equipment 15 000
)L[WXUHVDQGILWWLQJV
Administration expenses 30 000
Carriage 11 500
Drawings 20 700
Capital 50 000
Water and electricity 12 400
Wages and salaries 51 600
Advertising 24 000
General expenses 17 400
Rent received 9 000

© UCLES 2018 7110/22/M/J/18

PAGE 16

Additional information at 30 April 2018

,QYHQWRU\ZDVYDOXHGDWɧ

$
SXUFKDVHRIJRRGVKDGEHHQRPLWWHGIURPWKHERRNV7KHSXUFKDVHZDVE\
FKHTXHDQGRQFUHGLW

7
KHFDUULDJHLQFOXGHGIRUFROOHFWLQJSXUFKDVHV7KHUHPDLQGHUZDVIRUFDUU\LQJJRRGV
WRFXVWRPHUV·SUHPLVHV

'XULQJWKH\HDU%RULVWRRNJRRGVIRUKLVRZQXVH

$
GYHUWLVLQJ H[SHQVHV LQFOXGH SDLG IRU D PDUNHWLQJ FDPSDLJQ UXQQLQJ IURP WKH
beginning of March to the end of August 2018.

7KUHHPRQWKV·EDQNORDQLQWHUHVWLVGXH

7 Depreciation is charged as follows:

L 3UHPLVHVDWWKHUDWHRISHUDQQXPXVLQJWKHVWUDLJKWOLQHPHWKRG

LL &
RPSXWHU HTXLSPHQW DW WKH UDWH RI SHU DQQXP XVLQJ WKH GLPLQLVKLQJ UHGXFLQJ
balance method

LLL )L[WXUHVDQGILWWLQJVDWWKHUDWHRISHUDQQXPRQFRVW

7
UDGHUHFHLYDEOHVLQFOXGHDGHEWRIZKLFKZDVFRQVLGHUHGLUUHFRYHUDEOH7KHSURYLVLRQ
IRUGRXEWIXOGHEWVRILVWREHPDLQWDLQHG

© UCLES 2018 7110/22/M/J/18 [Turn over

PAGE 17

REQUIRED

(a) Prepare the income statement for the year ended 30 April 2018.

Boris
Income Statement for the year ended 30 April 2018

......................................................................................... ........................ ........................

......................................................................................... ........................ ..................[22]

(b) Prepare the statement of financial position at 30 April 2018.

Boris
6WDWHPHQWRI)LQDQFLDO3RVLWLRQDW$SULO

.......................................................................................... .............. .............. ..............

.......................................................................................... .............. .............. ........ [18]

[Total: 40]
© UCLES 2018 7110/22/M/J/18
PAGE 21

Cambridge International Examinations

Cambridge Ordinary Level

CANDIDATE
NAME

CENTRE CANDIDATE
NUMBER NUMBER
* 0 7 0 4 0 6 3 6 2 7 *

PRINCIPLES OF ACCOUNTS 7110/23

Paper 2 May/June 2018
2 hours
Candidates answer on the Question Paper.
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Answer all questions.

You may use a calculator.

Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 21 printed pages and 3 blank pages.

DC (SCD (AC)) 148629/4

1 The following ledger account appeared in the books of Kusum on 31 March 2018.

Smith account
$ $
March 1 Balance b/d 200 March 7 Returns 150
5 Sales (credit) 700 21 Bank 144
14 Bank (refund) 60 Discount 6
31 Balance c/d 660
960 960
April 1 Balance b/d 660

REQUIRED

(a) Name the:

(i) VXEGLYLVLRQRI.XVXP·VOHGJHUZKLFKZRXOGFRQWDLQWKHDFFRXQWRI6PLWK

.......................................................................................................................................[1]

(ii) document that Kusum would issue to Smith on 5 March

.......................................................................................................................................[1]

(iii) document that Kusum would send to Smith on 14 March

.......................................................................................................................................[1]

(iv) book of prime entry in which the transaction of 7 March would be recorded

.......................................................................................................................................[1]

(v) type of discount given to Smith on 21 March

.......................................................................................................................................[1]

(vi) VHFWLRQ LQ .XVXP·V VWDWHPHQW RI ILQDQFLDO SRVLWLRQ WKDW ZRXOG FRQWDLQ WKH DFFRXQW RI
Smith.

.......................................................................................................................................[1]

(b) Calculate the percentage discount taken by Smith on 21 March.

...................................................................................................................................................

...............................................................................................................................................[2]

© UCLES 2018 7110/23/M/J/18

PAGE 23

The following information is available for the month of April 2018.

$
April 1 Balances Drawings account 6400
Capital account 9000

7 Kusum paid $2500 into the business bank account from her personal bank account.

9 Kusum cashed a cheque from the business bank account for $500 for her personal
use.

15 The annual insurance premium, $750, was paid by cheque. This included $150 for
WKHLQVXUDQFHRI.XVXP·VKRPH

30 Kusum prepared the financial statements. The profit for the year was $3700.

REQUIRED

(c) Prepare the following accounts for the month of April 2018.
Complete the appropriate year-end transfer from the drawings account.
Balance the capital account and bring down the balance on 1 May 2018.

(i) Drawings account

Date Details $ Date Details $

[5]

(ii) Capital account

Date Details $ Date Details $

[5]
© UCLES 2018 7110/23/M/J/18 [Turn over
PAGE 24

(d) Distinguish between book-keeping and accounting.

...................................................................................................................................................

...............................................................................................................................................[2]

[Total: 20]

© UCLES 2018 7110/23/M/J/18

PAGE 25

2 Sandbury Products owned two motor vehicles on 1 April 2017: Motor vehicle A and Motor
vehicle B.

The following information relates to the motor vehicles for the year ended 31 March 2018.

$
1 April 2017 Balances
Motor vehicles account (at cost) 30 000
Provision for depreciation motor vehicles account 10 800

30 June 2017 Sale of Motor vehicle B

Cost 14 000
Accumulated depreciation 5 040
Sold on credit to X Garage 9 500

1 July 2017 Purchase of Motor vehicle C

Cost 18 000

Additional information

1 Motor vehicles are depreciated at the rate of 20% per annum using the diminishing (reducing)
balance method.

2 No depreciation is charged in the year of disposal.

$IXOO\HDU·VGHSUHFLDWLRQLVFKDUJHGLQWKH\HDURISXUFKDVH

REQUIRED

(a) ([SODLQWKHPHDQLQJRIWKHWHUP¶GHSUHFLDWLRQ·

...................................................................................................................................................

...............................................................................................................................................[2]

(b) State two causes of depreciation of a motor vehicle.

1 .................................................................................................................................................

2 .................................................................................................................................................
[2]

© UCLES 2018 7110/23/M/J/18 [Turn over

PAGE 26

(c) Calculate the profit or loss on the sale of Motor vehicle B.

...................................................................................................................................................

...............................................................................................................................................[1]

(d) Prepare journal entries to record the sale of Motor vehicle B. Narratives are not required.

General Journal

Debit Credit
$ $

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

[6]

© UCLES 2018 7110/23/M/J/18

PAGE 27

(e) Calculate the depreciation to be charged on motor vehicles for the year ended
31 March 2018.

...................................................................................................................................................

...............................................................................................................................................[3]

(f) Complete the table by placing a tick () to show whether each of the following is capital
expenditure, a capital receipt, revenue expenditure or a revenue receipt.

capital capital revenue revenue

expenditure receipt expenditure receipt
proceeds from sale of Motor
vehicle B
purchase of Motor vehicle C
insurance for Motor vehicle C
[3]

Sandbury Products owns other types of non-current assets.

REQUIRED

(g) State the method which would be most appropriate for depreciating each of the following.

(i) Buildings

...........................................................................................................................................

(ii) Loose tools

...........................................................................................................................................

(iii) Computers

...........................................................................................................................................
[3]

[Total: 20]

© UCLES 2018 7110/23/M/J/18 [Turn over

PAGE 28

3 Komile commenced business on 1 April 2017. She did not keep a set of double entry records but
the following information is available.

Komile started business with a motor vehicle, $5000, and inventory, $8000. Half of the inventory
was purchased using a bank loan repayable in 2022.

REQUIRED

(a) &DOFXODWH.RPLOH·VFDSLWDODW$SULO

...................................................................................................................................................

...............................................................................................................................................[2]

2Q0DUFKWKHDVVHWVDQGOLDELOLWLHVRI.RPLOH·VEXVLQHVVZHUH

$
Motor vehicle (at valuation) 4 200
Inventory 9 500
Bank loan repayable in 2022 4 000
Other payables 1 400
Other receivables 600
Trade receivables 11 400
Trade payables 10 100
Bank 1 500 Debit

© UCLES 2018 7110/23/M/J/18

PAGE 29

REQUIRED

(b) Prepare a statement of affairs at 31 March 2018 showing the total capital at that date.

Komile
Statement of Affairs at 31 March 2018

...................................................................................................................................................

...............................................................................................................................................[6]

© UCLES 2018 7110/23/M/J/18 [Turn over

PAGE 30

During the year ended 31 March 2018 Komile took $3500 as drawings.

REQUIRED

...................................................................................................................................................

...............................................................................................................................................[3]

(d) State three advantages to Komile of keeping a set of double entry records.

1 .................................................................................................................................................

...................................................................................................................................................

2 .................................................................................................................................................

...................................................................................................................................................

3 .................................................................................................................................................

...................................................................................................................................................
[3]

In April 2018 Komile employed Chandra to work in her business. He worked a total of 185 hours in
the month.

160 hours were paid at $6 per hour

20 hours were paid at time and a half
5 hours were paid at double time

'HGXFWLRQVRIZHUHPDGHIURP&KDQGUD·VJURVVSD\
.RPLOHSDLGLQHPSOR\HUV·FRQWULEXWLRQVWRWKHJRYHUQPHQW

REQUIRED

(e) Give one example for eachRIWKHIROORZLQJGHGXFWLRQVPDGHIURPDQHPSOR\HH·VZDJHV

(i) Statutory deduction

.......................................................................................................................................[1]

(ii) Non-statutory deduction

.......................................................................................................................................[1]
© UCLES 2018 7110/23/M/J/18
PAGE 31

(f) Calculate:

(i) &KDQGUD·VQHWSD\IRU$SULO

...........................................................................................................................................

.......................................................................................................................................[2]

(ii) the total cost to Komile of employing Chandra in April 2018.

...........................................................................................................................................

.......................................................................................................................................[2]

[Total: 20]

© UCLES 2018 7110/23/M/J/18 [Turn over

PAGE 32

4 The following summarised income statement was prepared by Kannan for the year ended
30 April 2018.

$
Revenue 120 000
Cost of sales (70 000 )
Gross profit 50 000
Expenses (14 000 )
Depreciation (8 000 )
Profit for the year 28 000

Additional information at 30 April 2018

$
.DQQDQ·VFDSLWDO
Bank loan repayable October 2018 100 000
Bank loan repayable December 2025 80 000

After the preparation of the summarised income statement the following items were discovered.

1 Kannan has been advised that he may have been undercharged by $2000 for carriage
inwards.

2 The closing inventory was valued at its resale value of $15 000. The cost was $9000.

3 Only expenses paid during the year were included in the income statement. At 30 April 2018
expenses prepaid were $1800 and expenses accrued were $700.

4 Depreciation was charged at the rate of 10% on cost for the year. In all previous years the
rate of 25% on cost had been used.

REQUIRED

(a) Name the accounting principle or concept that has not been applied in each case.

1 .................................................................................................................................................

2 .................................................................................................................................................

3 .................................................................................................................................................

4 .................................................................................................................................................
[4]

© UCLES 2018 7110/23/M/J/18

PAGE 33

(b) Calculate the revised value of the following, after correcting items 1 to 4.

(i) Gross profit

...........................................................................................................................................

.......................................................................................................................................[3]

(ii) Profit for the year

...........................................................................................................................................

.......................................................................................................................................[3]

(c) Calculate the following ratios to two decimal places. Use the revised profit values calculated
in (b)7KHSUHYLRXV\HDU·VSHUFHQWDJHVDUHVKRZQLQWKHODVWFROXPQ

Workings 31 March 2018 31 March 2017

Gross profit/sales 30.75%
(Gross profit margin)

Profit for the year/sales 12.35%

(Net profit margin)

Percentage return on 2.05%

capital employed

[6]

© UCLES 2018 7110/23/M/J/18 [Turn over

PAGE 34

(d) Analyse the change in each ratio over the two years.

Gross profit/sales (Gross profit margin)

...................................................................................................................................................

Profit for the year/sales (Net profit margin)

...................................................................................................................................................

Percentage return on capital employed

...................................................................................................................................................

...................................................................................................................................................
[4]

[Total: 20]

© UCLES 2018 7110/23/M/J/18

PAGE 35

5 Athula and Bhulo are in partnership sharing profits and losses in the ratio 3:2 respectively. Interest
LVDOORZHGRQFDSLWDODWWKHUDWHRISHUDQQXPDQGLVFKDUJHGRQGUDZLQJV H[FOXGLQJSDUWQHU·V
salary) at the rate of 8%. A salary is paid to Bhulo of $7500 per annum.

The following balances were extracted from the books on 30 April 2018.

$
Capital accounts
Athula 60 000
Bhulo 40 000
Current accounts
Athula 3 800 Debit
Bhulo 1 800 Credit
'UDZLQJV H[FOXGLQJSDUWQHU·VVDODU\
Athula 12 000
Bhulo 7 000
5% Loan from Athula (repayable 2020) 40 000
8% Bank loan (repayable 2024) 80 000
Bank loan interest paid 4 000
Trade receivables 42 000
Trade payables 30 820
Bank 9 000 Debit
Provision for doubtful debts 2 100
Land and buildings (cost) 150 000
Equipment (cost) 60 000
Office fixtures (cost) 27 000
Provisions for depreciation on 1 May 2017:
Land and buildings 12 000
Equipment 25 000
Office fixtures 17 000
Revenue 590 000
Inventory at 1 May 2017 42 000
Purchases 295 000
Returns from customers 15 800
Returns to suppliers 19 500
Carriage inwards 8 820
Wages and salaries 91 000
Advertising 30 000
General expenses 109 000
Equipment maintenance 11 800

Additional information

1 Inventory at 30 April 2018 was valued at $51 000.

2 At 30 April 2018
Advertising, $1400, was prepaid
Equipment maintenance, $2500, was accrued
The interest on the loan from Athula was accrued
Some bank loan interest is outstanding.

7
KHSDUWQHU·VVDODU\KDGEHHQSDLGWR%KXOR7KLVKDGEHHQSRVWHGWRWKHZDJHVDQGVDODULHV
account.

4 Office fixtures costing $6000 had been purchased by cheque on 20 March 2018. No entries
had been recorded in the books.
© UCLES 2018 7110/23/M/J/18
PAGE 36

5 Depreciation is charged on all non-current assets owned at the end of each year.

(i) Buildings at the rate of 2% per annum on cost. (The land, cost $50 000, is not depreciated).

(ii) Equipment at the rate of 20% per annum using the diminishing (reducing) balance
method.

(iii) Office fixtures at the rate of 10% per annum using the straight-line method.

6 Trade receivables include a debt of $4000 which is considered irrecoverable. The provision
for doubtful debts is to be increased by $1300.

REQUIRED

(a) Prepare the income statement and appropriation account for the year ended 30 April 2018.

Athula and Bhulo

Income Statement and Appropriation Account for the year ended 30 April 2018
$ $

................................................................................................. ................... ...................

© UCLES 2018 7110/23/M/J/18 [Turn over

PAGE 37

$ $

................................................................................................. ................... ...................

[18]

© UCLES 2018 7110/23/M/J/18

PAGE 38

(b) Prepare the current accounts for the year ended 30 April 2018. Balance the accounts and
bring down the balances on 1 May 2018.

Date Details Athula Bhulo Date Details Athula Bhulo

$ $ $ $

[7]

PLEASE TURN OVER

© UCLES 2018 7110/23/M/J/18 [Turn over

PAGE 39

(c) Prepare the statement of financial position at 30 April 2018.

Athula and Bhulo

Statement of Financial Position at 30 April 2018

$ $ $

........................................................................... ................... .................... ....................

© UCLES 2018 7110/23/M/J/18

PAGE 40

$ $ $

........................................................................... ................... .................... ....................

[15]

[Total: 40]

© UCLES 2018 7110/23/M/J/18

PAGE 41

Cambridge International Examinations

Cambridge Ordinary Level
* 7 5 8 7 2 4 2 0 4 4 *

PRINCIPLES OF ACCOUNTS 7110/21

Paper 2 October/November 2018
2 hours
Candidates answer on the Question Paper.
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Answer all questions.

You may use a calculator.

Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 20 printed pages.

DC (SCD (JB)) 149834/2

1 Lohit is a supplier of goods to Asanka. The following entries require recording in the books of
Asanka for the month of August 2018.

August 1 Asanka owed Lohit, $90

9 Lohit supplied goods to Asanka, list price $80 less 15% discount

10 Asanka returned goods, list price $20, supplied on 9 August

15 Asanka paid $97 by cheque after deducting $3 discount

REQUIRED

(a) Prepare the account of Lohit in the books of Asanka for August 2018. Balance the account
and bring down the balance on 1 September 2018.

Lohit account

Date Details $ Date Details $

[5]

(b) Name each of the following:

(i) type of discount allowed by Lohit on 9 August

.......................................................................................................................................[1]

(ii) book of prime entry in which Lohit would record the transaction on 9 August

.......................................................................................................................................[1]

(iii) document that Lohit would send to Asanka recording the transaction on 10 August

.......................................................................................................................................[1]

(iv) sub-division of /RKLW·V ledger which would contain the account of Asanka

.......................................................................................................................................[1]

(v) section of /RKLW·V statement of financial position which would contain the balance on
$VDQND·VDFFRXQW

.......................................................................................................................................[1]
© UCLES 2018 7110/21/O/N/18
PAGE 43

The following were recorded in the books of Asanka in the year ended 31 August 2018.

Balance Cash book entries for Balance

1 September 2017 the year ended 1 September 2018
31 August 2018
$ $ $
Rent payable 150 Debit 14 000 Paid 250 Debit
Telephone expenses 60 Debit 1 500 Paid 25 Credit
Rent receivable 200 Credit 1 800 Received 500 Debit

REQUIRED

(c) Explain the meaning of the:

(i) $150 debit balance on the rent payable account on 1 September 2017;

...........................................................................................................................................

.......................................................................................................................................[2]

(ii) $25 credit balance on the telephone expenses account on 1 September 2018.

...........................................................................................................................................

.......................................................................................................................................[2]

(d) Complete the following table by inserting the values of rent payable, telephone expenses and
rent receivable which would appear in the trial balance, income statement and statement of
financial position.
The first one has been completed as an example.

Trial Income statement for the Statement of financial

balance at year ended 31 August 2018 position at 31 August 2018
31 August
2018 Expenses Income Assets Liabilities

$ $ $ $ $
Rent payable 14 150 13 900 – 250 –
Telephone
expenses
Rent receivable
[6]

[Total: 20]

© UCLES 2018 7110/21/O/N/18 [Turn over

PAGE 44

2 Arjit provided the following information for the month of July 2018.

1 Sales ledger control account balances 1 July 2018

$
Debit 4230
Credit 80

2 Transactions for the month ended 31 July 2018

$
Credit sales 9200
Cash sales 3100
Bad debts written off 450
Discount allowed 230
Returns inwards 740
Receipts from credit customers 8000
Refund to credit customer by cheque 300
Interest charged on overdue account 180

3 Sales ledger control account balances 1 August 2018

$
Debit ?
Credit 150

© UCLES 2018 7110/21/O/N/18

PAGE 45

REQUIRED

(a) Prepare the sales ledger control account for the month of July 2018. Balance the account and
bring down the balances on 1 August 2018.

Sales ledger control account

Date Details $ Date Details $

[9]

© UCLES 2018 7110/21/O/N/18 [Turn over

PAGE 46

(b) State one possible reason for the credit balance on the sales ledger control account.

...............................................................................................................................................[1]

Arjit prepared a trial balance on 31 July 2018. The totals of the trial balance did not agree. He
opened a suspense account.

On inspecting his books Arjit found the following errors.

1 A purchase of goods from Dipu had been correctly recorded in the purchases journal as $65.
An entry of $45 had been made in the account of Dipu.

$FKHTXHUHFHLYHGIURP$UFDKDGEHHQUHFRUGHGLQ$UFD·VDFFRXQWDV

3 The total of the discount allowed column in the cash book, $15, had been credited to the
discount allowed account.

REQUIRED

General Journal

Debit Credit

$ $

[6]

© UCLES 2018 7110/21/O/N/18

PAGE 47

(d) Prepare the suspense account showing the original difference in the books.

Suspense account

Date Details $ Date Details $

[4]

[Total: 20]

© UCLES 2018 7110/21/O/N/18 [Turn over

PAGE 48

3 The following information is available for B Limited at 31 August 2018.

B Limited
Statement of Changes in Equity for the year ended 31 August 2018

Ordinary General Retained Total

Shares Reserve Earnings

$ $ $ $
Balance at 1 September 2017 150 000 65 000 85 000 300 000
Profit for the year 75 000 75 000
Transfer to general reserve 25 000 (25 000) –
Dividend paid (ordinary shares) (21 000) (21 000)
Balance at 31 August 2018 150 000 90 000 114 000 354 000

Other balances at 31 August 2018

$
Trade payables 73 000
6% Debentures (repayable 2024) 50 000
Debenture interest owing 4 800
General expenses owing 5 300
5% Bank loan (repayable 31 May 2019) 40 000

Additional information

B Limited had issued 300 000 ordinary shares.

REQUIRED

(a) Explain why the debentures are not included in the statement of changes in equity.

...................................................................................................................................................

...............................................................................................................................................[2]

(b) Calculate the dividend paid on ordinary shares for the year (in $ per ordinary share).

...................................................................................................................................................

...............................................................................................................................................[2]

© UCLES 2018 7110/21/O/N/18

PAGE 49

B Limited
Extract from the Statement of Financial Position at 31 August 2018

...................................................................................................................................................

...............................................................................................................................................[6]

(d) Suggest two possible reasons why the directors of B Limited transferred $25 000 to the
general reserve.

1 .................................................................................................................................................

...................................................................................................................................................

2 .................................................................................................................................................

...............................................................................................................................................[2]

© UCLES 2018 7110/21/O/N/18 [Turn over

PAGE 50

(e) Explain two differences between ordinary shares and preference shares.

1 .................................................................................................................................................

...................................................................................................................................................

2 .................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[4]

(f) Distinguish between cumulative preference shares and non-cumulative preference shares.

...................................................................................................................................................

...............................................................................................................................................[2]

(g) Complete the following table by placing a tick () in the correct column to indicate where
each item would appear in the financial statements.
The first one has been completed as an example.

Income Statement of Statement

statement changes in of financial
equity position

Ordinary share dividend paid

'LUHFWRU·VVDODU\

Other receivables
[2]

[Total: 20]

© UCLES 2018 7110/21/O/N/18

PAGE 51

4 The following information was available from the books of Linrae.

Totals for the year ended 30 September 2017

$
Revenue 240 000
Cost of sales 180 000
Expenses (excluding depreciation) 35 000
Depreciation 10 000

Balance at 30 September 2017

/LQUDH·VFDSLWDO

REQUIRED

(a) Calculate the following for the year ended 30 September 2017. Show your answers to two
decimal places.

Workings Answer

Percentage mark-up

Percentage profit for the

year to revenue (profit
margin)

Return on capital employed

(ROCE)

[6]

© UCLES 2018 7110/21/O/N/18 [Turn over

PAGE 52

On 1 October 2017 Linrae took a 10% bank loan for $50 000 to expand her business. The loan is
repayable in 5 years.

$WWKHHQGRIWKH\HDU·VWUDGLQJRQ6HSWHPEHUWKHIROORZLQJLQIRUPDWLRQZDVDYDLODEOH

1 Revenue for the year was $308 000.

2 The mark-up for the year was 40%.

3 Expenses for the year (excluding bank loan interest and depreciation) had increased by
$4000.

4 The bank loan interest had not been paid.

5 Depreciation for the year had increased by 20%.

/LQUDH·VFDSLWDODW6HSWHPEHUZDV

REQUIRED

(b) Prepare the income statement for the year ended 30 September 2018.

Linrae
Income Statement for the year ended 30 September 2018

...................................................................................................................................................

...............................................................................................................................................[4]

...................................................................................................................................................

...............................................................................................................................................[2]
© UCLES 2018 7110/21/O/N/18
PAGE 53

(d) Calculate the following for the year ended 30 September 2018. Show your answers to two
decimal places.

Workings Answer

Percentage profit for the

year to revenue (profit
margin)

Return on capital employed

(ROCE)

[4]

(e) $QDO\VHWKHSURILWDELOLW\RI/LQUDH·VEXVLQHVVIRUWKHWZR\HDUVHQGHG6HSWHPEHUDQG
30 September 2018.

...................................................................................................................................................

...............................................................................................................................................[4]

[Total: 20]

© UCLES 2018 7110/21/O/N/18 [Turn over

PAGE 54

5 Aung and Khin are in partnership. The partnership agreement states that they share profits and
losses in the ratio 3:2 respectively.

Interest is charged on drawings (excluding partnership salary) at the rate of 5%. A salary of $9000
per annum is paid to Khin.

The following balances were extracted from the books on 30 September 2018.

$
Capital accounts
Aung 50 000
Khin 50 000
Current accounts at 1 October 2017
Aung 3 000 Debit
Khin 6 000 Credit
Drawings
Aung 9 000
Khin 14 000
Land and buildings (at cost) 140 000
Motor vehicles (at cost) 42 000
Office equipment (at cost) 64 000
Provisions for depreciation at 1 October 2017
Land and buildings 29 600
Motor vehicles 10 000
Office equipment 46 000
Provision for doubtful debts 500
8% Bank loan (repayable 31 March 2020) 60 000
Bank interest paid 3 600
Bank 5 200 Debit
Revenue 309 000
Purchases 174 000
Returns inwards 9 100
Trade payables 45 200
Trade receivables 31 000
Inventory at 1 October 2017 19 700
Marketing expenses 25 000
Other operating expenses 17 250
Wages and salaries 40 500
Motor vehicle expenses 9 200
Commission receivable 12 250
Rent paid 12 000

© UCLES 2018 7110/21/O/N/18

PAGE 55

Additional information at 30 September 2018

1 Inventory was valued at $36 000.

2 Marketing expenses prepaid were $4000.

3 Commission receivable of $1750 was due.

4 Depreciation is to be charged on all non-current assets as follows:

(i) Buildings at the rate of 4% per annum on cost. The land cost $80 000 and is not
depreciated.

(ii) Motor vehicles at the rate of 25% per annum using the diminishing (reducing) balance
method

(iii) Office equipment at the rate of 10% per annum on cost.

5 The salary of Khin was paid and recorded in the wages and salaries account.

6 A payment of $6800 made by cheque to a trade supplier, had not been recorded in the books.

7 Trade receivables of $5000 were irrecoverable. The provision for doubtful debts is to be
maintained at 5%.

© UCLES 2018 7110/21/O/N/18 [Turn over

PAGE 56

REQUIRED

(a) Prepare the income statement and appropriation account of Aung and Khin for the year ended
30 September 2018.

Aung and Khin

Income Statement and Appropriation Account for the year ended 30 September 2018.
$ $

................................................................................................. ................... ...................

© UCLES 2018 7110/21/O/N/18

PAGE 57

$ $

................................................................................................. ................... ...................

[20]

© UCLES 2018 7110/21/O/N/18 [Turn over

PAGE 58

(b) Prepare the current accounts for the year ended 30 September 2018. Balance the accounts
and bring down the balances on 1 October 2018.

Current accounts

Date Details Aung Khin Date Details Aung Khin

$ $ $ $

[5]

© UCLES 2018 7110/21/O/N/18

PAGE 59

Aung and Khin

Statement of Financial Position at 30 September 2018

$ $ $

........................................................................... ................... .................... ....................

© UCLES 2018 7110/21/O/N/18 [Turn over

PAGE 60

$ $ $

........................................................................... ................... .................... ....................

[15]

[Total: 40]

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.

To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International
Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after
the live examination series.

Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local
Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

© UCLES 2018 7110/21/O/N/18

PAGE 61

Cambridge International Examinations

Cambridge Ordinary Level
* 9 8 7 8 5 7 9 3 4 1 *

PRINCIPLES OF ACCOUNTS 7110/22

Paper 2 October/November 2018
2 hours
Candidates answer on the Question Paper.
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Answer all questions.

You may use a calculator.

Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 21 printed pages and 3 blank pages.

DC (SCD (AC)) 149899/2

1 $Q LQH[SHULHQFHG ERRNNHHSHU SUHSDUHG WKH IROORZLQJ WULDO EDODQFH IRU $OLD·V EXVLQHVV RQ
31 August 2018. The trial balance did not balance.

Trial Balance at 31 August 2018

Debit Credit
$ $
Revenue 19 600
Purchases 9 800
Inventory at 31 August 2018 730
Rent receivable 400
Rent payable 800
General expenses 230
Non-current assets (at cost) 18 750
Provision for depreciation 3 970
Bank overdraft 30
Motor vehicle expenses 650
Trade receivables 2 990
Trade payables 1 090
Capital 9 000

33 730 34 310

Additional information

Inventory at 1 August 2018 was $870.

© UCLES 2018 7110/22/O/N/18

PAGE 63

REQUIRED

(a) Prepare the corrected trial balance.

Trial Balance at 31 August 2018

Debit Credit
$ $
Revenue
Purchases
Inventory
Rent receivable
Rent payable
General expenses
Non-current assets (at cost)
Provision for depreciation
Bank overdraft
Motor vehicle expenses
Trade receivables
Trade payables
Capital

[5]

© UCLES 2018 7110/22/O/N/18 [Turn over

PAGE 64

$OLD·VEURWKHU5RVKDQDOVRUXQVDEXVLQHVV

Roshan provided the following information for the month of September 2018.

September 1 Balances Computer maintenance expenses account $720

KK Computers account $450 Credit

8 Roshan paid $425 to KK Computers by cheque in full settlement of the balance

owing on 1 September 2018.

19 Roshan received an invoice for $750 from KK Computers for computer

maintenance.

30 Roshan prepared the financial statements for the year. It was estimated that
$70 of computer maintenance expenses were prepaid.

REQUIRED

(b) Prepare the following accounts for the month of September 2018. Complete the appropriate
transfer. Balance the accounts and bring down the balances on 1 October 2018.

Computer maintenance expenses account

Date Details $ Date Details $

KK Computers account

Date Details $ Date Details $

[9]

© UCLES 2018 7110/22/O/N/18

PAGE 65

On 15 October 2018 Roshan sold a computer (non-current asset) to Jones on a 20-day credit for
$200. The computer had cost Roshan $250 and had accumulated depreciation of $70.

On 30 October Jones still owed $200.

REQUIRED

.......................................................................................................................................[1]

(ii) Name the document that Roshan sent to Jones on 15 October.

.......................................................................................................................................[1]

(iii) Name the document that Roshan sent to Jones on 30 October.

.......................................................................................................................................[1]

On 2 November Jones paid Roshan $195 in full settlement of the debt for the computer.

REQUIRED

(d) (i) Name the type of discount given to Jones.

.......................................................................................................................................[1]

(ii) Calculate the amount of the profit or loss that Roshan made on the sale of the computer.

...........................................................................................................................................

.......................................................................................................................................[2]

[Total: 20]

© UCLES 2018 7110/22/O/N/18 [Turn over

PAGE 66

2 East Town Decorators have two separate departments, paints and wallpapers. The following
information is available, for the 3-month period ended 30 September 2018.

$
Revenue Paints 12 000
Wallpapers 8 000
Purchases Paints 2 000
Wallpapers 2 500
Inventory 1 July 2018 Paints 2 300
Wallpapers 1 800
Inventory 30 September 2018 Paints 3 100
Wallpapers 1 600
Direct wages 6 000
Direct expenses 4 800

On inspection of the ledger the following errors were found.

1 The purchase of paint from P P Limited, $5100, had been posted to the ledgers as $1500.

2 Direct wages, $600, paid in cash had been credited to the direct wages account and debited
to the cash account.

3 Direct expenses included the purchase of an office computer, $800.

REQUIRED
(a) Name the type of error in 1 to 3.

1 .................................................................................................................................................

2 .................................................................................................................................................

3 .................................................................................................................................................
[3]

(b) Prepare journal entries to correct errors 1 to 3. Narratives are not required.

General Journal

Debit Credit
$ $

[6]
© UCLES 2018 7110/22/O/N/18
PAGE 67

The following additional information is available after the correction of all errors.

1 $4000 of direct wages relate to the paints department.

2 Direct expenses are apportioned to the paints department and wallpapers department in
proportion to sales made.

REQUIRED

(c) Prepare the departmental trading account for the three months ended 30 September 2018
after the correction of all errors. Show the profit or loss for each department.

East Town Decorators

Departmental Trading Account for the 3 months ended 30 September 2018

Paints Wallpapers
department department
$ $ $ $

[11]

[Total: 20]

© UCLES 2018 7110/22/O/N/18 [Turn over

PAGE 68

3 Lodini and Mathy were in partnership sharing profits and losses equally. They provided the
following information on 1 August 2017.

$
Capital
Lodini 25 000
Mathy 15 000

On 1 August 2017 Lodini and Mathy agreed to admit Nanda as a partner. On that date Lodini and
Mathy valued their goodwill at $30 000.
The new partnership agreement stated:

1 Goodwill would not be retained in the books of the new partnership.

2 Nanda would pay $10 000 as capital into the business bank account on 1 August 2017.

3 Lodini would transfer $8000 of her capital into a 5% loan account to the partnership on
1 August 2017.

4 Profits and losses would be shared Lodini two-fifths, Mathy two-fifths and Nanda one-fifth.

,QWHUHVWZRXOGEHDOORZHGRQSDUWQHUV·FDSLWDODWSHUDQQXP

,QWHUHVWZRXOGEHFKDUJHGDWRQSDUWQHUV·GUDZLQJV

7 There would be no salaries paid to the partners.

REQUIRED

(a) State two possible disadvantages to Lodini and Mathy of admitting Nanda as a partner.

1 .................................................................................................................................................

...................................................................................................................................................

2 .................................................................................................................................................

...................................................................................................................................................
[2]

(b) Prepare, on the next page, the capital accounts on 1 August 2017 after the admission of
Nanda. Balance the accounts and bring down the balances.
[8]

© UCLES 2018 7110/22/O/N/18

Capital accounts

Date Details Lodini Mathy Nanda Date Details Lodini Mathy Nanda

7110/22/O/N/18
PAGE 69

[Turn over
PAGE 70

After the first year of trading, the partners provided the following information at 31 July 2018.

$
Profit for the year before interest on loan from Lodini 24 500
Drawings
Lodini 8 500
Mathy 11 000
Nanda 6 000

REQUIRED

Lodini, Mathy and Nanda

Appropriation Account for the year ended 31 July 2018

...................................................................................................................................................

...............................................................................................................................................[8]

© UCLES 2018 7110/22/O/N/18

PAGE 71

The partners have been advised that they must comply with the accounting entity principle.

REQUIRED

(d) Explain the accounting entity principle.

...................................................................................................................................................

...............................................................................................................................................[2]

[Total: 20]

© UCLES 2018 7110/22/O/N/18 [Turn over

PAGE 72

4 Hema is a trader, buying and selling goods on credit. The following information is available.

Balances at 1 September 2018

$
Inventory 20 000
Trade receivables 50 000
Trade payables 12 000
Bank overdraft 25 000
Other receivables 4 000

REQUIRED

(a) Calculate the following at 1 September 2018 to two decimal places.

Workings Answer
Working capital ratio
(current ratio)

Quick ratio (acid test ratio)

[4]

(b) &RPPHQWRQWKHOLTXLGLW\RI+HPD·VEXVLQHVVRQ6HSWHPEHU

...................................................................................................................................................

...............................................................................................................................................[4]
© UCLES 2018 7110/22/O/N/18
PAGE 73

During the month of September 2018 the summarised transactions were:

$
Credit purchases 35 000
Credit sales 60 000
Received from trade receivables by cheque 80 000
Paid to trade payables by cheque 27 000
Paid for expenses by cheque 15 000

Hema marks up all goods by 50% for resale.

REQUIRED

(c) Calculate the following balances at 30 September 2018.

Workings Answer
$
Inventory

Trade receivables

Trade payables

Bank

[9]

© UCLES 2018 7110/22/O/N/18 [Turn over

PAGE 74

(d) State the effect of each of the following on the working capital.
The first item has been completed as an example.

Working capital
$
Sold non-current assets for cash $1200. + 1200

Trade receivables paid $485 in full settlement of

debts of $500.

Converted $2500 of the bank overdraft to a five

year bank loan.

Hema brought additional capital into the business:

motor van $900 and inventory $600.

[3]

[Total: 20]

© UCLES 2018 7110/22/O/N/18

PAGE 75

5 Shobi is a sole trader. The following balances were extracted from the books on 30 September 2018.

$
10-year leasehold premises (at cost) 120 000
Motor vehicles (at cost) 40 000
Fixtures and fittings (at cost) 19 000
Provisions for depreciation at 1 October 2017:
10-year leasehold premises 72 000
Motor vehicles 10 000
Fixtures and fittings 7 600
Revenue 265 000
Purchases 135 000
Returns outwards 8 200
Carriage inwards 3 100
Wages and salaries 41 000
Motor vehicle expenses 6 800
Rent payable 15 000
Rent receivable 8 500
Capital 40 000
Drawings 11 900
6% Bank loan (repayable 2020) 50 000
Bank interest paid 3 000
Inventory at 1 October 2017 26 000
Heat, light and power 5 050
Advertising 9 000
General expenses 17 700
Disposal 1 800 Credit
Bank 13 350 Debit
Trade payables 23 050
Trade receivables 23 250
Provision for doubtful debts 3 000

© UCLES 2018 7110/22/O/N/18

PAGE 76

Additional information at 30 September 2018

1 Inventory was valued at $19 500.

2 Shobi had taken $4700 goods for his own use. No entries had been recorded in the books.

3 The rent payable included a payment of $9000 for the six months ended 30 November 2018.

4 General expenses accrued were $2600 and wages and salaries accrued were $1700.

5 Rent receivable of $150 was outstanding.

6 On 26 September 2018 a motor vehicle costing $12 000 was purchased by cheque. No
entries had been recorded in the books.

7 Depreciation is to be charged on all non-current assets owned at the end of the year as
follows:
(i) an appropriate amount for the 10-year leasehold premises
(ii) motor vehicles at the rate of 25% per annum using the diminishing (reducing) balance
method
(iii) fixtures and fittings at the rate of 10% per annum on cost.

8 Trade receivables of $750 are irrecoverable. The provision for doubtful debts is to be
maintained at 4%.

© UCLES 2018 7110/22/O/N/18 [Turn over

PAGE 77

REQUIRED

(a) Prepare the income statement for the year ended 30 September 2018.

Shobi
Income Statement for the year ended 30 September 2018.
$ $

................................................................................................. ................... ...................

© UCLES 2018 7110/22/O/N/18

PAGE 78

$ $

................................................................................................. ................... ...................

[20]

© UCLES 2018 7110/22/O/N/18 [Turn over

PAGE 79

(b) Prepare the statement of financial position at 30 September 2018.

Shobi
Statement of Financial Position at 30 September 2018.

$ $ $

........................................................................... ................... .................... ....................

© UCLES 2018 7110/22/O/N/18

PAGE 80

$ $ $

........................................................................... ................... .................... ....................

[20]

[Total: 40]

© UCLES 2018 7110/22/O/N/18

PAGE 81

Cambridge Assessment International Education

Cambridge Ordinary Level
* 5 2 2 7 2 9 2 0 0 5 *

PRINCIPLES OF ACCOUNTS 7110/21

Paper 2 May/June 2019
2 hours
Candidates answer on the Question Paper.
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Write your centre number, candidate number and name on all the work you hand in.
Write in dark blue or black pen.
You may use an HB pencil for any diagrams or graphs.
Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.

Answer all questions.

You may use a calculator.

Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 19 printed pages and 1 blank page.

DC (ST) 164716/3
© UCLES 2019 [Turn over
PAGE 82

1 Wilson maintains a three column cash book in his business. On 1 March 2019 the following
balances were available.
$
Cash 10
Bank overdraft 35

During March the following transactions occurred.

March 3 Cash sales, $570

10 Paid wages, $65, and general expenses, $19, in cash

12 Banked cash, $420

18 Cheque, $40, received from Glover in February was returned by the bank marked
¶UHIHUWRGUDZHU·

6HWWOHG/RX·VDFFRXQWRIE\FKHTXHDIWHUGHGXFWLQJFDVKGLVFRXQW

25 Drawings taken $50 in cash, and $300 by cheque

5
HFHLYHGDFKHTXHIURP)UHGDIWHUKHKDGGHGXFWHGFDVKGLVFRXQW7KLV
was paid into the bank.

REQUIRED

(a) Prepare the three column cash book for March 2019 on the next page. Balance the cash
book and bring down the balances on 1 April 2019.

© UCLES 2019 7110/21/M/J/19

Cash Book

Date Details Discount Cash Bank Date Details Discount Cash Bank
Allowed Received

7110/21/M/J/19
PAGE 83

[10]

[Turn over
PAGE 84

(b) Complete the table by placing a tick () in the appropriate box to indicate how the cash book
can be classified.

as a book of prime as a ledger account and a

as a ledger account only
(original) entry only book of prime (original) entry

[1]

............................................................................................................................................. [1]

(d) State two possible reasons why the bank returned the cheque from Glover on 18 March.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

(e) State the purpose of allowing Fred cash discount on 30 March.

...................................................................................................................................................

............................................................................................................................................. [1]

Wilson received a bank statement which showed a credit bank balance of $345 on 31 March 2019.

Wilson compared the entries in the bank statement with those in his cash book and found that the
following were not recorded on the bank statement.

1 the cheque paid to Lou on 20 March

2 the cheque for drawings paid on 25 March

3 the cheque received from Fred and banked on 30 March

© UCLES 2019 7110/21/M/J/19

PAGE 85

REQUIRED

(f) Prepare the bank reconciliation statement at 31 March 2019. Start with the balance recorded
in the bank statement.

Bank Reconciliation Statement at 31 March 2019

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

© UCLES 2019 7110/21/M/J/19 [Turn over

PAGE 86

2 Catherine prepared a trial balance on 30 April 2019. The trial balance did not agree.

She opened a suspense account. On inspection of the books she found the following errors.

1 Motor vehicle expenses, $500, had been debited to the bank account and credited to the
motor vehicle expenses account.

2 Wages, $800, had been debited in the rent payable account.

3 A return of goods to a supplier, Ahmed, $595, had been incorrectly recorded in the purchases
returns journal as $295.

4 The discount received total in the cash book, $68, had not been entered in the discount
received account.

5 A cash sale, $125, had been entered in the sales account as $215.

REQUIRED

(a) Prepare journal entries to correct the errors 1 – 5. Narratives are not required.

General journal

Dr Cr

$ $

[10]

© UCLES 2019 7110/21/M/J/19

PAGE 87

(b) Name the type of error in 1 – 3.

1 ................................................................................................................................................

2 ................................................................................................................................................

3 ................................................................................................................................................
[3]

(c) Prepare the suspense account after the correction of errors 1 – 5.

Show the original difference recorded in the trial balance.

Suspense account

Date Details $ Date Details $

[3]

Catherine completed a number of transactions relating to her motor vehicles.

REQUIRED

(d) Complete the table by placing a tick () to show whether each of the following transactions is
revenue expenditure, a revenue receipt, capital expenditure or a capital receipt.
The first item has been completed as an example.

revenue revenue capital capital

expenditure receipt expenditure receipt
purchased fuel for motor

vehicle
paid for delivery of new
motor vehicle
charged customers for
hire of motor vehicle
banked proceeds from
sale of an old motor
vehicle for scrap
paid insurance for motor
vehicle
[4]

[Total: 20]

© UCLES 2019 7110/21/M/J/19 [Turn over

PAGE 88

3 Caden and Shen had traded as sole traders for many years.

On 1 May 2018 they formed a partnership. The following assets and liabilities were recorded in
the books of the sole traders.

Caden Shen
$ $
Non-current assets 25 000 40 000
Inventory 8 000 14 000
Trade receivables 5 400 2 700
Bank 3 500 Credit 1 500 Debit
Trade payables 4 900 7 100

7KH SDUWQHUV DJUHHG WKDW WKH YDOXH RI 6KHQ·V QRQFXUUHQW DVVHWV ZDV DQG WKH WUDGH
UHFHLYDEOHV7KH\DOVRDJUHHGWKDW&DGHQ·VJRRGZLOOZDVWREHYDOXHGDW

REQUIRED

(a) Calculate the capital to be brought into the partnership by each partner.

Caden

...................................................................................................................................................

............................................................................................................................................. [2]

© UCLES 2019 7110/21/M/J/19

PAGE 89

Shen

...................................................................................................................................................

............................................................................................................................................. [2]

(b) State two possible reasons why the business of Caden has goodwill but the business of
Shen does not have goodwill.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

Caden and Shen prepared a formal partnership agreement which included the following terms.

1 Goodwill would not be retained in the books of the partnership.

2 Profits and losses would be shared Caden three-fifths, Shen two-fifths.

,QWHUHVWRQFDSLWDOZRXOGEHSHUDQQXP

,QWHUHVWRQGUDZLQJVH[FOXGLQJSDUWQHU·VVDODU\ZRXOGEHSHUDQQXP

5 Shen would receive a salary of $3000 per annum.

REQUIRED

...................................................................................................................................................

............................................................................................................................................. [1]

© UCLES 2019 7110/21/M/J/19 [Turn over

PAGE 90

(d) State twoGLIIHUHQFHVEHWZHHQDSDUWQHU·VFDSLWDODFFRXQWDQGDSDUWQHU·VFXUUHQWDFFRXQW

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[2]

(e) Prepare the capital accounts of the partners at 1 May 2018 showing the removal of the
goodwill. Balance the accounts and bring down the balances.

Capital accounts

Date Details Caden Shen Date Details Caden Shen

$ $ $ $

[4]

© UCLES 2019 7110/21/M/J/19

PAGE 91

At the end of the first year of trading on 30 April 2019, the following was recorded in the books.

$
Profit for the year 13 120
Drawings
Caden 9 500
Shen (excluding salary) 6 500

REQUIRED

(f) Prepare the appropriation account for the year ended 30 April 2019.

Caden and Shen

Appropriation Account for the year ended 30 April 2019

...................................................................................................................................................

............................................................................................................................................. [7]

[Total: 20]

© UCLES 2019 7110/21/M/J/19 [Turn over

PAGE 92

4 Celia is in business buying and selling goods on credit.

The following information is available:

At 1 May 2018 $
Inventory 17 500

For the year ended 30 April 2019

$
Cost of sales 350 000

3HUFHQWDJHRIJURVVSURILWWRVDOHVUHYHQXHLV

At 30 April 2019
$
Inventory 22 500
Trade payables 90 000
Trade receivables 85 000
Bank overdraft 20 000

REQUIRED

(a) &DOFXODWHWKHIROORZLQJRQ$SULO7KHSUHYLRXV\HDU·VILJXUHVDUHVKRZQLQWKHODVW
column.

Workings 30 April 2019 30 April 2018

Revenue for the year $320 000

Rate of turnover of inventory

12.0 times
(to one decimal place)

Current ratio (working capital ratio)

1.80:1
(to two decimal places)

Quick ratio (acid test ratio)

0.90:1
(to two decimal places)

[8]

© UCLES 2019 7110/21/M/J/19

PAGE 93

(b) &RPPHQW RQ WKH FKDQJHV LQ &HOLD·V EXVLQHVV ZKLFK KDYH RFFXUUHG EHWZHHQ $SULO
and 30 April 2019.

...................................................................................................................................................

............................................................................................................................................. [6]

Celia is concerned that her balance at the bank is an overdraft and she wishes to return to a
positive bank balance as soon as possible. She has decided to increase the mark-up on goods
sold and has made the following estimates for May:

$
Revenue 25 000
Purchases 7 500
Expenses paid 4 500
Trade payables 31 May 2019 84 000
Trade receivables 31 May 2019 75 000

All payments and receipts will be by cheque.

REQUIRED

(c) Calculate the following:

Answer
Workings
$

Receipts from trade

receivables in May 2019

Payments made to trade

payables in May 2019

Bank balance at
31 May 2019

[6]
[Total: 20]
© UCLES 2019 7110/21/M/J/19 [Turn over
PAGE 94

5 Leo is in business as a sole trader. The following balances were extracted from his books on
31 March 2019.

Capital 80 000
Drawings 25 000
Non-current assets (at cost)
Land and buildings 150 000
Computer equipment 46 000
Fixtures and fittings 12 000
Provisions for depreciation
Land and buildings 9 000
Computer equipment 18 000
Fixtures and fittings 6 600
Wages and salaries 87 000
Computer repairs 21 600
Commission receivable 12 300
Trade payables 31 850
Trade receivables 42 000
Revenue 475 000
Purchases 255 000
Returns outwards 7 900
Inventory at 1 April 2018 31 000
Rent and rates 22 750
Provision for doubtful debts 3 700
Marketing expenses 12 600
EDQNORDQ UHSD\DEOH-XQH
EDQNORDQ UHSD\DEOH0D\
Bank loan interest paid 2 100
Heat and light 9 750
General expenses 14 300
Bank overdraft 6 750

© UCLES 2019 7110/21/M/J/19

PAGE 95

Additional information at 31 March 2019

1 Inventory was valued at $26 400.

2 Leo had taken goods valued at $3200. No entries had been made in the books.

3 A computer costing $8000 had been recorded in the computer repairs account.

4 Computer repairs of $2100, paid by cheque, had not been recorded in the books.

5 Rent of $2000 was owing and rates of $450 were prepaid.

0
DUNHWLQJ H[SHQVHV LQFOXGHG D SD\PHQW RI IRU D VL[PRQWKV· FDPSDLJQ HQGLQJ
-XQH

7
KHEDQNORDQZDVWDNHQRXWLQ7KHEDQNORDQZDVWDNHQRXWRQ$XJXVW

8 Depreciation is to be charged on all non-current assets owned at the end of the year as
follows:

Land costing $75 000 not depreciated

Buildings SHUDQQXPRQFRVW
SHUDQQXPXVLQJGLPLQLVKLQJ UHGXFLQJ
Computers
balance method
Fixtures and fittings SHUDQQXPXVLQJWKHVWUDLJKWOLQHPHWKRG

9 Trade receivables of $4000 are irrecoverable. The provision for doubtful debts is to be
PDLQWDLQHGDW

© UCLES 2019 7110/21/M/J/19 [Turn over

PAGE 96

REQUIRED

(a) Prepare the income statement for the year ended 31 March 2019.

Leo
Income Statement for the year ended 31 March 2019

$ $

............................................................................... ................................. .................................

$ $

............................................................................... ................................. .................................

[20]

© UCLES 2019 7110/21/M/J/19 [Turn over

PAGE 98

(b) Prepare the statement of financial position at 31 March 2019.

Leo
Statement of Financial Position at 31 March 2019

$ $ $

...................................................................... ........................ ........................ ........................

$ $ $

...................................................................... ........................ ........................ ........................

[20]
[Total: 40]

© UCLES 2019 7110/21/M/J/19

PAGE 100

Cambridge Assessment International Education

Cambridge Ordinary Level
* 3 4 4 2 3 5 8 4 9 6 *

PRINCIPLES OF ACCOUNTS 7110/22

Paper 2 May/June 2019
2 hours
Candidates answer on the Question Paper.
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Answer all questions.

You may use a calculator.

Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 21 printed pages and 3 blank pages.

DC (JM) 166137/4
© UCLES 2019 [Turn over
PAGE 101

1 Mikaela purchases goods from Steve. On 1 March 2019 Mikaela owed Steve $900.

Mikaela provided the following information for the month of March 2019.

March 5 Received an invoice from Steve, $730

9 Received a refund by cheque from Steve, $80, for overpayment made in February

18 Sent a cheque to Steve for the balance owing on 1 March after taking 2% discount

23 Received a credit note from Steve, $45

REQUIRED

(a) Prepare the account of Steve in the books of Mikaela for the month of March.
Balance the account and bring down the balance on 1 April 2019.

Steve account

Date Details $ Date Details $

[5]

(b) Name the book of prime (original) entry in which Mikaela would record the following transactions.

Date Details Book of prime (original) entry

March 5 Received an invoice from Steve,
$730
9 Received a refund by cheque from
Steve, $80, for overpayment made
in February
18 Sent a cheque to Steve for the
balance owing on 1 March after
taking 2% discount
23 Received a credit note from Steve,
$45
[4]

............................................................................................................................................. [1]

© UCLES 2019 7110/22/M/J/19

PAGE 102

Mikaela extracted the following balances from her ledger on 31 March 2019. She was aware that
there were a number of errors in the ledger.

$
Revenue 9900
Purchases 5500
Inventory 1750
Sales returns 150
Carriage inwards 600
Trade receivables 1750
Discount received 200
Purchases returns 150
Trade payables 1300
Non-current assets (book value) 4000
Bank overdraft 1150
6% bank loan 1500
Capital 4750
Drawings 2500
General expenses 3300

REQUIRED

(d) Prepare the trial balance at 31 March 2019, including a suitable balancing entry.

Mikaela
Trial Balance at 31 March 2019

Debit Credit
$ $
Revenue
Purchases
Inventory
Sales returns
Carriage inwards
Trade receivables
Discount received
Purchases returns
Trade payables
Non-current assets (book value)
Bank overdraft
6% bank loan
Capital
Drawings
General expenses

[6]
© UCLES 2019 7110/22/M/J/19 [Turn over
PAGE 103

(e) State why some errors will affect the balancing of a trial balance and other errors will not
affect the balancing of a trial balance.

...................................................................................................................................................

............................................................................................................................................. [2]

(f) Name two types of errors which will not affect the balancing of a trial balance.

1 .................................................................................................................................................

2 .................................................................................................................................................
[2]

[Total: 20]

© UCLES 2019 7110/22/M/J/19

PAGE 104

2 Khalid is a trader. On 18 April 2019 he was informed that Aiden, a credit customer who owed
KDGFHDVHGWUDGLQJ$LGHQSDLG.KDOLGE\FKHTXH7KHUHPDLQGHURI$LGHQ·VEDODQFH
was written off as irrecoverable.

REQUIRED

(a) State the entries Khalid should make in his accounting records.

account to be debited $ account to be credited $

[4]

Khalid maintains a sales ledger control account.

The following information is available from his books.

Sales ledger balances 1 April 1 May

2019 2019
$ $
Sonia 60 Credit 800 Debit
Jing 450 Debit 340 Debit
Mark 1200 Debit 2100 Debit
Aiden 600 Debit Nil

For the month of April 2019

$
Credit sales 3315
Cash sales 970
Bank receipts from credit customers 1930
Dishonoured cheque (included in
the bank receipts) 40
Sales returns 75
Refund paid to Sonia by cheque 60
Bad debt 360

REQUIRED

(b) State two reasons for maintaining control accounts.

1 .................................................................................................................................................

...................................................................................................................................................

2 .................................................................................................................................................

...................................................................................................................................................
[2]

© UCLES 2019 7110/22/M/J/19 [Turn over

PAGE 105

(c) Explain when a contra entry would be used in control accounts.

...................................................................................................................................................

............................................................................................................................................. [2]

(d) Prepare the sales ledger control account for the month of April 2019.
Balance the account and bring down the balance on 1 May 2019.

Sales ledger control account

Date Details $ Date Details $

[9]

© UCLES 2019 7110/22/M/J/19

PAGE 106

.KDOLG·VILQDQFLDO\HDUHQGVRQ$SULO
On 1 May 2018 he had a provision for doubtful debts of $120. He decided to maintain the provision
at 5% of trade receivables at the end of each year.

REQUIRED

(e) Prepare the provision for doubtful debts account for the year ended 30 April 2019 showing
the transfer to the income statement.
Balance the account and bring down the balance on 1 May 2019.

Provision for doubtful debts account

Date Details $ Date Details $

[3]

[Total: 20]

© UCLES 2019 7110/22/M/J/19 [Turn over

PAGE 107

3 Jayden is in business buying and selling goods on credit. The following information is available for
the month of March 2019.
$
Balance at 1 March 2019
Inventory 40 000

Total for the month of March 2019

Cost of sales 77 000

Balances at 31 March 2019

Inventory 30 000
Bank overdraft 25 000
Trade payables 75 000
Trade receivables 60 000

REQUIRED

(a) Calculate the following ratios to oneGHFLPDOSODFH7KHSUHYLRXVPRQWK·VUDWLRVDUHVKRZQLQ

the last column.

Workings March 2019 February 2019

Rate of turnover of
inventory
1.4 times

Working capital ratio

(current ratio)
1.3:1

Quick ratio
(acid test ratio)
0.9:1

[6]

(b) Comment on the ability of Jayden to pay the trade payables.

...................................................................................................................................................

............................................................................................................................................. [2]

On 1 April 2019 Jayden decided to introduce a new marketing policy. He decided to:

decrease his mark-up to 50% to increase his sales revenue

offer trade receivables a cash discount for early payment.

Jayden hoped to end the month with a positive bank balance.

© UCLES 2019 7110/22/M/J/19

PAGE 108

The summarised transactions for the month of April 2019 were:

$
Credit purchases 115 000
Credit sales 180 000
Paid to trade payables by cheque 135 000
Paid for expenses by cheque 50 000
Received from trade receivables by cheque 200 000
after deducting $5000 cash discount

(c) Calculate the following at 30 April 2019.

Workings Answer
$
Inventory

Trade receivables

Trade payables

Bank

[8]

© UCLES 2019 7110/22/M/J/19 [Turn over

PAGE 109

(d) &RPPHQWRQWKHVXFFHVVRI-D\GHQ·VQHZPDUNHWLQJSROLF\
Support your answer by considering the effect on his current assets and current liabilities.

...................................................................................................................................................

............................................................................................................................................. [4]

[Total: 20]

© UCLES 2019 7110/22/M/J/19

PAGE 110

4 Midhaven Products has a production line. The following information relates to the production line
workers for the month of April 2019.

Total for the month

Hours worked 1580
Production line bonus $860
Statutory deductions $2050
Voluntary deductions $850
(PSOR\HU·VQDWLRQDOLQVXUDQFH

Rate per hour $8

REQUIRED

(a) Name the following documents used in payroll recording.

purpose document name

records the hours worked by a

production line worker
contains the gross pay, deductions and
net pay of all production line workers
[2]

(b) Calculate the:

(i) total labour cost to Midhaven Products of all the production line workers for April 2019

...........................................................................................................................................

..................................................................................................................................... [2]

(ii) total net pay of all the production line workers for April 2019.

...........................................................................................................................................

..................................................................................................................................... [2]

© UCLES 2019 7110/22/M/J/19 [Turn over

PAGE 111

The following additional information is available for the month of April 2019.

$
Inventory at 1 April 2019
Raw materials 5 900
Work in progress 19 700
Production wages Calculated in (b)
Office wages 8 750
Purchases of raw materials 20 250
Depreciation on factory machinery 9 000
Depreciation on office fixtures 3 400
Rent paid 36 000
Factory expenses 8 200
Factory management salaries 31 000
Office management salaries 38 600
Carriage on raw materials 1 900
Revenue 103 000
Insurance 4 600
General expenses 7 400

Additional information

1 Inventory at 30 April 2019

Raw materials $6 300
Work in progress $20 350

2 Rent and insurance are to be apportioned 75% to the factory, 25% to the office.

3 $4000 of the factory expenses are direct expenses.

4 General expenses of $2600 relate to the office and the remainder relate to the factory.

© UCLES 2019 7110/22/M/J/19

PAGE 112

Midhaven Products
Manufacturing Account for the month ended 30 April 2019

$ $

….….....……..….….....……..….…......…….....…....….. ….….….....…...….....… ….….….....…...….....…

[14]

[Total: 20]

© UCLES 2019 7110/22/M/J/19 [Turn over

PAGE 113

5 Marcel and Naomi are in partnership. The partnership agreement states that the profits and losses
are shared, Marcel three-fifths, Naomi two-fifths. Interest on capital is allowed at the rate of 4% per
annum. Interest is charged on drawings (excluding salaries) made during the year at the rate of
5%. Marcel receives a salary of $8000.

The following balances were extracted from the books on 30 April 2019.

$
Purchases 184 000
Revenue 328 000
Purchases returns 17 500
Inventory at 1 May 2018 31 300
Non-current assets (at cost)
Premises 90 000
Motor vehicles 80 000
Fixtures and fittings 52 000
Wages and salaries 46 000
Motor vehicle expenses 17 450
Provisions for depreciation
Premises 38 000
Motor vehicles 8 000
Fixtures and fittings 23 000
Provision for doubtful debts 600
General expenses 18 600
Marketing expenses 22 000
Trade payables 27 500
Trade receivables 36 000
Bank overdraft 28 500
Electricity and water 10 650
Insurance 6 500
Capital accounts
Marcel 80 000
Naomi 60 000
Current accounts at 1 May 2018
Marcel 300 Credit
Naomi 5 100 Credit
Drawings
Marcel 10 000
Naomi 12 000

© UCLES 2019 7110/22/M/J/19

PAGE 114

Additional information at 30 April 2019

1 Inventory was valued at $36 400.

2 The annual insurance premium of $4600 was paid on 1 November 2018.

3 General expenses, $1150, were outstanding.

4 Wages and salaries included the salary paid to Marcel.

5 Depreciation is to be charged on all non-current assets owned at the end of the year as
follows:

Premises 2% per annum on cost

25% per annum using the diminishing
Motor vehicles
(reducing) balance method
20% per annum using the straight-line
Fixtures and fittings
method

6 The provision for doubtful debts is to be maintained at 5%.

7 A cheque payment of $1300, made to a credit supplier on 15 April, had not been recorded in
the books.

© UCLES 2019 7110/22/M/J/19 [Turn over

PAGE 115

REQUIRED

(a) Prepare the income statement and appropriation account for the year ended 30 April 2019.

Marcel and Naomi

Income Statement and Appropriation Account for the year ended 30 April 2019

$ $

….….....……..….….....……..….…......…….....…....….. ….….….....…...….....… ….….….....…...….....…

© UCLES 2019 7110/22/M/J/19

PAGE 116

$ $

….….....……..….….....……..….…......…….....…....….. ….….….....…...….....… ….….….....…...….....…

[20]
© UCLES 2019 7110/22/M/J/19 [Turn over
PAGE 117

(b) Prepare the current accounts for the year ended 30 April 2019 on the next page.
Balance the accounts and bring down the balances on 1 May 2019.

© UCLES 2019 7110/22/M/J/19

Current accounts

Date Details Marcel Naomi Date Details Marcel Naomi

[6]

7110/22/M/J/19
PAGE 118

[Turn over
PAGE 119

(c) Prepare the statement of financial position at 30 April 2019.

Marcel and Naomi

Statement of Financial Position at 30 April 2019

$ $ $

….….....……..….….....……..….…......…….....… ….….….........….. ….….….........….. ….….….........…..

© UCLES 2019 7110/22/M/J/19

PAGE 120

$ $ $

….….....……..….….....……..….…......…….....… ….….….........….. ….….….........….. ….….….........…..

[14]

[Total: 40]
© UCLES 2019 7110/22/M/J/19
PAGE 121

Cambridge Assessment International Education

Cambridge Ordinary Level
* 9 5 9 7 7 7 5 6 9 6 *

PRINCIPLES OF ACCOUNTS 7110/21

Paper 2 October/November 2019
2 hours
Candidates answer on the Question Paper.
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Answer all questions.

You may use a calculator.

Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 19 printed pages and 1 blank page.

DC (LK) 168661/5
© UCLES 2019 [Turn over
PAGE 122

1 Filton is a retailer of electrical goods. His financial year ends on 30 September. The following
information was available from his books.

Balances on 1 October 2018

$
Stationery account 350 Debit
5HQWUHFHLYDEOHDFFRXQW 'HELW IRURQHPRQWK·VUHQWUHFHLYDEOHDFFUXHG

Stationery purchases on credit from Walker

$
23 December 2018 1200
14 June 2019 600

Information from the bank account for the year ended 30 September 2019

Receipts
$
2FWREHU )RXUPRQWKV·UHQWUHFHLYDEOH
)HEUXDU\ )RXUPRQWKV·UHQWUHFHLYDEOH
-XO\ 7KUHHPRQWKV·UHQWUHFHLYDEOH

Additional information

2Q6HSWHPEHU)LOWRQ·VVWDWLRQHU\ZDVYDOXHGDW7ZRPRQWKV·UHQWZDVRZHGWRKLP

REQUIRED

(a) Prepare the following ledger accounts for the year ended 30 September 2019.
Make the appropriate transfers to the income statement.
Balance the accounts and bring down the balances on 1 October 2019.

(i)
Stationery account

Date Details $ Date Details $

[4]

© UCLES 2019 7110/21/O/N/19

PAGE 123

(ii)
Rent receivable account

Date Details $ Date Details $

[4]

(b) Name the subdivision of the ledger that would contain the rent receivable account.

............................................................................................................................................. [1]

(c) State the section of the statement of financial position on 30 September 2019 in which the
balance of the rent receivable account will appear.

............................................................................................................................................. [1]

During September 2019 Filton made some other transactions.

REQUIRED

(d) Complete the following table by naming the business document and the book of prime
(original) entry used by Filton for each transaction.
The first item has been completed as an example.

Transaction Business document Book of prime

(original) entry
Sold goods on credit to Yan. Sales invoice Sales journal

Paid wages by cheque.

Goods sold on credit to Yan

were returned.
Purchased goods by cash.

Sold a motor vehicle on credit.

Purchased goods on credit from

Mary.
[10]

[Total: 20]
© UCLES 2019 7110/21/O/N/19 [Turn over
PAGE 124

2 5RG·VILQDQFLDO\HDUHQGVRQ'HFHPEHU2Q-DQXDU\5RGZLOOSXUFKDVHDQHZGHOLYHU\
vehicle for his business. The details are as follows:

Cost $12 000

Estimated economic life 3 years
Estimated residual value $1500

Rod is undecided whether to charge depreciation on the new delivery vehicle by using the
straight-line method or diminishing (reducing) balance method. If he decided to use the diminishing
(reducing) balance method this would be at a rate of 50% per annum.

REQUIRED

(a) 'HILQHWKHWHUP¶GHSUHFLDWLRQ·

...................................................................................................................................................

............................................................................................................................................. [2]

(b) Calculate the depreciation which would be charged on the new delivery vehicle for each of
the years 2020, 2021 and 2022 using the straight-line method and diminishing (reducing)
balance method.
Insert your answers in the table provided.
Use the space provided on the next page to show your workings.

Year Straight-line method Diminishing (reducing)

balance method
$ $
2020

2021

2022

© UCLES 2019 7110/21/O/N/19

PAGE 125

Workings

[4]

© UCLES 2019 7110/21/O/N/19 [Turn over

PAGE 126

Rod has estimated the following to help him decide which method of depreciation he should use
for the delivery vehicle.

Year Market value of delivery Annual maintenance costs

vehicle
$ $
2020 6000 0

2021 3500 3000

2022 2000 4500

REQUIRED

...................................................................................................................................................

............................................................................................................................................. [2]

(d) Explain one advantage of using the diminishing (reducing) balance method to depreciate the
delivery vehicle.

...................................................................................................................................................

............................................................................................................................................. [2]

Rod has been advised by a friend that he could use the revaluation method to depreciate the
delivery vehicle.

REQUIRED

(e) Explain how the annual depreciation would be calculated using the revaluation method.

...................................................................................................................................................

............................................................................................................................................. [2]
© UCLES 2019 7110/21/O/N/19
PAGE 127

On 30 June 2019 Rod sold his old office computer. The following information is available.

Balances at 31 December 2018

$
Office computer
cost 4400
provision for depreciation 2600

Rod has the following depreciation policy for the office computer:
depreciation is charged at the rate of 25% using the diminishing (reducing) balance method
depreciation is charged for each month of ownership in the year of sale.

All non-current asset disposals are recorded in a disposal account.

Rod sold the old office computer for $900, receiving payment by cheque.

REQUIRED

(f) Calculate the profit or loss on the sale of the old office computer.

...................................................................................................................................................

............................................................................................................................................. [2]

(g) State the entries Rod would make in his accounting records on 30 June 2019 to record the
disposal of the old office computer.

account to be debited $ account to be credited $

[6]

[Total: 20]
© UCLES 2019 7110/21/O/N/19 [Turn over
PAGE 128

3 The Primrose Garden Store has two departments: plants and tools. The following information is
available for the year ended 30 September 2019.

$
Revenue plants 252 000
tools 130 000
Wages plants 38 000
tools 17 000
Direct expenses 5 730

Additional information

1 The mark-up on plants is 40%.

2 The profit margin on tools is 20%.

3 Direct expenses are apportioned to departments on the basis of revenue.

REQUIRED

(a) Calculate the cost of sales for:

(i) plants

...........................................................................................................................................

..................................................................................................................................... [2]

(ii) tools

...........................................................................................................................................

..................................................................................................................................... [2]

© UCLES 2019 7110/21/O/N/19

PAGE 129

(b) Prepare the departmental trading account showing the profit or loss of each department.

Primrose Garden Store

Departmental Trading Account for the year ended 30 September 2019

Plants Tools

$ $ $ $

[8]

© UCLES 2019 7110/21/O/N/19 [Turn over

PAGE 130

The following were the summarised wage details for September 2019.

$
Total gross wages 5400

Total deductions
income tax 950
voluntary contributions 510

Wages were paid to the staff in cash.

On 9 October 2019 the $950 income tax deducted from wages was paid to the tax authorities by
cheque.

REQUIRED

(c) State three examples of voluntary deductions made from wages.

1 ................................................................................................................................................

2 ................................................................................................................................................

3 ................................................................................................................................................
[3]

(d) Prepare the following ledger accounts showing the entries for September 2019. It is not
necessary to total or balance the accounts.

(i)
Wages account

Date Details $ Date Details $

[3]
(ii)
Income tax account

Date Details $ Date Details $

[2]

[Total: 20]

© UCLES 2019 7110/21/O/N/19

PAGE 131

4 Indu is in business buying and selling goods on credit.

The following information is available.

$
At 1 October 2018
Inventory 35 000

For the year ended 30 September 2019

Revenue 400 000
Expenses 52 000

At 30 September 2019
Inventory 68 000
2ZQHU·VFDSLWDO
5% bank loan – repayable 2025 50 000

Mark-up was 25%.

REQUIRED

(a) Calculate the following for the year ended 30 September 2019.
Comparative figures for the year ended 30 September 2018 are shown in the last column.

Workings Answer Year ended

30 September
2018
Cost of sales
$270 000

Purchases
$260 000

Percentage of gross
profit to revenue 25%
(gross profit margin)

Percentage of
profit for the year 10%
to revenue (profit
margin)
Return on capital
employed (ROCE) 18%

[10]

© UCLES 2019 7110/21/O/N/19 [Turn over

PAGE 132

(b) Suggest four possible reasons for the change in the profitability ratios of the business over
the two years.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

3 ................................................................................................................................................

...................................................................................................................................................

4 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[4]

Indu wishes to increase her profit for the year and has made some proposals. A friend has advised
that each proposal may not comply with an accounting principle or concept.

REQUIRED

(c) Complete the table by placing a tick () to indicate the effect on the profit for the year of each
proposal. Name the accounting principle or concept not being applied.
The first one has been completed as an example.

Proposal Effect on profit for the year Accounting principle or

concept not applied
Increase Decrease No effect
Value closing inventory at cost Historic cost
price plus mark-up.

Remove provision for doubtful

debts from financial statements.

Place a value on the satisfaction

and loyalty of customers.

Make no adjustment for expenses

prepaid at year end.

[6]

[Total: 20]
© UCLES 2019 7110/21/O/N/19
PAGE 133

5 Feng is a sole trader. The following balances were extracted from the books on 30 September 2019.

$
Non-current assets (at cost)
Land and buildings 170 000
Motor vehicles 30 000
Fixtures and fittings 7 000
Provisions for depreciation at 1 October 2018
Land and buildings 18 600
Motor vehicles 10 000
Fixtures and fittings 1 400
Disposal account 8 500 Credit
Revenue 326 000
Purchases 135 000
Returns inwards 4 300
Carriage of goods 9 000
Wages and salaries 90 000
Motor vehicle expenses 11 250
Insurance 2 700
Rent receivable 14 500
6% Bank loan (repayable 30 May 2022) 40 000
Bank interest paid 2 400
Capital 160 000
Drawings 25 000
Inventory at 1 October 2018 30 000
Electricity and water 6 050
Marketing expenses 17 300
General expenses 14 000
Bank 27 450 Debit
Trade payables 36 550
Trade receivables 35 000
Provision for doubtful debts 900

Additional information at 30 September 2019

1 On 15 August 2019 goods had been purchased on credit for $1950. The transaction had not
been recorded in the books.

2 Carriage of goods included $2700 for carriage on purchases.

3 Inventory was valued at $35 550.

4 Rent receivable, $1500, was due.

© UCLES 2019 7110/21/O/N/19

PAGE 134

5 The insurance included an annual payment of $800 made on 1 January 2019.

6 $750 was owing for water.

7 A new motor vehicle costing $16 000 was purchased on 19 September 2019. Payment was
made by cheque. No entries had been made in the books.

8 Depreciation is to be charged on all non-current assets owned at the end of the year as
follows.
(i) Land costing $60 000 is not depreciated. The buildings are depreciated at 2% per annum
on cost.
(ii) Motor vehicles are depreciated at the rate of 25% per annum using the diminishing
(reducing) balance method.
(iii) Fixtures and fittings are depreciated at the rate of 10% per annum on cost, using the
straight-line method.

9 Trade receivables of $7000 are irrecoverable. The provision for doubtful debts is to be
maintained at 5% on the remaining trade receivables.

© UCLES 2019 7110/21/O/N/19 [Turn over

PAGE 135

REQUIRED

(a) Prepare the income statement for the year ended 30 September 2019.

Feng
Income Statement for the year ended 30 September 2019

$ $

......................................................................................... ........................ ........................

$ $

......................................................................................... ........................ ........................

......................................................................................... ........................ ..................[20]

(b) Prepare the statement of financial position at 30 September 2019.

Feng
Statement of Financial Position at 30 September 2019

$ $ $

.......................................................................................... .............. .............. ..............

$ $ $

.......................................................................................... .............. .............. ..............

.......................................................................................... .............. .............. ........ [20]

[Total: 40]
© UCLES 2019 7110/21/O/N/19
PAGE 139

Cambridge Assessment International Education

Cambridge Ordinary Level
* 8 6 2 3 0 7 5 4 2 9 *

PRINCIPLES OF ACCOUNTS 7110/22

Paper 2 October/November 2019
2 hours
Candidates answer on the Question Paper.
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Answer all questions.

You may use a calculator.

Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 19 printed pages and 1 blank page.

DC (ST) 167586/4
© UCLES 2019 [Turn over
PAGE 140

1 Sairah is a retailer of garden furniture. The following ledger account appeared in her books on
31 August 2019.

Wootton account

Date Details Debit Credit Balance

2019 $ $ $
August 1 Balance b/d 263 Dr
8 Sales 70 333 Dr
10 Sales returns 9 324 Dr
15 Bank 144 180 Dr
15 Discount 6 174 Dr

REQUIRED

(a) (i) Name the type of ledger accounts prepared by Sairah showing a balance after each
transaction.

..................................................................................................................................... [1]

(ii) 1DPHWKHVXEGLYLVLRQRI6DLUDK·VOHGJHULQZKLFKWKHDFFRXQWRI:RRWWRQZRXOGDSSHDU

..................................................................................................................................... [1]

(iii) Name the document sent by Sairah to Wootton on 10 August.

..................................................................................................................................... [1]

(iv) Name the type of discount taken by Wootton on 15 August.

..................................................................................................................................... [1]

(v) Calculate the percentage discount taken by Wootton on 15 August.

...........................................................................................................................................

..................................................................................................................................... [1]

(vi) Name the document which would be sent by Sairah to Wootton on 31 August detailing
the transactions for the month.

..................................................................................................................................... [1]

© UCLES 2019 7110/22/O/N/19

PAGE 141

(b) Complete the following table. For each transaction name the book of prime (original entry),
the account to be debited, the account to be credited and the effect on capital.
The first item has been completed as an example.

book of prime account account effect on capital

(original) entry debited credited $
sold goods on credit to Sales journal Win Sales +90
Win, $300 (cost $210)

paid wages in cash, $750

purchased a new
computer system, $1500,
on credit from CW Limited

received goods returned

which had been sold on
credit to Wendy, $150
(cost $80)
[12]

Sairah uses ICT (Information Communication Technology) to maintain her book-keeping records.

REQUIRED

(c) State two advantages of using ICT (Information Communication Technology).

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[2]

[Total: 20]

© UCLES 2019 7110/22/O/N/19 [Turn over

PAGE 142

2 Karthik extracted the following trial balance from his books on 30 September 2019.

Trial Balance at 30 September 2019

Debit Credit
$ $
Revenue 18 000
Purchases 15 500
Capital 1 200
Drawings 1 050
General expenses 1 720
Rent payable 200
Fixtures (at cost) 700
Provision for depreciation of fixtures 420
Trade receivables 1 750
Trade payables 2 100
Balance at bank 200
Inventory 1 October 2018 600

21 720 21 720

On inspection of the books Karthik found the following errors.

1 Purchases on credit from Hannah, $600, had been recorded in the book of prime (original)
entry and the account of Hannah as $900.

2 Rent payable of $450 had been posted to the general expenses account.

3 The purchase of fixtures, $800, had been recorded in the general expenses account.

4 A sale of goods on credit to Roy, $500, had been debited to the sales account and credited to
5R\·VDFFRXQW

© UCLES 2019 7110/22/O/N/19

PAGE 143

REQUIRED

(a) Name the type of error in 1–4.

1 ................................................................................................................................................

2 ................................................................................................................................................

3 ................................................................................................................................................

4 ................................................................................................................................................
[4]

(b) Prepare the journal entries to correct the errors 1 to 4. Narratives are not required.

General Journal

Debit Credit
$ $

[8]

© UCLES 2019 7110/22/O/N/19 [Turn over

PAGE 144

(c) Prepare the corrected trial balance at 30 September 2019.

Corrected Trial Balance at 30 September 2019

Debit Credit
$ $
Revenue

Purchases

Capital

Drawings

General expenses

Rent payable

Fixtures (at cost)

Provision for depreciation of fixtures

Trade receivables

Trade payables

Balance at bank

Inventory 1 October 2018

[8]

[Total: 20]

© UCLES 2019 7110/22/O/N/19

PAGE 145

3 ABC Limited has ordinary share capital consisting of 150 000 shares of $1 each.

The following is an extract from the statement of changes in equity for ABC Limited for the year
ended 31 August 2019.

ABC Limited
Statement of Changes in Equity for the year ended 31 August 2019

Ordinary General Retained

Total
share capital reserve earnings
$ $ $ $
Balance 1 September 2018 150 000 25 000 56 000 ?
Profit for the year 32 000 32 000
Interim dividend for the year (3 000) (3 000)
Final dividend for the year (4 500) (4 500)
Transfer to general reserve 20 000 (20 000)
Balance 31 August 2019 ? ? ? ?

Additional balances at 31 August 2019

$
Trade payables 17 500
Current assets 72 500
Other payables 3 000
5% Debentures (repayable 2025) 50 000
Non-current assets 280 000
4% Bank loan (repayable 2022) 20 000
Bank overdraft 6 500

REQUIRED

(a) State the difference between called-up share capital and paid-up share capital.

...................................................................................................................................................

............................................................................................................................................. [2]

© UCLES 2019 7110/22/O/N/19 [Turn over

PAGE 146

(b) State three differences between debentures and ordinary shares.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

3 ................................................................................................................................................

...................................................................................................................................................
[6]

(c) Calculate the total:

(i) equity of ABC Limited on 1 September 2018

...........................................................................................................................................

..................................................................................................................................... [1]

(ii) dividend paid on ordinary shares in cents per share.

...........................................................................................................................................

..................................................................................................................................... [2]

(d) State one possible reason why ABC Limited would make a transfer to the general reserve.

...................................................................................................................................................

............................................................................................................................................. [1]

© UCLES 2019 7110/22/O/N/19

PAGE 147

(e) Prepare an extract from the statement of financial position at 31 August 2019 to show the
equity and liabilities.

ABC Limited
Extract from the Statement of Financial Position at 31 August 2019

...................................................................................................................................................

............................................................................................................................................. [8]

[Total: 20]

© UCLES 2019 7110/22/O/N/19 [Turn over

PAGE 148

4 Rani is in business buying and selling goods on credit.

She provided the following information.

At 1 October 2017 $
Capital 75 000
Bank loan (repayable 2023) 40 000

For the year ended 30 September 2018

Expenses 65 000
Profit for the year 15 000

Mark-up 25%

Rani did not make any drawings during the year.

REQUIRED

(a) Calculate the following for the year ended 30 September 2018.

Workings Answer
Revenue

Percentage of profit for the

year to revenue
(to two decimal places)

Percentage return on
capital employed
(to two decimal places)

Use the capital employed

at 30 September 2018
[6]

Rani is concerned about the level of her profitability. She decided to increase the mark-up to 50%
on her goods for the year ended 30 September 2019.

The following information is available for the year ended 30 September 2019.

$
Purchases 212 000
Expenses 60 000
Inventory at 1 October 2018 36 000
Inventory at 30 September 2019 28 000

© UCLES 2019 7110/22/O/N/19

PAGE 149

(b) Calculate the following for the year ended 30 September 2019.

Workings Answer
$
Cost of sales

Revenue

Profit for the year

[6]

...................................................................................................................................................

............................................................................................................................................. [4]

© UCLES 2019 7110/22/O/N/19 [Turn over

PAGE 150

(d) Name the accounting principle/concept being applied by Rani in the following situations.

Principle/concept

Rani always ensures that her personal transactions are not recorded
in the business accounting records.

Rani does not calculate annual depreciation on low-value office

equipment items such as staplers.

Rani requires reports on the progress of the business at regular

intervals.

5DQL·V DVVHWV DQG H[SHQVHV DUH UHFRUGHG LQ WKH OHGJHU DFFRXQWV DW
their actual cost.

[4]

[Total: 20]

© UCLES 2019 7110/22/O/N/19

PAGE 151

5 The following balances were extracted from the books of B Manufacturing on 30 September 2019.

$
Inventory at 1 October 2018
Raw materials 7 900
Work in progress 18 000
Finished goods 31 000
Capital 160 000
Drawings 50 000
Revenue 475 000
Purchases of raw materials 47 000
Purchases of finished goods 71 000
Production management salaries 29 500
Administrative wages and salaries 117 550
Factory wages 55 300
Insurance 9 000
Rent payable 30 000
Commission receivable 8 750
Direct expenses 10 100
General expenses 12 000
Building repairs 18 000
Selling and distribution expenses 14 200
Trade payables 21 900
Bank 11 100 Debit
Non-current assets (at cost)
Factory machinery 90 000
Office fixtures 70 000
Provisions for depreciation at 1 October 2018
Factory machinery 26 000
Office fixtures 36 000
Provision for doubtful debts 6 000
Trade receivables 42 000

© UCLES 2019 7110/22/O/N/19

PAGE 152

Additional information at 30 September 2019

1 Inventory
$
Raw materials 6 400
Work in progress 20 200
Finished goods 34 300

2 Expenses are to be apportioned to the factory and the office as follows:

Factory Office
Insurance 60% 40%
Rent payable 75% 25%
General expenses 10% 90%
Building repairs 70% 30%

3 Commission receivable of $1200 was due.

4 Selling and distribution expenses prepaid were $750.

5 Depreciation is to be charged on all non-current assets owned at the end of the year as
follows.
factory machinery at 20% per annum using the diminishing (reducing) balance method
office fixtures at 10% per annum using the straight-line method.

6 The provision for doubtful debts is to be maintained at the rate of 5%.

7 A cheque, $2800, paid to a trade payable had not been recorded in the books.

© UCLES 2019 7110/22/O/N/19 [Turn over

PAGE 153

REQUIRED

(a) Prepare the manufacturing account for the year ended 30 September 2019.
Show clearly the prime cost and the cost of production.

B Manufacturing
Manufacturing Account for the year ended 30 September 2019

$ $

….….....……..….….....……..….….....…….….….....…….. ….….....…….. ….….....……..

(b) Prepare the income statement for the year ended 30 September 2019.

B Manufacturing
Income Statement for the year ended 30 September 2019

$ $

….….....……..….….....……..….….....…….….….....…….. ….….....…….. ….….....……..

[13]

© UCLES 2019 7110/22/O/N/19 [Turn over

PAGE 155

(c) Prepare the statement of financial position at 30 September 2019.

B Manufacturing
Statement of Financial Position at 30 September 2019

$ $ $

........................................................................... ................... ................... ...................

© UCLES 2019 7110/22/O/N/19

PAGE 156

$ $ $

........................................................................... ................... ................... ...................

[12]

[Total: 40]

© UCLES 2019 7110/22/O/N/19

PAGE 157

Cambridge O Level
* 3 0 8 0 9 9 3 9 4 8 *

ACCOUNTING 7707/21
Paper 2 Structured Written Paper May/June 2020

1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

INSTRUCTIONS
Ɣ Answer all questions.
Ɣ Use a black or dark blue pen. You may use an HB pencil for any diagrams or graphs.
Ɣ Write your name, centre number and candidate number in the boxes at the top of the page.
Ɣ Write your answer to each question in the space provided.
Ɣ Do not use an erasable pen or correction fluid.
Ɣ Do not write on any bar codes.
Ɣ You may use a calculator.
Ɣ International accounting terms and formats should be used as appropriate.
Ɣ You should show your workings.

INFORMATION
Ɣ The total mark for this paper is 100.
Ɣ The number of marks for each question or part question is shown in brackets [ ].
Ɣ Where you are asked to complete a layout, you may not need all the lines for your answer.

This document has 24 pages. Blank pages are indicated.

DC (PQ) 198512
© UCLES 2020 [Turn over
PAGE 158

1 The ZED Sports Club has a shop which sells sportswear. The following details relate to the shop
for the year ended 29 February 2020.

$
Opening inventory 900
Closing inventory 970
Purchases 7600

Mark-up 40%

REQUIRED

(a) Calculate the shop sales for year ended 29 February 2020.

...................................................................................................................................................

............................................................................................................................................. [4]

All the shop sales and purchases are for cash. All the club’s receipts are paid into the bank and
all payments are made by cheque. On 1 March 2019 the club’s bank balance was overdrawn by
$845.

In addition to the shop sales and purchases, the following receipts and payments were made
during the year ended 29 February 2020.

$
Subscriptions received 11 400
Competition fees received 915
Payments for competition prizes 390
Purchases of fittings 4 000
Rent and insurance 4 575
Wages of shop assistant 2 000

© UCLES 2020 7707/21/M/J/20

PAGE 159

REQUIRED

(b) Prepare the receipts and payments account for the ZED Sports Club for the year ended
29 February 2020. Balance the account and bring down the balance on 1 March 2020.

ZED Sports Club

Receipts and Payments Account for the year ended 29 February 2020

Date Details $ Date Details $

……… …….………………… ……… ……… …….………………… ………

……… …….………………… ……… ……… …….………………… ……...

……… …….………………… ……… ……… …….………………… ………

[8]

© UCLES 2020 7707/21/M/J/20 [Turn over

PAGE 160

The club’s bank statement at 29 February 2020 showed a positive balance of $7162.

On comparing the bank statement with the cash book, the treasurer found:

1 Competition fees, $260, had not been recorded by the bank.

2 A cheque paid for $25 for competition prizes had been charged twice by the bank.

3 The payment for fittings, $4000, was made on 27 February 2020, and had not been recorded
on the bank statement.

REQUIRED

ZED Sports Club

Bank Reconciliation Statement at 29 February 2020

...................................................................................................................................................

............................................................................................................................................. [5]

(d) State three differences between a receipts and payments account and an income and
expenditure account.

Receipts and payments account Income and expenditure account

[3]

[Total: 20]
© UCLES 2020 7707/21/M/J/20
PAGE 161

2 Ame provided the following balances from his books at 31 March 2020.

$
Capital 10 369
Drawings 4 000
Equipment at cost 15 500
Provision for depreciation of equipment 3 100
Inventory at 1 April 2019 1 765
Trade receivables 1 290
Bank overdraft 475
Trade payables 1 600
Sales 31 250
Purchases 18 330
Purchases returns 910
Carriage inwards 640
Discount received 815
Commission receivable 1 500
Rent and insurance 5 700
Office expenses 2 425

© UCLES 2020 7707/21/M/J/20

PAGE 162

REQUIRED

(a) Prepare Ame’s trial balance at 31 March 2020.

Show the difference in the trial balance totals as a suspense account balance.

Ame
Trial Balance at 31 March 2020

Debit Credit
$ $

Capital …………………… ……………………

Drawings …………………… ……………………

Equipment at cost …………………… ……………………

Provision for depreciation of equipment …………………… ……………………

Inventory at 1 April 2019 …………………… ……………………

Trade receivables …………………… ……………………

Bank overdraft …………………… ……………………

Trade payables …………………… ……………………

Sales …………………… ……………………

Purchases …………………… ……………………

Purchases returns …………………… ……………………

Carriage inwards …………………… ……………………

Discount received …………………… ……………………

Commission receivable …………………… ……………………

Rent and insurance …………………… ……………………

Office expenses …………………… ……………………

Suspense …………………… ……………………

…………………… ……………………

______________ ______________

______________ ______________
[6]

© UCLES 2020 7707/21/M/J/20 [Turn over

PAGE 163

Ame later discovered several errors had been made in the accounting records.

REQUIRED

(b) Complete the table to show the entries required to correct each error.
The first one has been completed as an example.

Entries required to correct the error

Error Debit Credit
Account $ Account $

No entry had been made for cash Cash 60 Sales 60

sales, $60.

Office expenses, $240, had been …………….. ………. …………… ………..

credited to the wages account.
No debit entry had been made. ……………… ………. …………….. ……….

The purchases journal total for

March 2020 was $2165. This ……………… ………. …………….. ……….
amount was incorrectly recorded
in the purchases account as ……………… ………. …………….. ……….
$2651.

An insurance payment, $375, had

been correctly recorded in the ……………… ………. …………….. ……….
cash book but no other entry had
been made. ……………… ………. …………….. ……….

The purchase of equipment,

$800, was correctly recorded in ……………… ………. …………….. ……….
the cash book but debited to the
office expenses account. ……………… ………. …………….. ……….

[9]

© UCLES 2020 7707/21/M/J/20

PAGE 164

(c) Prepare the suspense account. Start with the difference on the trial balance prepared in
Part (a). Balance or total the account as necessary.

Ame
Suspense account

Date Details $ Date Details $

……… ……………………… ……… ……… …………………… ………

……… ……………………… ……… ……… …………………… ……...

[5]

[Total 20]

© UCLES 2020 7707/21/M/J/20 [Turn over

PAGE 165

3 Chippo owns a manufacturing business which produces product S. She provided the following
information for the year ended 30 April 2020.

$
Revenue 254 000
Purchases of raw materials 46 500
Purchases of finished goods 59 000
Wages of factory operatives 38 250
Royalties paid to the inventor of product S 7 690
Factory general expenses 4 500
Factory fuel and power 5 325
Rent and insurance 28 000
Factory machinery at cost 60 000
Provision for depreciation of factory machinery 21 600
Inventory at 1 May 2019: raw materials 3 120
work in progress 5 400
finished goods 8 220

Additional information

1 Factory machinery is depreciated at 20% per annum using the reducing balance method.

2 Rent and insurance is to be split equally between the factory and the office.

3 The annual salary of the factory supervisor is $28 500.

4 Closing inventory at 30 April 2020 was:

$
Raw materials 3000
Work in progress 5590
Finished goods 7885

© UCLES 2020 7707/21/M/J/20

PAGE 166

REQUIRED

(a) Prepare Chippo’s manufacturing account for the year ended 30 April 2020.

Chippo
Manufacturing Account for the year ended 30 April 2020
$ $

………………………………………………………… ……………… ………………

[10]
© UCLES 2020 7707/21/M/J/20 [Turn over
PAGE 167

(b) Prepare Chippo’s income statement (trading account section) for the year ended
30 April 2020.

Chippo
Income Statement (Trading Account section) for the year ended 30 April 2020

$ $

………………………………………………………… ……………… ………………

[4]

(c) Complete the table by placing a tick (9) in the correct column, to indicate whether each of the
following actions would increase or decrease Chippo’s gross margin.

Action Increase gross margin Decrease gross margin

Increase wages of
factory supervisor
Reduce trade discount
allowed to customers
[2]

© UCLES 2020 7707/21/M/J/20

PAGE 168

Chippo is considering converting her sole trader business into a limited company because she
thinks that this will make it easier for her to obtain finance for future expansion.

REQUIRED

(d) Advise Chippo whether or not she should convert her business to a limited company, in order
to obtain finance. Justify your answer by providing advantages and disadvantages.

...................................................................................................................................................

............................................................................................................................................. [4]

[Total: 20]

© UCLES 2020 7707/21/M/J/20 [Turn over

PAGE 169

4 Rani is a trader. Her financial year ends on 31 March.

She provided the following information about her three types of inventory at 31 March 2020.

Inventory Number Cost Selling price Selling expenses

item of units per unit per unit per unit
$ $ $
A 110 17 20 2
B 85 18 19 1
C 90 15 16 2

REQUIRED

(a) Calculate the total value of Rani’s inventory at 31 March 2020.

...................................................................................................................................................

............................................................................................................................................. [4]

Rani later discovered that she had an amount of inventory of item D at 31 March 2020. This
inventory originally cost $1660. She considered this inventory to be obsolete.

REQUIRED

(b) Explain to Rani how the value of the inventory of item D affected the profit for the year ended
31 March 2020.

...................................................................................................................................................

............................................................................................................................................. [2]

© UCLES 2020 7707/21/M/J/20

PAGE 170

(c) Advise Rani whether or not she should stop purchasing item D to avoid having obsolete
inventory in the future. Justify your answer by providing advantages and disadvantages.

...................................................................................................................................................

............................................................................................................................................. [5]

© UCLES 2020 7707/21/M/J/20 [Turn over

PAGE 171

Rani earns advertising income by placing advertising boards in her shop window. The
following details relate to her advertising income.

On 1 April 2019 Rani had received $420 in advance, and $300 was owed to her.

During the year ended 31 March 2020, Rani received cheque payments totalling $6000. She
decided to write off the amount of $300 due to her.

On 31 March 2020 Rani had received $500 in advance, and $400 was owed to her.

REQUIRED

(d) Prepare the advertising income account in the ledger of Rani for the year ended 31 March
2020. Balance the account and bring down the balances on 1 April 2020.

Rani
Advertising income account

Date Details $ Date Details $

……… ……………………… ……… ……… …………………… ………

……… ……………………… ……… ……… …………………… ……...

……… ……………………… ……… ……… …………………… ………

[7]

(e) Explain to Rani the effect on gross profit of recording sales of inventory as advertising income.

...................................................................................................................................................

............................................................................................................................................. [2]

[Total: 20]

© UCLES 2020 7707/21/M/J/20

PAGE 172

5 MPT Limited prepares its financial statements to 30 April each year.

The company’s retained earnings at 1 May 2019 were $14 000. The general reserve was $35 000.

During the year ended 30 April 2020 the following took place.

1 The company made a profit for the year of $28 000 after charging debenture interest.

2 A transfer of $5000 was made to the general reserve.

3 A dividend of $4500 was paid. No other dividends were payable for the year.

MPT Limited provided the following balances at 30 April 2020.

$
Fixtures and equipment at book value 152 000
Motor vehicles at book value 60 400
Inventory 30 330
Bank overdraft 6 200
Trade payables 24 900
Trade receivables 31 500
Provision for doubtful debts 630
5% Debentures (repayable 2025) 20 000
Ordinary share capital 150 000

REQUIRED

(a) Calculate the retained earnings of MPT Limited at 30 April 2020.

...................................................................................................................................................

............................................................................................................................................. [3]

© UCLES 2020 7707/21/M/J/20

PAGE 173

(b) Prepare the statement of financial position for MPT Limited at 30 April 2020.

MPT Limited
Statement of Financial Position at 30 April 2020

$ $ $

………………………………………………… ……………… ……………… ………………

[7]

© UCLES 2020 7707/21/M/J/20 [Turn over

PAGE 174

The directors of MPT Limited are considering using the general reserve to repay the bank
overdraft.

REQUIRED

...................................................................................................................................................

............................................................................................................................................. [1]

(d) Calculate the return on capital employed (ROCE) for the year ended 30 April 2020. The
calculation should be correct to two decimal places and should be based on closing capital
employed.

...................................................................................................................................................

............................................................................................................................................. [4]

© UCLES 2020 7707/21/M/J/20

PAGE 175

The directors are considering increasing dividend in 2021 as a way of increasing return on capital
employed (ROCE).

REQUIRED

(e) Advise the directors how the return on capital employed (ROCE) can be increased. Justify
your answer by commenting on both profit and capital employed.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

© UCLES 2020 7707/21/M/J/20

PAGE 176

Cambridge O Level
* 5 7 6 4 9 6 8 8 1 5 *

ACCOUNTING 7707/22
Paper 2 Structured Written Paper May/June 2020

1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

This document has 20 pages. Blank pages are indicated.

DC (PQ) 198511
© UCLES 2020 [Turn over
PAGE 177

1 Bilal is a trader. He buys goods on credit and for cash. He sells goods on a cash basis only.

The following transactions took place in April 2020.

April 4 Bought goods on credit from Milly, list price $320, subject to a trade discount of 20%

5 Bought goods on credit from EHL Limited, $500

6 Bought stationery, $145, paying by cheque

8 Cash sales, $280, were paid immediately into Bilal’s bank account

10 Paid $128 cash to Milly

12 Cash sales, $110

13 Bought goods on credit, $250, from Todd who offers 4% cash discount for payments
made within 14 days

17 Bought office equipment, $500, paying by bank transfer

21 Paid by cheque for the goods purchased from Todd on 13 April after deducting the cash
discount

24 Paid $485 to EHL Limited by telephone transfer, having deducted 3% cash discount

28 Sold old office equipment for $50 cash

REQUIRED

(a) Prepare the purchases journal for April 2020.

Total the journal and indicate the ledger account to which the total would be posted.

Bilal
Purchases journal

Date Details $ $

……..….... ………………………………………………............. …………... ………......

………...... ………………………………………………............. …………... …………..

……..….... ………………………………………………............. …………... …………..

………...... ………………………………………………............. …………... ………......

………...... ………………………………………………............. ………….. …………...

[4]

(b) Complete Bilal’s cash book on the page opposite.

Balance the cash book and bring down the balances on 1 May 2020.

© UCLES 2020 7707/22/M/J/20

Bilal
Cash Book

Date Details Discount Cash Bank Date Details Discount Cash Bank

April 1 Balance b/d ................ 160 1960 ........... ......................................... ............... ............... …...........

7707/22/M/J/20
PAGE 178

…....... …..................................... …............ …............ …............ …....... …..................................... ............... …........... …...........

……… …..................................... …............ …........... …........... …....... …..................................... …............ …........... …...........

[12]

[Turn over
PAGE 179

accounting principle
The double entry for the posting of the purchases journal
entries is completed by posting the individual amounts to
the purchases ledger.
The purchase of goods on 5 April did not include goods
costing $55 which Bilal bought for his own use.
The stationery purchased on 6 April had been recycled.
This is expected to improve the reputation of the business.
Reputation is not recorded in the accounting statements.
The value of office equipment shown in the financial
statements was based on its purchase price.
[4]

[Total: 20]

© UCLES 2020 7707/22/M/J/20

PAGE 180

2 The K Music Club provides facilities for listening to music and also provides a refreshment bar for
members. The club had the following assets and liabilities at 1 April 2019.

$
Subscriptions in advance 250
Subscriptions in arrears 845
Cash at bank 1 570
Cash in hand 130
Wages outstanding (refreshment bar) 140
Inventory (refreshment bar) 615
Fixtures and fittings at book value 11 200

REQUIRED

(a) Calculate the accumulated fund at 1 April 2019.

...................................................................................................................................................

............................................................................................................................................. [4]

(b) State how the accumulated fund of a club is built up over time.

...................................................................................................................................................

............................................................................................................................................. [2]

The following information is available for the year ended 31 March 2020.

$
Subscriptions received (all by cheque) 8 500
Subscriptions written off as irrecoverable 155
Wages paid to refreshments bar staff 1 250

Balances at 31 March 2020 included the following.

$
Subscriptions in advance 215
Subscriptions in arrears 975
Wages outstanding (refreshments bar) 115

© UCLES 2020 7707/22/M/J/20

PAGE 181

REQUIRED

...................................................................................................................................................

……………………………………………........ …………………………………………………… [2]

(d) Prepare the subscriptions account for the year ended 31 March 2020. Balance the account
and bring down the balances on 1 April 2020.

K Music Club
Subscriptions account
Date Details $ Date Details $

……… …………………………... ……….. ……… …………………………... ………..

[7]

© UCLES 2020 7707/22/M/J/20 [Turn over

PAGE 182

(e) Advise the club treasurer whether or not club members should be required to pay their
subscriptions by direct debit. Justify your answer by providing two advantages and two
disadvantages.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

© UCLES 2020 7707/22/M/J/20

PAGE 183

3 Gok is a wholesaler. He prepares his financial statements to the end of February each year.

At 29 February 2020, Gok’s ledger account balances included the following.

$
Revenue 420 000
Purchases 311 400
Sales returns 12 000
Discount allowed 9 000
Wages 12 360
Rent and rates 11 750
General expenses 4 220
Irrecoverable debts 8 600
Insurance 4 500
Telephone expenses 4 565
Inventory at 1 March 2019 26 700
Drawings 9 500
Fixtures and equipment at cost 120 000
Provision for depreciation of fixtures and equipment 43 200

Additional information

1 Gok did not have time to count and value his inventory at 29 February 2020. His margin is
25%.

2 A loan of $60 000 was obtained from the bank on 1 July 2019. Interest is charged at 7% per
annum.

3 The fixtures and equipment are being depreciated at 20% per annum using the reducing
balance method.

4 The insurance includes $1500 which covers the period from 1 March to 30 September 2020.

5 Drawings include a payment of $1660 for Gok’s personal telephone expenses. One quarter
of this amount was for business use.

© UCLES 2020 7707/22/M/J/20

PAGE 184

REQUIRED

(a) Prepare Gok’s income statement for the year ended 29 February 2020.

Gok
Income Statement for the year ended 29 February 2020

$ $
……………………………………………………………............ ……………. …………….

……………………………………………………………............ ……………. …………….

……………………………………………………………............ ................... …………….

[15]

© UCLES 2020 7707/22/M/J/20 [Turn over

PAGE 185

The wages paid by Gok are to his part-time warehouse assistant, Aiman.

REQUIRED

(b) Advise Gok whether or not he should offer Aiman a partnership in the business. Justify your
answer with two advantages and two disadvantages.

...................................................................................................................................................

.............................................................................................................................................. [5]

[Total: 20]

© UCLES 2020 7707/22/M/J/20

PAGE 186

4 Nadia is a trader. Her financial year ends on 31 March. She extracted a trial balance at 31 March
2020. The debit and credit totals did not agree. The difference was entered into a suspense
account.

After Nadia prepared draft financial statements, she discovered the following errors.

1 The purchases account was overcast by $110.

2 $13 for discount allowed in February 2020 had been credited to the discount allowed account
as $15.

3 A payment for insurance, $220, was correctly recorded in the cash book, but was recorded as
$202 in the insurance account.

4 Commission received, $65, had been debited to the account for commission payable. The
entry to the cash book had been correctly made.

5 Cash drawings, $85, were correctly entered in the cash book but were credited to the
drawings account.

6 The cost of a vehicle repair, $190, had been debited to the motor vehicles account.

7 A payment of $100 to Robert had been posted to the account of Roberta.

REQUIRED

(a) Prepare the suspense account. Include the original difference on the trial balance as a
balancing figure.

Nadia
Suspense account

Date Details $ Date Details $

………. .……………………… ……….. ………. .……………………… ………..

[7]

© UCLES 2020 7707/22/M/J/20

PAGE 187

(b) Identify the type of error made in

(i) Error 6

...................................................................................................................................... [1]

(ii) Error 7

...................................................................................................................................... [1]

(c) Complete the following statement to show the effect on the profit for the year of correcting
errors 2–7. If there is no effect on profit write ‘nil’ in the ‘no effect’ column. Calculate the
corrected profit for the year. Ignore depreciation of non-current assets.

The first correction has been completed as an example.

Nadia
Statement of corrected profit for the year ended 31 March 2020
$
Draft profit for the year before corrections 6720
No Increase Decrease
Effect in profit in profit
$ $

Error 1 110

Error 2 ............... ............... ...............

Error 3 ............... ............... ...............

Error 4 ............... ............... ...............

Error 5 ............... ............... ...............

Error 6 ............... ............... ...............

Error 7 ............... ............... ...............

Corrected profit for the year [7]

© UCLES 2020 7707/22/M/J/20 [Turn over

PAGE 188

At 31 March 2020 Nadia’s trade receivables owed $14 500. After the preparation of the draft
financial statements for the year ended 31 March 2020, Nadia discovered the following.

1 $300 owed by DD Supplies should have been written off as irrecoverable.

2 A provision of doubtful debts of 2% of trade receivables should have been created.

REQUIRED

(d) Prepare journal entries to record 1 and 2 above. Narratives are not required.

Nadia
Journal

Date Details Debit Credit

$ $

……….. ……………………………………………........... ……………… ………………

………… ……………………………………………........... ……………… ………………

[4]

[Total: 20]

© UCLES 2020 7707/22/M/J/20

PAGE 189

5 The directors of JKY Limited provided the following information.

For the year to 30 April 2020:

Revenue 209 510

Purchases 121 618

At 30 April 2020:

Inventory 11 050
Trade receivables 28 700
Bank overdraft 6 280

All sales and purchases were made on credit terms.

Inventory at 1 May 2019 was valued at $8000

REQUIRED

(a) Calculate the following ratios. Show your workings.

Rate of inventory turnover

workings answer (to two decimal places)

Trade receivables turnover (days)

workings answer (round up to nearest whole day)

[5]

© UCLES 2020 7707/22/M/J/20 [Turn over

PAGE 190

The rate of inventory turnover for the year ended 30 April 2020 was lower than that of the previous
year.

The trade receivables turnover (days) for the year ended 30 April 2020 was higher than that of the
previous year.

REQUIRED

(b) Explain the effects of the change in:

(i) inventory turnover

...........................................................................................................................................

...................................................................................................................................... [3]

(ii) trade receivables turnover (days)

...........................................................................................................................................

...................................................................................................................................... [3]

© UCLES 2020 7707/22/M/J/20

PAGE 191

The directors are concerned about the level of trade receivables. They are considering introducing
cash discount of 1% for payment within 21 days or charging interest on amounts outstanding after
30 days.

REQUIRED

(c) Advise the directors whether they should introduce the cash discount policy or the interest
charge policy. Justify your answer by providing one advantage and one disadvantage of
each policy.

...................................................................................................................................................

.............................................................................................................................................. [5]

The information in the accounting statements is affected by the company’s accounting policies.

REQUIRED

(d) Explain to the directors of JKY Limited the importance of the following objectives in selecting
the company’s accounting policies.

(i) comparability

...........................................................................................................................................

...................................................................................................................................... [2]

© UCLES 2020 7707/22/M/J/20 [Turn over

PAGE 192

(ii) relevance

...........................................................................................................................................

...................................................................................................................................... [2]

[Total: 20]

To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download
at www.cambridgeinternational.org after the live examination series.

Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.

© UCLES 2020 7707/22/M/J/20

PAGE 193

Cambridge O Level
* 9 7 2 2 0 7 1 9 2 8 *

ACCOUNTING 7707/22
Paper 2 Structured Written Paper October/November 2020
1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

This document has 20 pages. Blank pages are indicated.

DC (SLM) 207470
© UCLES 2020 [Turn over
PAGE 194

1 Dev owns a business selling furniture.

The following transactions took place during August 2020.

Transaction Date Details $

1 August 9 Sold goods on credit to Petra 675
2 14 Petra returned damaged goods to Dev 120
3 23 Banked cash sales 412
4 29 Petra settled her outstanding balance at 1 August by
credit transfer after taking a cash discount of 5%

On 1 August 2020, the balance on credit customer Petra’s sales ledger account was $940 debit.

REQUIRED

(a) Complete the table to name each business document and book of prime entry for the following
transactions in Dev’s accounting records.

Transaction Business document Book of prime entry

2
3
4
[6]

(b) Prepare the account of Petra for August 2020 as it would appear in Dev’s sales ledger.

Balance the account and bring down the balance on 1 September 2020.

Dev
Petra account
Date Date
2020 Details $ 2020 Details $

......... ...................................... ........... ......... ...................................... ...........

[6]

© UCLES 2020 7707/22/O/N/20

PAGE 195

(c) Identify the section of Dev’s statement of financial position at 31 August 2020 in which the
balance on Petra’s account would appear.

.............................................................................................................................................. [1]

Dev allows his credit customers a cash discount of 5% for prompt payment. He is considering
reducing this to 2%.

REQUIRED

(d) State one advantage and one disadvantage to Dev of this proposal.

...................................................................................................................................................

.............................................................................................................................................. [2]

Dev is considering turning his business into a limited company.

REQUIRED

(e) Advise Dev whether or not he should form a limited company. Justify your answer with two
advantages and two disadvantages of forming a limited company.

...................................................................................................................................................

.............................................................................................................................................. [5]

[Total: 20]

© UCLES 2020 7707/22/O/N/20 [Turn over

PAGE 196

2 BH Sports Club provides sporting facilities and a café for the use of its members and guests.

The club’s financial year ends on 31 July. The following information is available.

Assets and liabilities

At 1 August At 31 July
2019 2020
$ $
Bank 840 1270
Café inventory 520 770
Sports hall at book value 17 000 16 560
Insurance prepaid – sports hall and
sports equipment 400 440
Sports equipment at book value 3900 ?
Subscriptions in arrears 360 720
Subscriptions received in advance – 120
Wages accrued – café staff 60 80

Receipts and Payments Account for the year ended 31 July 2020
Details $ Details $
Balance b/d 840 Purchases of café supplies 8 190
Subscriptions received 9 960 Wages – café staff 2 750
Café takings 13 520 Wages – sports staff 5 220
Insurance – sports hall and
sports equipment 1 430
Sports equipment 2 100
Sports hall expenses 3 360
Balance c/d 1 270
24 320 24 320

Additional information

Sports equipment is depreciated at 10% per annum using the reducing balance method.

© UCLES 2020 7707/22/O/N/20

PAGE 197

REQUIRED

(a) Prepare the subscriptions account for the year ended 31 July 2020. Balance the account and
bring down the balances on 1 August 2020.

BH Sports Club
Subscriptions account

Date Details $ Date Details $

......... ...................................... .......... ......... ...................................... ..........

[6]

(b) Calculate the café profit for the year ended 31 July 2020.

...................................................................................................................................................

............................................................................................................................................ [4]

© UCLES 2020 7707/22/O/N/20 [Turn over

PAGE 198

BH Sports Club
Income and Expenditure Account for the year ended 31 July 2020
$ $

……………………………………………………………........... ……………. …………….

[7]

(d) (i) State what the balance on BH Sports Club’s accumulated fund represents.

...........................................................................................................................................

...................................................................................................................................... [1]

(ii) State the effect that the surplus or deficit on BH Sports Club’s income and expenditure
account for the year ended 31 July 2020 will have on the accumulated fund.

...........................................................................................................................................

...................................................................................................................................... [2]

[Total: 20]

© UCLES 2020 7707/22/O/N/20

PAGE 199

3 JP Limited’s financial year ended on 30 September 2020.

The following balances were available at that date.

$
7% debentures (2026) 20 000
Administrative expenses 44 000
Carriage inwards 1 500
Distribution costs 38 000
Debenture interest paid 700
Inventory at 1 October 2019 66 000
Non-current assets at book value at 1 October 2019 610 000
Provision for doubtful debts 1 000
Purchases 263 000
Revenue 529 500
Trade receivables 80 500

Additional information

1 Inventory at 30 September 2020 was valued at $59 000.

2 Interest on the 7% debentures (2026) had been paid up to 31 March 2020.

3 Administrative expenses included rates of $1200 for the six months ending 31 March 2021.

4 Distribution costs of $800 were outstanding at 30 September 2020.

5 Non-current assets should be depreciated by 10% per annum using the reducing balance
method.

6 Irrecoverable debts of $500 are to be written off.

7 The directors wish to maintain the provision for doubtful debts at 2% of trade receivables.

© UCLES 2020 7707/22/O/N/20

PAGE 200

REQUIRED

(a) Calculate the cost of sales for the year ended 30 September 2020.

...................................................................................................................................................

.............................................................................................................................................. [2]

(b) Calculate the increase or decrease in the provision for doubtful debts at 30 September 2020.

...................................................................................................................................................

.............................................................................................................................................. [2]

© UCLES 2020 7707/22/O/N/20 [Turn over

PAGE 201

JP Limited
Income Statement for the year ended 30 September 2020
$ $

……………………………………………………………........... …………….... ……………....

[12]

© UCLES 2020 7707/22/O/N/20

PAGE 202

(d) Complete the table by placing a tick () in the correct column to indicate the effect on the
equity of JP Limited of each of the following.

The first one has been completed as an example.

Increase Decrease No effect

Issue additional debentures
Issue additional ordinary shares
Payment of ordinary share dividend
Proposal of ordinary share dividend
Transfer from retained earnings to general reserve
[4]

[Total: 20]

© UCLES 2020 7707/22/O/N/20 [Turn over

PAGE 203

4 Carlos owns a business selling computer equipment.

He provided the following information for the year ended 31 July 2020.

$
Sales 240 000
Cost of sales 169 000
Operating expenses 55 000
Drawings 18 000
Capital employed 62 000

REQUIRED

(a) Calculate the profit for the year ended 31 July 2020.

Workings Profit for the year ended

31 July 2020 31 July 2019

$11 550

[1]

(b) Calculate the following ratios correct to two decimal places.

Profit margin

Workings Year ended

31 July 2020 31 July 2019

8.56%

Gross margin

Workings Year ended

31 July 2020 31 July 2019

34.26%

Return on capital employed (ROCE)

Workings Year ended

31 July 2020 31 July 2019

32.08%

[6]

© UCLES 2020 7707/22/O/N/20

PAGE 204

...................................................................................................................................................

.............................................................................................................................................. [6]

© UCLES 2020 7707/22/O/N/20 [Turn over

PAGE 205

Carlos is concerned that the business bank balance has shown a large decrease. He is considering
either investing more cash from his private funds or obtaining a two-year bank loan.

REQUIRED

(d) Advise Carlos which option he should select. Justify your answer by providing one advantage
and one disadvantage of each option.

...................................................................................................................................................

.............................................................................................................................................. [5]

(e) State the name of one party, other than himself and his employees, who would be interested
in Carlos’s financial statements. State one reason for their interest.

Interested party The interest they would have

[2]

[Total: 20]

© UCLES 2020 7707/22/O/N/20

PAGE 206

5 Razia’s financial year ends on 30 September.

The totals of the trial balance on 30 September 2020 did not agree. The totals were debit $10 450
and credit $10 250. A suspense account was opened.

The following errors were later discovered.

1 The total of the sales returns journal had been overcast by $300.

2 Cash sales, $820, had not been recorded in the books of account.

3 A purchase invoice, $190, had been credited to the account of P Hill instead of D Hill.

4 A cheque payment, $240, for motor repairs had been correctly entered in the cash book but
had been posted to the debit of motor repairs account as $420.

5 Rent received, $310, had been debited to the rent payable account.

6 Staff wages, $250, had been posted to Razia’s drawings account.

7 A cheque paid, $900, to Kamil, a credit supplier, had been entered correctly in the cash book
but had not been posted to Kamil’s account.

REQUIRED

(a) Prepare the suspense account. Start with the balance arising from the difference on the trial
balance. The account should be balanced or totalled as necessary.

Razia
Suspense account

Date Details $ Date Details $

......... ...................................... .......... ......... ...................................... ..........

[6]

© UCLES 2020 7707/22/O/N/20

PAGE 207

(b) Identify the types of error made in Error 2 and Error 4.

Error Type of error

2
4
[2]

(c) Complete the table by placing a tick () in the correct column to indicate the effect on the
profit for the year of correcting each error.

Error Increase profit Decrease profit No effect on profit

number

7
[7]

Razia is considering whether or not to sell on cash terms only.

REQUIRED

(d) Advise Razia whether or not she should sell on cash terms only. Justify your answer with two
advantages and two disadvantages of selling on cash terms only.

...................................................................................................................................................

.............................................................................................................................................. [5]

[Total: 20]

© UCLES 2020 7707/22/O/N/20

PAGE 208

Cambridge O Level
* 5 3 1 0 6 2 0 9 6 9 *

ACCOUNTING 7707/23
Paper 2 Structured Written Paper October/November 2020
1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

This document has 20 pages. Blank pages are indicated.

DC (PQ) 207255
© UCLES 2020 [Turn over
PAGE 209

1 Sariah owns a business selling ladies’ clothing. She maintains a system of double entry
bookkeeping.

The following occurred during September 2020.

1 Purchased a motor vehicle on credit from Sharpe Motors $6350.

2 Ruhee, a credit customer, was declared bankrupt owing Sariah $1200. The debt is to be
written off.

REQUIRED

(a) Prepare journal entries to record the above transactions. Narratives are not required.

Sariah
Journal

Details Debit Credit

$ $
............................................................................................. ..................... .....................

............................................................................................. ..................... .....................

[4]

Sariah is preparing her financial statements for the year ended 30 September 2020. She provides
the following information for fixtures and fittings.

2019 $
October 1 Fixtures and fittings at cost 28 600
Provision for depreciation of fixtures and fittings 6 185
2020
January 31 Sold fixtures and received a cheque 1 150
The fixtures had been purchased on 1 February 2018 for $1500
March 31 Purchased new fixtures paying by cheque 3 500

Sariah’s policy is to provide depreciation on fixtures and fittings at 10% per annum using the
reducing balance method. A full year’s depreciation is charged in the year of purchase but none in
the year of disposal.

© UCLES 2020 7707/23/O/N/20

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REQUIRED

(b) Prepare the following accounts for the year ended 30 September 2020. Close the accounts
by balancing or by making an appropriate year end transfer.

Sariah
Fixtures and fittings account

Date Details $ Date Details $

........... ............................... ............. ........... ............................... .............

Provision for depreciation of fixtures and fittings account

Date Details $ Date Details $

........... ............................... ............. ........... ............................... .............

Disposal account

Date Details $ Date Details $

........... ............................... ............. ........... ............................... .............

[11]

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PAGE 211

Sariah is considering forming a partnership with her friend Emy who runs a similar business.

REQUIRED

(c) Advise Sariah whether or not she should form a partnership with Emy. Justify your answer
with two advantages and two disadvantages of forming a partnership with Emy.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

© UCLES 2020 7707/23/O/N/20

PAGE 212

2 Eniola compared her bank statement for July 2020 with the bank columns of her cash book. She
provided the following information.

$
Overdrawn balance shown in the cash book at 31 July 2020 3420
Direct debit payment dated 25 July 2020, had not yet been entered in
the cash book 350
A cheque received from a customer on 12 July 2020 was dishonoured.
This dishonoured cheque had not yet been recorded in the cash book 665
Bank charges on the bank statement had not yet been entered in
the cash book 45
Unpresented cheques at 31 July 2020 1290
Uncredited deposits at 31 July 2020 410

REQUIRED

(a) Calculate the corrected balance of the bank columns in the cash book at 31 July 2020.

...................................................................................................................................................

............................................................................................................................................. [4]

(b) Prepare a bank reconciliation statement at 31 July 2020. Clearly identify the bank statement
balance at that date.

Eniola
Bank Reconciliation Statement at 31 July 2020

...................................................................................................................................................

............................................................................................................................................. [4]

© UCLES 2020 7707/23/O/N/20

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Eniola is concerned that her bank balance has decreased significantly during the last year. She is
considering how to improve her liquidity.

REQUIRED

(c) Suggest one effect of each of the following proposals.

(i) Hire new non-current assets instead of purchasing them.

...........................................................................................................................................

..................................................................................................................................... [1]

(ii) Delay paying credit suppliers.

...........................................................................................................................................

..................................................................................................................................... [1]

Eniola’s financial year end is 31 July 2020. She provided the following information about the rent
and rates of her business.

On 1 August 2019, she owed two months’ rent totalling $900. On the same date, rates of $260
were prepaid up to 30 September 2019.

During the year ended 31 July 2020 the following payments were made by credit transfer.

2019 $
August 1 Seven months’ rent 3150
October 1 Twelve months’ rates 1860
2020
March 1 Six months’ rent 2700

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REQUIRED

(d) Prepare the rent and rates account for the year ended 31 July 2020. Balance the account and
bring down the balances on 1 August 2020.

Eniola
Rent and rates account
Date Details $ Date Details $
2019 2019
Aug 1 Balance (rates) b/d 260 Aug 1 Balance (rent) b/d 900

.......... ..................................... .......... .......... ..................................... ..........

[6]

(e) Identify the sections of the statement of financial position at 31 July 2020 in which each of the
balances on the rent and rates account would appear.

Rent ..........................................................................................................................................

Rates ........................................................................................................................................
[2]

(f) (i) Name one accounting principle Eniola would apply when recording the rent and rates in
her financial statements.

..................................................................................................................................... [1]

(ii) State how Eniola would apply the accounting principle named in (f)(i).

...........................................................................................................................................

..................................................................................................................................... [1]

[Total: 20]

© UCLES 2020 7707/23/O/N/20

PAGE 215

3 Haziq has not maintained full accounting records for his business.

Haziq provided the following information for the year ended 31 July 2020.

At 1 August At 31 July
2019 2020
$ $
Bank loan 6 000 4 500
Inventory 8 400 ?
Non-current assets at net book value 35 580 32 450
Rent prepaid 240 –
Trade payables 6 280 7 460
Wages accrued – 610

Summary of bank account for the year ended 31 July 2020

Date Details $ Date Details $
2020 2019
July 31 Sales receipts 166 000 Aug 1 Balance b/d 2 150
Balance c/d 6 600 2020
July 31 Payments to credit suppliers 96 220
Bank loan repayments 1 500
Bank loan interest 300
Rent 2 640
Wages 41 400
General expenses 10 890
Drawings 17 500
172 600 172 600

Additional information

1 The gross margin was 40%.

2 All sales were for cash and all cash received was banked.

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REQUIRED

(a) Prepare the income statement for the year ended 31 July 2020.

Haziq
Income Statement for the year ended 31 July 2020
$ $

............................................................................................... …………….... ……………....

............................................................................................... ……………. ……………....

............................................................................................... …………….... ……………....

[15]

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PAGE 217

(b) Advise Haziq whether or not he should maintain a double entry bookkeeping system for his
business. Justify your answer with two advantages and two disadvantages.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

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PAGE 218

4 The directors of DW Limited provided the following information at 30 September 2020.

$
6% debentures (2028) 18 000
Bank overdraft 6 450
Dividend paid 2 000
General reserve at 1 October 2019 6 500
Inventory at 30 September 2020 26 300
Issued share capital at 1 October 2019 200 000
Non-current assets at 30 September 2020
Cost 462 000
Provision for depreciation 106 000
Other payables 2 200
Other receivables 1 600
Provision for doubtful debts at 1 October 2019 625
Retained earnings 73 475
Trade payables 8 250
Trade receivables 14 500

Additional information

A draft income statement for the year ended 30 September 2020 was prepared showing a profit of
$84 900.

The following errors were later discovered.

1 Inventory of $26 300 included items valued at cost $5200 that needed repair. After repairs
costing $600, the items could be sold for $5000.

2 Operating expenses included insurance of $400 that was prepaid at 30 September 2020.

3 The provision for doubtful debts should have been adjusted so that it equals 5% of trade
receivables.

The directors decided to transfer $5000 to general reserve.

There was no change to the issued share capital during the year ended 30 September 2020.

REQUIRED

(a) Calculate the correct value of inventory at 30 September 2020.

...................................................................................................................................................

............................................................................................................................................. [2]

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PAGE 219

(b) Calculate the revised profit for the year ended 30 September 2020 after adjusting for
errors 1–3.

...................................................................................................................................................

............................................................................................................................................. [4]

DW Limited
Statement of Changes in Equity for the year ended 30 September 2020
Details Share General Retained Total
capital reserve earnings
$ $ $ $
On 1 October 2019 .................. .................. .................. ..................

..................................................... .................. .................. .................. ..................

..................................................... _____ _ _ _____

On 30 September 2020 ..................

_________ ..................
_________ ..................
_________ ..................
_________
[5]

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PAGE 220

(d) Prepare the statement of financial position at 30 September 2020.

DW Limited
Statement of Financial Position at 30 September 2020
$ $ $

............................................................................ ...................... ...................... ......................

[9]

[Total: 20]

© UCLES 2020 7707/23/O/N/20

PAGE 221

5 Nazim owns a wholesale business and has prepared draft financial statements for the year ended
30 June 2020, his first year of trading.

After the preparation of these financial statements, some errors were discovered.

REQUIRED

(a) Complete the table to indicate the effect of each error on the profit for the year and on
working capital at 30 June 2020.

Write ‘understated’, ‘overstated’ or ‘no effect’.

The first one has been completed as an example.

Effect on profit Effect on working

Error
for the year capital
Repairs to office equipment had been entered
Overstated No effect
in the office equipment account.
No adjustment had been made for insurance
prepaid.

An irrecoverable debt had not been written off.

No record had been made of additional capital

introduced in cash.

Closing inventory had been overstated.

[8]

After correcting the errors, Nazim compared his results with those of his brother Aziz, who has a
similar business.

Nazim Aziz
Current ratio 1.71:1 2.12:1
Liquid (acid test) ratio 0.77:1 1.28:1
Return on capital employed 13.65% 15.25%

REQUIRED

(b) Suggest two reasons for the differences in each ratio.

(i) Current ratio

1 ........................................................................................................................................

...........................................................................................................................................

2 ........................................................................................................................................

...........................................................................................................................................
[2]

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(ii) Liquid (acid test) ratio

1 ........................................................................................................................................

...........................................................................................................................................

2 ........................................................................................................................................

...........................................................................................................................................
[2]

(iii) Return on capital employed (ROCE)

1 ........................................................................................................................................

...........................................................................................................................................

2 ........................................................................................................................................

...........................................................................................................................................
[2]

Nazim discovered that his rate of inventory turnover (times) was also lower than that of Aziz.

REQUIRED

(c) Suggest one reason for this difference.

...................................................................................................................................................

............................................................................................................................................. [1]

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PAGE 223

Nazim is concerned about the length of time his credit customers are taking to pay their accounts.
He is considering operating a strict credit control policy requiring customers to pay within 30 days.

REQUIRED

(d) Advise Nazim whether or not he should introduce this strict credit control policy. Justify your
answer by providing two advantages and two disadvantages.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

© UCLES 2020 7707/23/O/N/20

PAGE 224

Cambridge O Level
* 1 3 4 4 1 9 9 8 0 2 *

ACCOUNTING 7707/21
Paper 2 Structured Written Paper May/June 2021
1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

This document has 24 pages. Any blank pages are indicated.

DC (LO) 213850
© UCLES 2021 [Turn over
PAGE 225

1 Rahat is a trader.

The following transactions took place in March 2021.

March 3 Cash sales, $580, were paid directly into Rahat’s business bank account

6 Paid insurance, $360, by direct debit

9 Paid $196 to GH Limited by telephone transfer, having deducted 2% cash

discount from the amount due

13 Paid $75 cash for stationery

17 Cash sales, $140

27 Sold old office equipment to Burgess, who paid $50 by cheque in full settlement

30 Paid $340 to Colin by cheque in full settlement of a debt of $350

REQUIRED

(a) Complete Rahat’s cash book on the page opposite.

Balance the cash book and bring down the balances on 1 April 2021.

© UCLES 2021 7707/21/M/J/21

Rahat
Cash Book
Date Details Discount Cash Bank Date Details Discount Cash Bank
allowed received

March 1 Balance b/d .............. 150 ................ March 1 Balance b/d .............. ................ 1980

.............. ...................................... .............. ............... ............... .............. ...................................... .............. ...............

7707/21/M/J/21
...............
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[Turn over
PAGE 227

(b) Complete the following table by placing a tick () in the correct column to indicate whether
each item would be used to update the cash book or would appear in the bank reconciliation
statement.

Update the Bank

cash book reconciliation
statement
Cheque from Burgess dishonoured

Cheque to Colin unpresented

Overdraft interest

Standing order paid for rates

[4]

Rahat is concerned about the level of her bank overdraft. She is considering applying for a bank
loan. This would enable her to pay off her bank overdraft and to purchase new office furniture.

REQUIRED

(c) Advise Rahat whether she should apply for the bank loan. Justify your answer by providing
two advantages and two disadvantages.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

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PAGE 228

2 John and Banu are partners.

The partners provided the following list of balances at 31 March 2021.

$
Revenue 158 000
Inventory at 1 April 2020 9 400
Purchases 69 200
Rates and insurance 11 250
Wages 10 475
General expenses 9 675
Discount allowed 2 000
Commission receivable 4 800
Balance at bank 4 000
Trade receivables 14 150
Trade payables 5 835
Premises at cost 130 000
Fittings at cost 18 000
Provision for depreciation of fittings 8 100
Loan from John 10 000
Capital accounts
John 75 000
Banu 50 000
Current accounts
John 4 050
Banu 2 365
Drawings
John 19 000
Banu 21 000

Additional information

1 Inventory at 31 March 2021 was valued at $9200.

2 Rates of $650 were unpaid at 31 March 2021.

3 Commission receivable of $300 was due at 31 March 2021.

4 Depreciation on fittings is to be charged at 15% per annum using the straight-line method.

5 The partnership agreement provides for:

interest on partner’s loan of 5% per annum

interest on drawings of 6%
interest on capital of 3% per annum
a salary to John of $8500 per annum
residual profits and losses to be shared 40% to John and 60% to Banu.

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REQUIRED

(a) Prepare the income statement for John and Banu for the year ended 31 March 2021.

John and Banu

Income Statement for the year ended 31 March 2021
$ $

................................................................................. ........................... ...........................

[9]

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PAGE 230

(b) Prepare the appropriation account for John and Banu for the year ended 31 March 2021.

John and Banu

Appropriation Account for the year ended 31 March 2021
$ $

................................................................................. ........................... ...........................

[5]

(c) State the purpose of:

(i) charging interest on the partners’ drawings

...........................................................................................................................................

..................................................................................................................................... [1]

(ii) paying interest on the loan from John.

...........................................................................................................................................

..................................................................................................................................... [1]

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PAGE 231

(d) Complete the table by placing a tick () against each statement which describes an advantage
to John of being in a partnership with Banu.

Continuity of existence of the business

Banu may have skills and knowledge which John does not have
John is only liable for business debts up to the amount he agreed to
contribute
Additional finance is available to the business

Risks and responsibilities are shared

John is bound by the actions of Banu carried out on behalf of the
business
John can discuss matters with Banu before making decisions
[4]

[Total: 20]

© UCLES 2021 7707/21/M/J/21 [Turn over

PAGE 232

3 TC Limited is a manufacturing company. The company’s year end is 31 January.

On 31 January 2021, the company’s ledger account balances included the following.

$
Inventory at 1 February 2020
Raw materials 7 500
Work in progress 11 220
Finished goods 925
Purchases
Raw materials 91 400
Finished goods 6 850
Wages
Factory operatives 52 000
Factory supervisor 23 100
Rent and rates 19 620
Insurance 4 600
General factory expenses 4 200
Carriage inwards on raw materials 6 280
Factory equipment at cost 90 000
Provision for depreciation of factory equipment 30 960

Additional information

1 Inventory at 31 January 2021

Raw materials 8 000

Work in progress 11 900
Finished goods 1 075

2 The factory equipment is to be depreciated at 20% per annum using the reducing balance
method.

3 In December 2020, $3600 was paid for rent for the period 1 December 2020 to
28 February 2021.

4 At 31 January 2021 rates of $550 were unpaid.

5 Rent and rates are to be apportioned equally between the factory and the office.

6 Insurance is to be apportioned 75% to the factory and 25% to the office.

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REQUIRED

(a) Prepare the rent and rates account for TC Limited for the year ended 31 January 2021.
Balance the account and bring down the balances on 1 February 2021.

TC Limited
Rent and rates account
Date Details $ Date Details $

............ .................................... ............ ............ .................................... ............

[5]

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PAGE 234

(b) Prepare the manufacturing account for TC Limited for the year ended 31 January 2021.

TC Limited
Manufacturing Account for the year ended 31 January 2021
$ $

................................................................................. ........................... ...........................

[10]

© UCLES 2021 7707/21/M/J/21

PAGE 235

The directors of TC Limited are considering the purchase of various low-value items of office
equipment.

REQUIRED

(c) Advise the directors whether or not they should charge depreciation on these items.
Justify your answer by providing two advantages and two disadvantages.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

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PAGE 236

4 Neith is a trader. Her financial year ends on 31 March.

Neith prepared the following trial balance which contains errors.

Neith
Trial Balance at 31 March 2021
Debit Credit

$ $
Fixtures and equipment at cost 300 000
Provision for depreciation of fixtures and equipment 120 000
Inventory 9 100
Trade receivables 16 100
Provision for doubtful debts 322
Petty cash 100
Bank overdraft 11 400
Trade payables 3 200
Capital at 1 April 2020 160 000
Sales 107 498
Purchases 41 520
Rent and rates 16 000
Office expenses 9 000
General expenses 8 150
Suspense 210 594
506 492 506 492

Additional information

1 The value of inventory on 31 March 2021 was included in the trial balance.
On 1 April 2020 the inventory was valued at $8800.

2 On 30 March 2021, a motor vehicle was sold at book value, $2750. The disposal was
correctly recorded but no entry was made in the account of the purchaser. The purchaser
was expected to pay the amount due on 30 April 2021.

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PAGE 237

REQUIRED

(a) Prepare the corrected trial balance at 31 March 2021.

Neith
Corrected Trial Balance at 31 March 2021
Debit Credit
$ $

Fixtures and equipment at cost ......................... .........................

Provision for depreciation of fixtures and equipment ......................... .........................

Inventory ......................... .........................

Trade receivables ......................... .........................

Provision for doubtful debts ......................... .........................

Petty cash ......................... .........................

Bank overdraft ......................... .........................

Trade payables ......................... .........................

Capital at 1 April 2020 ......................... .........................

Sales ......................... .........................

Purchases ......................... .........................

Rent and rates ......................... .........................

Office expenses ......................... .........................

General expenses ......................... .........................

..........................................................

____________ ____________

[6]

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PAGE 238

Neith later discovered the following errors.

1 The total of the general expenses column of the petty cash book, $32, for May 2020 had
been posted to the office expenses account.

2 A payment received, $75, from Anya, a credit customer, had been credited to the sales
account.

3 A credit purchase, $120, from Samir had been omitted from the books of account.

4 A cheque payment, $19, for office expenses, had been recorded as $91.

5 An invoice for office cleaning, $235, had been debited to the fixtures and equipment account.

REQUIRED

(b) Prepare the journal entry to correct each of the above errors. Narratives are not required.

Neith
Journal
Error Details Debit Credit
number $ $

............. .................................................................... ....................... .......................

[10]

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PAGE 239

(c) Complete the table by placing a tick () to indicate the effect of correcting each error 2 to 5.
Ignore depreciation of non-current assets.

The effect of correcting error 1 has been shown as an example.

Error number Increases Decreases No effect

capital capital on capital
1
2

5
[4]

[Total: 20]

© UCLES 2021 7707/21/M/J/21 [Turn over

PAGE 240

5 Omer is a trader. He provided the following information.

$
For the year ended 30 April 2021
Credit sales 191 000
Credit purchases 120 000
Gross profit 80 220
Commission receivable 20 280
Expenses 29 830

At 30 April 2021
Trade receivables 12 400
Trade payables 7 000

REQUIRED

(a) Calculate the following ratios.

Trade receivables turnover (days)

workings answer
(round up to next
whole day)

Trade payables turnover (days)

workings answer
(round up to next
whole day)

[4]

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PAGE 241

The year ended 30 April 2021 was Omer’s first year of trading. His main competitor is Ahu who
has been trading for many years. Ahu has established a good reputation.

The following information relates to Ahu’s business for the year ended 30 April 2021.

Trade receivables turnover 36 days

Trade payables turnover 31 days

REQUIRED

(b) (i) Suggest two reasons for the difference in the trade receivables turnover of the two
businesses.

1 ........................................................................................................................................

...........................................................................................................................................

2 ........................................................................................................................................

...........................................................................................................................................
[2]

(ii) Suggest two reasons for the difference in the trade payables turnover of the two
businesses.

1 ........................................................................................................................................

...........................................................................................................................................

2 ........................................................................................................................................

...........................................................................................................................................
[2]

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PAGE 242

Omer wants to increase sales and is considering employing a marketing manager who would be
paid $28 000 per annum.

REQUIRED

(c) Advise Omer whether or not he should employ a marketing manager. Justify your answer.
You may include reference to the possible effects on the income and expenses of the
business.

...................................................................................................................................................

............................................................................................................................................. [5]

Omer is concerned that an increase in sales would lead to an increase in irrecoverable debts.

REQUIRED

(d) State three ways by which Omer could reduce the possibility of irrecoverable debts.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

3 ................................................................................................................................................

...................................................................................................................................................
[3]

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PAGE 243

By writing off any irrecoverable debts, Omer would be applying the matching and prudence
principles.

It is also important for Omer to apply other accounting principles.

REQUIRED

(e) State why Omer should apply each of the following accounting principles.

Matching

...................................................................................................................................................

Prudence

...................................................................................................................................................

Consistency

...................................................................................................................................................

Business entity

...................................................................................................................................................

...................................................................................................................................................
[4]

[Total: 20]

PAGE 244

Cambridge O Level
* 3 6 1 5 6 9 2 0 8 2 *

ACCOUNTING 7707/22
Paper 2 Structured Written Paper May/June 2021
1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

This document has 16 pages. Any blank pages are indicated.

1 Leo maintains a petty cash book using the imprest system. The imprest amount, which is $200, is
restored on the first day of each month.

All payments of less than $100 are made from petty cash. All cash receipts of less than $100 are
paid into petty cash.

On 1 April 2021 Leo had $48 in his petty cash box. Leo provided the following information for April
2021.

April 1 Restored petty cash imprest from the business bank account

5 Paid for office cleaning, $21

7 Paid for train ticket, $13

13 Paid $72 to Hunter, a trade payable

18 Paid taxi fare, $14

25 Received cash, $11, from Conrad, a trade receivable

REQUIRED

(a) Prepare Leo’s petty cash book for the month of April 2021, on page 3.

Balance the petty cash book and bring down the balance on 1 May 2021.

Leo
Petty Cash Book
Total Date Details Total Travel Office Ledger
received paid expenses accounts

...................... ...................... ............................................................................... ...................... ...................... ...................... ......................

7707/22/M/J/21
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...................... ...................... ............................................................................... ...................... ...................... ...................... ......................

[10]

[Turn over
PAGE 247

(b) (i) Name the ledger to which each of the following would be posted.

The total of the column for travel expenses ......................................................................

The payment to Hunter .....................................................................................................

[2]

(ii) Name the accounting principle which is being applied when figures from the petty cash
book are posted to the appropriate ledgers.

..................................................................................................................................... [1]

Leo received a statement of account from Hunter.

REQUIRED

(c) State two purposes of issuing this statement to Leo.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

Leo is considering making all payments over $50 to trade payables by credit transfer.

REQUIRED

(d) Advise Leo whether he should go ahead with this change. Justify your answer by providing
two advantages and two disadvantages.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 248

2 Tej is a trader who sells goods on credit. His year end is 28 February.
Tej provided the following information.

$
At 1 March 2020
Trade receivables 6250
Other receivables (rent prepaid) 300

For the year ended 28 February 2021

Rent charge for the year 3900
Cheque payments for rent 30 June 2020 1950
30 November 2020 2100

At 28 February 2021
Trade receivables 7000

The provision for doubtful debts was 4% of trade receivables at 1 March 2020 and 6% of trade
receivables at 28 February 2021.

REQUIRED

(a) Prepare the rent payable account for the year ended 28 February 2021. Balance the account
and bring down the balance on 1 March 2021.

Tej
Rent payable account
Date Details $ Date Details $

............ .................................... ............ ............ .................................... ............

[6]

PAGE 249

(b) Prepare the provision for doubtful debts account for the year ended 28 February 2021.
Balance the account and bring down the balance on 1 March 2021.

Tej
Provision for doubtful debts account
Date Details $ Date Details $

............ .................................... ............ ............ .................................... ............

[4]

............................................................................................................................................. [1]

(d) (i) Explain how the realisation principle is applied to the recording of Tej’s credit sales.

...........................................................................................................................................

..................................................................................................................................... [2]

(ii) Explain how the prudence principle is applied to the maintenance of Tej’s provision for
doubtful debts.

...........................................................................................................................................

..................................................................................................................................... [2]

PAGE 250

Tej sells to a small number of customers. He has good working relationships with them and they
sometimes recommend him to potential customers.

Tej is concerned that his customers are taking a long time to pay him. He is considering charging
interest on overdue accounts.

REQUIRED

(e) Advise Tej whether or not he should charge interest on overdue accounts. Justify your answer.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 251

3 The trial balance of HV Limited at 31 March 2021 was as follows.

HV Limited
Trial Balance at 31 March 2021
Debit Credit

$ $
Revenue 145 000
Inventory at 1 April 2020 5 820
Purchases 64 900
Rent and insurance 9 280
Wages 24 750
Operating expenses 8 500
Fittings at cost 200 000
Provision for depreciation of fittings 72 000
Trade receivables 12 500
Bank 13 765
Trade payables 6 615
4% Debentures (repayable 1 April 2031) 30 000
Ordinary share capital 70 000
Retained earnings 21 500
Dividend paid on ordinary shares 5 600
345 115 345 115

Additional information

1 Inventory at 31 March 2021 was valued at $6090.

2 Depreciation on fittings is to be charged at 20% per annum using the reducing balance
method.

3 Rent includes a payment of $1800 for the 3 months from 1 March 2021 to 31 May 2021.

4 Accrued wages at 31 March 2021 were $2250.

5 No debenture interest has been paid for the year ended 31 March 2021.

6 No dividends were outstanding at 31 March 2021.

7 $2000 is to be transferred to a general reserve on 31 March 2021.

PAGE 252

REQUIRED

(a) Prepare the income statement for HV Limited for the year ended 31 March 2021.

HV Limited
Income Statement for the year ended 31 March 2021
$ $

................................................................................. ........................... ...........................

[8]

PAGE 253

(b) Prepare the statement of changes in equity for HV Limited for the year ended 31 March 2021.

HV Limited
Statement of Changes in Equity for the year ended 31 March 2021
Details Ordinary General Retained Total
Share reserve earnings
capital
$ $ $ $

On 1 April 2020 ................... ................... ................... ...................

................................................... ................... ................... ................... ...................

On 31 March 2021 ................... ................... ................... ...................

[5]

(c) Calculate the return on capital employed for the year ended 31 March 2021.
The answer should be correct to two decimal places.

...................................................................................................................................................

............................................................................................................................................. [3]

(d) State two differences between ordinary shares and preference shares.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[4]

[Total: 20]

PAGE 254

4 RIA Music Club owns its premises where it has a shop and a number of music rooms.
Shop sales are for cash and shop purchases are on credit. Mark-up is 20%.
The treasurer provided the following information.

At At
1 January 31 December
2020 2020
$ $
Subscriptions in advance 1 200 1 050
Subscriptions in arrears 5 215 5 830
Total shop trade payables 4 275 4 990
Shop inventory 2 500 2 500
Balance at bank 240 110

For the year to 31 December 2020

Subscriptions received 36 700
Shop purchases 34 200
Shop purchases returns 1 710
Interest charged on overdue shop trade payables accounts 200

REQUIRED

(a) Prepare the subscriptions account for the year ended 31 December 2020. Balance the
account and bring down the balances on 1 January 2021.

RIA Music Club

Subscriptions account
Date Details $ Date Details $

............ .................................... ............ ............ .................................... ............

[6]

PAGE 255

(b) Prepare the total shop trade payables account for the year ended 31 December 2020 to
calculate the amount paid to shop trade payables.

RIA Music Club

Total shop trade payables account
Date Details $ Date Details $

............ .................................... ............ ............ .................................... ............

............ .................................... ............ ............ ................................... ............

[6]

...................................................................................................................................................

............................................................................................................................................. [3]

PAGE 256

The treasurer is concerned about the decreasing bank balance and the increase in shop trade
payables. He is looking into the possibility of renting out part of the club premises to an art society
for $400 per month.

REQUIRED

(d) Advise the treasurer whether renting out part of the premises is the most suitable way of
improving cash flow or whether other methods may be more suitable. Justify your answer.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 257

5 Kia is a trader.
The totals of the trial balance prepared on 30 April 2021 did not agree and the difference was
placed in a suspense account.

Kia later discovered the errors shown in the table in part (a).

REQUIRED

(a) Complete the following table to show the entries required to correct each error.
The first one has been completed as an example.

Entries required to correct the error

Error Debit Credit
Account $ Account $

Cash drawings, $200, had been omitted Drawings 200 Suspense 200
from the drawings account.

A petty cash book payment, $31, to ................... ............ ................... ............

Abel, a supplier, had been recorded in
the column for office expenses. ................... ............ ................... ............

Sales returns, $105, had been correctly ................... ............ ................... ............
entered in the customer’s account but
had been credited to the purchases ................... ............ ................... ............
returns account.

A payment for motor expenses, $72, ................... ............ ................... ............

had been recorded in the motor
expenses account as $172. ................... ............ ................... ............

A purchase invoice, $102, from Abel, ................... ............ ................... ............

had been debited to Abel’s account and
credited to the purchases account. ................... ............ ................... ............

[9]

PAGE 258

(b) Prepare the suspense account. Include the original difference on the trial balance, as a
balancing figure.
Kia
Suspense account
Date Details $ Date Details $

............ .................................... ............ ............ .................................... ............

[5]

(c) The account for Abel in Kia’s books showed that Kia owed him $327 before the errors were
corrected. Calculate the correct amount which Kia owed Abel at 30 April 2021.

...................................................................................................................................................

............................................................................................................................................. [3]

Kia has recorded the purchase of a calculator, $5, as an office expense.

REQUIRED

(d) State three reasons why Kia did not record this as a non-current asset.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

3 ................................................................................................................................................

...................................................................................................................................................
[3]

[Total: 20]

PAGE 259

Cambridge O Level
* 8 4 3 5 0 8 3 7 0 2 *

ACCOUNTING 7707/24
Paper 2 Structured Written Paper May/June 2021
1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

This document has 20 pages. Any blank pages are indicated.

1 The following information has been extracted from the books of Sinita for the month of
August 2020.

$
Sales ledger credit balances on 1 August 2020 105
Sales ledger debit balances on 1 August 2020 38 440
Cash sales 2 380
Cheque received from credit customer dishonoured by the bank 88
Contra to purchases ledger 315
Discounts allowed 692
Discounts received 411
Interest charged to customers on overdue balances 125
Irrecoverable debts written off 460
Receipts from credit customers 30 121
Returns from credit customers 763
Returns to credit suppliers 559
Sales journal total 26 845
Sales ledger credit balances on 1 September 2020 148
Sales ledger debit balances on 1 September 2020 ?

REQUIRED

(a) Prepare the sales ledger control account for the month of August 2020. Balance the account
and bring down the balances on 1 September 2020.

Sinita
Sales ledger control account

Date Details $ Date Details $

.......... ....................................... ............ .......... ........................................ ............

......... ....................................... ............ .......... ........................................ ............

.......... ....................................... ............ ......... ........................................ ............

.......... ....................................... ............ ........ ........................................ ............

.......... ....................................... ............ .......... ........................................ ............

[10]

PAGE 261

(b) State one purpose of preparing a sales ledger control account.

...................................................................................................................................................

............................................................................................................................................. [1]

Sinita prepares bank reconciliation statements every three months.

She provided the following information at 31 August 2020.

$
Debit balance in cash book at 31 August 2020 6416
Uncredited deposits 2460
Unpresented cheques 9825
Direct debit paid in error by the bank 250

REQUIRED

Sinita
Bank Reconciliation Statement at 31 August 2020

...................................................................................................................................................

............................................................................................................................................. [4]

PAGE 262

(d) Advise Sinita whether or not she should prepare bank reconciliation statements monthly rather
than every three months. Justify your answer with two advantages and two disadvantages.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 263

2 Huan is a sole trader. She maintains a full set of accounting records including a three column cash
book.

On 1 September 2020 Huan had the following balances in her cash book.

$
Cash 80
Bank overdraft 630

The following transactions took place during the first week of September 2020.

September 2 Paid $35 motor repairs in cash

3 Cash sales, $458
4 Paid all cash into the bank except $50
5 Received a cheque, $1280, from Alisha, a credit customer
5 Paid a cheque to Lucia to settle an outstanding invoice from April 2020 of $840,
less a cash discount of 2½%
6 A cheque received, $200, from Cao in August 2020 was dishonoured by the
bank

(a) Complete Huan’s cash book on the opposite page. Balance the cash book and bring down
the balances on 8 September 2020.

Huan
Cash book

Date Details Discount Cash Bank Date Details Discount Cash Bank

7707/24/M/J/21
PAGE 264

........... …..................................... ................ …............ …............ …....... ......................................... ............... .............. ...............

........... …..................................... …............ …........... …........... …....... …..................................... ............... …........... …...........

........... …..................................... …............ …........... …........... …....... …...................................... …............ ….......... …...........

[11]

[Turn over
PAGE 265

Huan returned damaged goods to Lucia, a credit supplier.

REQUIRED

(b) Name the business document Huan issued.

............................................................................................................................................. [1]

On 1 October 2020 Huan had a positive bank balance but was concerned about the business’s
liquidity. Huan believes her working capital can be improved. She is considering five courses of
action.

REQUIRED

(c) State whether each of the following courses of action would increase, decrease, or have no
effect on Huan’s working capital. Give a reason for your answer in each case.

The first one has been completed as an example.

Effect on working Reason

capital

Introduce additional Increase Bank increases so current assets

capital into the business increase.
bank account No change to current liabilities.

Sell surplus non-current

assets

Obtain a short-term bank

loan

Reduce credit sales and

increase cash sales by
the same amount

Create a provision for

doubtful debts

[8]

[Total: 20]

PAGE 266

3 Naomi opened a manufacturing business on 1 October 2019.

She provided the following information.

On 1 October 2019 $
Cost of factory machinery 80 000
Cost of office equipment 12 500
Cost of loose tools 800

During the year ended 30 September 2020 $

Revenue 184 200
Purchase of raw materials 42 100
Purchase of finished goods 16 800
Wages and salaries
Factory workers 46 220
Factory supervisor 15 940
Office staff 31 680
General expenses
Factory 8 620
Office 1 890
Rent and rates 8 400
Royalties 3 900

At 30 September 2020 $
Inventory
Raw materials 11 200
Work in progress 1 680
Finished goods 4 500
Loose tools at valuation 670
Trade receivables 14 900
Rent and rates prepaid 600
Wages and salaries accrued
Factory workers 480
Office staff 320

The following information is also available.

1 No additional non-current assets were purchased during the year.

2 Factory machinery is to be depreciated at 15% on cost.

3 Office equipment is to be depreciated at 10% on cost.

4 Loose tools are to be revalued at the end of each financial year.

5 Rent and rates are to be allocated two-thirds to the factory and one-third to the office.

6 Irrecoverable debts of $400 are to be written off.

PAGE 267

REQUIRED

(a) Prepare the manufacturing account for the year ended 30 September 2020.

Naomi
Manufacturing Account for the year ended 30 September 2020
$ $

……………………………………………………………........... …………….... ……………....

[14]

PAGE 268

Naomi knows that the factory machinery is old and is considering replacing it with more efficient
machinery. The old machinery would be sold at book value. The new machinery would cost
$100 000.

Naomi wishes to know how the purchase of the new machinery would affect the profit for the year.

REQUIRED

(b) Complete the table to indicate the effect on the profit for the year of each of the following.

The first one has been completed as an example.

Increase Decrease Total change

profit for profit for in profit for
the year the year the year
$ $ $
Annual wages of factory workers would
3000
decrease by $3000
Machinery repairs, $1100, included in factory
general expenses would decrease by 60%
Cost of raw materials used would decrease
by 10%
The total cost of the new machinery would
be financed by a loan on which annual
interest of 4% would be charged
The new machinery would be depreciated in
equal instalments over 8 years

Total change in profit

[6]

[Total: 20]

PAGE 269

4 Aaron and Sami are in partnership sharing profits and losses equally.

The following information is available for the year ended 31 August 2020.

$
10% bank loan at 1 September 2019 9 000
Administrative expenses 61 040
Bank interest paid 675
Bank overdraft 1 220
Carriage inwards 1 240
Fixtures and fittings
Cost 86 600
Provision for depreciation at 1 September 2019 51 200
Inventory at 1 September 2019 36 500
Loan from Aaron 2 000
Purchases 129 270
Rent payable 23 680
Returns inwards 2 100
Revenue 240 560

Additional information

1 Inventory at 31 August 2020 was valued at $42 750.

2 Rent payable included $8880 for the six months ending 31 December 2020.

3 No repayments have been made on the bank loan in the year ended 31 August 2020.

4 Three months’ interest on the bank loan was accrued at 31 August 2020.

5 Fixtures and fittings are to be depreciated at 10% per annum using the reducing balance
method.

6 Interest is payable on any loan from a partner at 5% per annum.

PAGE 270

REQUIRED

(a) Prepare the income statement for the year ended 31 August 2020.

Aaron and Sami

Income Statement for the year ended 31 August 2020
$ $

……………………………………………………………........... …………….... ……………....

[13]

PAGE 271

Sami has suggested purchasing goods from cheaper suppliers.

REQUIRED

(b) State two ways in which purchasing goods from cheaper suppliers may affect the business.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

Aaron is considering investing additional capital into the business to repay the bank loan.

REQUIRED

(c) Advise Aaron whether or not he should invest additional capital to repay the bank loan. Justify
your answer by providing two advantages and two disadvantages of Aaron introducing
additional capital to repay the bank loan.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 272

5 The directors of P Limited provided the following information at 1 September 2019.

$
Issued share capital (ordinary shares of $1 each) 120 000
General reserve 8 000
Retained earnings 12 000

During the year ended 31 August 2020:

$3000 was transferred to the general reserve.

An interim dividend of 5% was paid.

The profit for the year ended 31 August 2020 was $12 600.

REQUIRED

(a) (i) Calculate the balance of retained earnings at 31 August 2020.

...........................................................................................................................................

..................................................................................................................................... [3]

(ii) Prepare an extract from the statement of financial position at 31 August 2020 to show
the total equity.

...........................................................................................................................................

..................................................................................................................................... [2]

(b) State one difference between share capital and loan capital.

...................................................................................................................................................

............................................................................................................................................. [2]

PAGE 273

...................................................................................................................................................

............................................................................................................................................. [2]

The directors of P Limited decided to raise $50 000 from an issue of 5% debentures.

REQUIRED

(d) State two ways in which this may affect the ordinary shareholders.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

The directors of P Limited are concerned about the trade receivables turnover (days) and the rate
of inventory turnover (times).

REQUIRED

(e) Suggest two ways in which the trade receivables turnover (days) may be improved.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

(f) Suggest two ways in which the rate of inventory turnover (times) may be improved.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

PAGE 274

One of P Limited’s credit suppliers has offered a cash discount of 5% for immediate payment on
delivery. Normal credit terms for the industry are 30 days.

REQUIRED

(g) Advise the directors of P Limited whether or not they should accept this offer. Justify your
answer by providing two advantages and two disadvantages of accepting this offer.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 275

Cambridge O Level
* 1 9 0 0 7 9 7 3 5 1 *

ACCOUNTING 7707/22
Paper 2 Structured Written Paper October/November 2021

1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

This document has 20 pages. Any blank pages are indicated.

1 Ayesha is a trader who maintains a full set of accounting records and prepares control accounts at
the end of each month.

She provided the following information for the month of August 2021.

$
On 1 August
Sales ledger control account debit balance 9 800
Sales ledger control account credit balance 420
Purchases ledger control account credit balance 7 700

Totals for the month

Credit sales 88 850
Credit purchases 55 400
Cash purchases 1 860
Receipts from customers 82 100
Payments to credit suppliers 50 600
Discount received 600
Discount allowed 900
Irrecoverable debt written off 300
Provision for doubtful debts 450
Sales returns 2 400
Interest charged to customer on overdue account 90
Contra between sales ledger and purchases ledger 2 920

The sales ledger control account credit balance brought down on 1 September 2021 was $350.

REQUIRED

(a) Prepare the sales ledger control account and the purchases ledger control account for August
2021.

Balance the accounts and bring down the balances on 1 September 2021.

PAGE 277

Ayesha
Sales ledger control account

Date Details $ Date Details $

2021 2021

.......... ..................................... ............... .......... ..................................... ...............

Purchases ledger control account

Date Details $ Date Details $

2021 2021

.......... ..................................... ............... .......... ..................................... ...............

[14]

PAGE 278

(b) Name the book of prime entry which Ayesha would use to obtain the following information
when preparing her sales ledger control account.

Item Book of prime entry

Returns

Discount allowed

Interest charged to customer on overdue

account

Contra entry

[4]

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

[Total: 20]

PAGE 279

2 Jabir owns an electrical wholesale business.

The following balances appeared in his books on 30 September 2021.

$
Inventory 8 000
Purchases 109 000
Trade payables 11 600
Revenue 160 000
Trade receivables 22 600
Operating expenses 35 200

The inventory on 1 October 2020 was $11 000.

All sales and purchases were on a credit basis.

REQUIRED

(a) Calculate the gross profit and profit for the year.

...................................................................................................................................................

............................................................................................................................................. [2]

PAGE 280

(b) (i) Calculate the gross margin.

...........................................................................................................................................

..................................................................................................................................... [2]

(ii) Advise Jabir on two actions he could take to improve his gross margin.

1 ........................................................................................................................................

...........................................................................................................................................

2 ........................................................................................................................................

...........................................................................................................................................
[2]

...................................................................................................................................................

............................................................................................................................................. [2]

Jabir wants to increase his credit sales and is considering allowing his credit customers an extra
14 days above his current trade receivables turnover.

REQUIRED

(d) Advise Jabir whether he should allow his credit customers an extra 14 days above his current
trade receivables turnover. Justify your answer.

...................................................................................................................................................

............................................................................................................................................. [5]

PAGE 281

(e) Calculate the trade payables turnover. Round up your answer to the next whole day.

...................................................................................................................................................

............................................................................................................................................. [2]

Jabir’s credit suppliers are prepared to double the rate of his trade discount provided he increases
his current monthly purchases by 20%.

REQUIRED

(f) Advise Jabir whether he should increase his current monthly purchases by 20% to earn the
additional trade discount. Justify your answer.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 282

3 On 31 July 2021 the following information was provided by KA Limited, a manufacturer of garden
tools.

$
Inventory 1 August 2020
Raw materials 5 820
Work in progress 1 750
Finished goods 12 360
Purchases
Raw materials 34 200
Finished goods 3 900
Carriage on purchases
Raw materials 410
Finished goods 80
Direct wages 67 200
Indirect factory wages 24 000
Factory machinery at cost 47 000
Provision for depreciation of factory machinery 11 000
Factory general overheads 16 400
Rates 5 300
Inventory 31 July 2021
Raw materials 6 030
Work in progress 2 780
Finished goods 10 340
Revenue 223 000

Additional information

1 On 31 July 2021 rates, $500, were prepaid.

Rates are to be apportioned 75% factory, 25% office.

2 On 31 July 2021 factory general overheads, $230, were accrued.

3 Factory machinery is to be depreciated at 20% per annum using the reducing balance
method.

REQUIRED

(a) Prepare the manufacturing account of KA Limited for the year ended 31 July 2021.

PAGE 283

KA Limited
Manufacturing Account for the year ended 31 July 2021
$ $

…………………………………………………………........... …………….... ……………....

[10]

PAGE 284

(b) Prepare the income statement (trading section) of KA Limited for the year ended 31 July 2021.

KA Limited
Income Statement (Trading section) for the year ended 31 July 2021
$ $

…………………………………………………………........... …………….... ……………....

[4]

PAGE 285

DH Limited, a customer of KA Limited, has been declared bankrupt. A debt of $350 was owing to
KA Limited. This is to be written off.

REQUIRED

KA Limited
Journal

Details Debit Credit

$ $

.................................................................................................... ................... ...................

[2]

KA Limited maintains a provision for doubtful debts.

REQUIRED

(d) Explain how maintaining a provision for doubtful debts is an application of each of the
following accounting principles.

(i) Matching

...........................................................................................................................................

..................................................................................................................................... [2]

(ii) Prudence

...........................................................................................................................................

..................................................................................................................................... [2]

[Total: 20]

PAGE 286

4 Nikita is a trader. The totals of her trial balance at 30 June 2021 did not agree. The debits exceeded
the credits by $2600. Nikita opened up a suspense account.

The following errors were later discovered.

1 Insurance of $2500 had been entered as $4500 in the insurance account. The correct entry
had been made in the cash book.

2 The total of the discount received column in the cash book of $500 had been debited to the
discount allowed account in the general ledger.

3 Credit sales of $1400 to Kajal had been correctly entered in the sales account, but debited as
$1000 in Kajal’s account.

4 A cheque of $700 received from Anisah had been correctly entered in the cash book, but
credited to Aisha’s account.

PAGE 287

REQUIRED

(a) Prepare journal entries to correct errors 1 to 4. Narratives are not required.

Nikita
Journal

Error Details Debit Credit

number $ $

............... ................................................................................. …………….... ……………....

[10]

PAGE 288

(b) Prepare the suspense account. Start with the difference on the trial balance.

Nikita
Suspense account

Date Details $ Date Details $

.......... ......................................... .............. .......... ......................................... ..............

[5]

PAGE 289

Where the error does not affect profit write ‘no effect’. Calculate the corrected profit for the
year.

Nikita
Statement of corrected profit for the year ended 30 June 2021

$
Profit for the year before corrections 28 000

Increase Decrease
in profit in profit
$ $

Error 1 .................. ..................

Error 2 .................. ..................

Error 3 .................. ..................

Error 4 .................. ..................

_________ _________

_____ _ _____

Corrected profit for the year _________

[5]

[Total: 20]

PAGE 290

5 Simon has a business selling office stationery. On 1 January 2019 he owned two delivery vehicles
which had been purchased on 1 January 2018.

Delivery vehicle A had cost $30 000 and delivery vehicle B had cost $25 000.

Simon uses the straight-line method for depreciating the delivery vehicles. A rate of 20% per
annum on cost is used, with the rate being applied for each part of the year for which the delivery
vehicles are owned.

Due to a decline in business, delivery vehicle B was sold on 31 March 2020 and a cheque for
$10 350 was received. Delivery vehicle A was still in use at the end of 2020.

REQUIRED

(a) Complete the following accounts for each of the years ended 31 December 2019 and 2020.
Balance the accounts at the end of each year where appropriate.

Simon
Delivery vehicles account

Date Details $ Date Details $

2019
Jan 1 Balance b/d 55 000 .......... ......................................... ..............

.......... ......................................... .............. .......... ......................................... ..............

PAGE 291

Provision for depreciation of delivery vehicles account

Date Details $ Date Details $

2019
.......... ......................................... .............. Jan 1 Balance b/d 11 000

.......... ......................................... .............. .......... ......................................... ..............

PAGE 292

Delivery vehicles disposal account

Date Details $ Date Details $

.......... ........................................ .............. .......... ........................................ ..............

[15]

Simon’s sister Yasmin is also in business and depreciates her delivery vehicles by the reducing
balance method.

Simon is considering whether to apply the reducing balance method of depreciation to his delivery
vehicles.

REQUIRED

(b) Advise Simon whether he should apply the reducing balance method of depreciation. Justify
your answer.

...................................................................................................................................................

............................................................................................................................................. [5]

Cambridge O Level
* 0 5 1 8 6 7 1 1 4 4 *

ACCOUNTING 7707/23
Paper 2 Structured Written Paper October/November 2021

1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

This document has 20 pages.

1 Shiv is a trader. His financial year ends on 31 August. He does not maintain a full set of accounting
records but was able to provide the following information for the year ended 31 August 2021.

Total revenue $320 000

Mark-up 25%

Bank account summary for the year ended 31 August 2021

$ $
Balance b/d 49 000 Expenses 34 000
Cash sales 3 700 Drawings 4 200
Receipts from trade receivables 312 400 Payments to trade payables 257 700
Equipment 16 000
Balance c/d 53 200
365 100 365 100

Assets and liabilities

1 September 2020 31 August 2021

$ $
Inventory at cost 23 500 ?
Trade receivables 22 000 25 900
Expenses owing – 400
Trade payables 32 600 29 600
Equipment at net book value – 12 800
Premises at cost 90 000 90 000

Shiv had withdrawn $900 for a family holiday during the year. He had included this in the expenses.

On 31 August 2021 Shiv decided to create a provision for doubtful debts of 3% of trade receivables.

REQUIRED

(a) Calculate the purchases for the year ended 31 August 2021.

...................................................................................................................................................

............................................................................................................................................. [3]

PAGE 295

(b) Prepare the income statement for the year ended 31 August 2021. The inventory on
31 August 2021 should be clearly shown within the statement.

Shiv
Income Statement for the year ended 31 August 2021

$ $

........................................................................................ …………….... ……………....

[11]

............................................................................................................................................. [1]

PAGE 296

Shiv has always valued his inventory at cost price. He is considering valuing the inventory on
31 August 2021 at selling price as he believes it would result in a higher profit for the year.

REQUIRED

(d) Discuss the implications of Shiv valuing the inventory on 31 August 2021 at selling price.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 297

2 Jas owns a printing business and has recently incurred various expenditures relating to her
premises.

REQUIRED

(a) Complete the table by inserting a tick () to show how each item of expenditure should be
classified. The first one has been completed as an example.

Capital Revenue
expenditure expenditure

Building new extension to warehouse

Rates on new extension

Carriage costs for roof tiles for new extension

Legal costs for new extension

Repairs to office roof

[4]

PAGE 298

Jas’s business is expanding rapidly and she needs more warehousing space.

Jas can rent an additional warehouse. The rent for the first six months would be $40 000.

Alternatively, Jas can purchase a warehouse for $900 000. She can obtain a long-term loan of
$700 000.

REQUIRED

(b) Advise Jas whether she should rent or purchase a warehouse. Justify your answer.

...................................................................................................................................................

............................................................................................................................................. [5]

PAGE 299

An extract from Jas’s statement of financial position at 31 December 2019 showed the following:

Cost Accumulated Net book

depreciation value
$ $ $
Fixtures 115 000 77 625 37 375

During the year ended 31 December 2020 the following transactions took place.

On 1 January 2020 fixtures, $30 000, were purchased by cheque.

On 30 June 2020 fixtures were sold for $6000, which was received by cheque. These fixtures had
originally been purchased on 1 January 2018 for $20 000.

Jas depreciates fixtures on a straight-line basis. She assumes fixtures will have a useful life of four
years, at which time the residual value will be 10% of original cost. Depreciation is charged for
each part of the year for which the fixtures are owned.

REQUIRED

(c) Prepare the following accounts for the year ended 31 December 2020. Balance each account
and bring down the balance on 1 January 2021.

Jas
Fixtures account

Date Details $ Date Details $

2020
Jan 1 Balance b/d 115 000 ............... ..................................... ...............

............... ..................................... ............... ............... ..................................... ...............

PAGE 300

Provision for depreciation of fixtures account

Date Details $ Date Details $

2020
............... ..................................... ............... Jan 1 Balance b/d 77 625

............... ..................................... ............... ............... ..................................... ...............

[8]

(d) Prepare the fixtures disposal account for the year ended 31 December 2020.

Jas
Fixtures disposal account

Date Details $ Date Details $

............... ..................................... ............... ............... ..................................... ...............

[3]

Workings:

3 Anil is a trader. The totals of the trial balance he prepared on 31 December 2020 did not agree.
The debits exceeded the credits by $5140.

The following errors were later discovered.

1 The sales account had been undercast by $7100.

2 Sales returns of $520 had been posted as a credit to the purchases account. The correct
entry had been made in the customer’s account.

3 Bank charges of $320 had been correctly entered in the cash book, but had not been entered
in the bank charges account.

4 A cheque refund of $600 for insurance overpaid had been entered on the wrong side of the
bank account and no entry had been made in the insurance account.

PAGE 302

REQUIRED

(a) Prepare journal entries to correct errors 1 to 4. Narratives are not required.

Anil
Journal

Error Details Debit Credit

number $ $

............... ................................................................................ ................... ...................

[12]

PAGE 303

(b) Complete the suspense account.

Anil
Suspense account

Date Details $ Date Details $

........... .......................................... .............. ........... Difference on trial balance 5140

........... .......................................... .............. ........... .......................................... ..............

[6]

(c) Name two types of error not disclosed by a trial balance.

1 ................................................................................................................................................

2 ................................................................................................................................................
[2]

[Total: 20]

PAGE 304

4 Karishma runs her own business. The balances in her books on 1 October 2020 included the
following.
$
Insurance account 1700 prepaid
Electricity account 1800 owing

During the financial year ended 30 September 2021 Karishma made the following payments by
cheque.

Insurance payments
$
7 February 2021 3400
13 August 2021 3500

Electricity payments
$
14 October 2020 1800
24 January 2021 1800
26 May 2021 1800

A refund of $300 for insurance overpaid was received by bank transfer on 28 February 2021. The
insurance paid on 13 August 2021 covered a period of five months to 31 December 2021.

At 30 September 2021, an amount of $2000 was owing for electricity.

PAGE 305

REQUIRED

(a) Prepare the following accounts for the year ended 30 September 2021. Balance the accounts
and bring down the balances on 1 October 2021.

Karishma
Insurance account

Date Details $ Date Details $

............... ..................................... ............... ............... ..................................... ...............

Electricity account

Date Details $ Date Details $

............... ..................................... ............... ............... ..................................... ...............

[10]

PAGE 306

Karishma is considering changing her electricity supplier. The new supplier has offered Karishma
a two-year contract at a fixed monthly amount of $450 payable by direct debit.

REQUIRED

(b) Advise Karishma whether she should change to the new electricity supplier. Justify your
answer with two advantages and two disadvantages of changing supplier.

...................................................................................................................................................

............................................................................................................................................. [5]

PAGE 307

On 1 October 2020 Karishma decided to rent out part of her premises to Noor at an annual rent of
$1965.

During the financial year ended 30 September 2021 Noor made the following payments to
Karishma by cheque.

$
1 October 2020 800
2 March 2021 825
8 August 2021 850

The amount received on 8 August 2021 included rent of $510 covering the period 1 October 2021
to 31 December 2021.

REQUIRED

(c) Prepare the rent receivable account for the year ended 30 September 2021. Balance the
account and bring down the balance on 1 October 2021.

Karishma
Rent receivable account

Date Details $ Date Details $

............... ..................................... ............... ............... ..................................... ...............

[4]

(d) Identify the section of the statement of financial position at 30 September 2021 in which the
balance on the rent receivable account would appear.

............................................................................................................................................. [1]

[Total: 20]

PAGE 308

5 The financial year of VL Sports Club ends on 31 December. The treasurer provided the following
information about receipts and payments for the year ended 31 December 2020.

Receipts $
Subscriptions 19 200
Competition receipts 7 300
Dinner dance ticket sales 6 500

Payments $
Competition prizes 4 100
Dinner dance costs 6 200
Equipment 12 000
General expenses 11 500

The treasurer also provided the following information.

1 January 2020 31 December 2020

$ $
Equipment at net book value 23 000 30 000
General expenses owing 400 500
Subscriptions in arrears 700 300
Subscriptions in advance 1 100 900

Of the subscriptions in arrears on 1 January 2020 an amount of $80 had not been paid by
31 December 2020 and is to be written off as irrecoverable.

REQUIRED

(a) Prepare the subscriptions account for the year ended 31 December 2020. Balance the
account and bring down the balances on 1 January 2021.

VL Sports Club
Subscriptions account

Date Details $ Date Details $

............... ..................................... ............... ............... ..................................... ...............

[8]

PAGE 309

REQUIRED

(b) Prepare the income and expenditure account for VL Sports Club for the year ended
31 December 2020.

VL Sports Club
Income and Expenditure Account for the year ended 31 December 2020

$ $

............................................................................................... …………….... ……………....

[9]

PAGE 310

The treasurer of VL Sports Club wants to encourage more members to pay their subscriptions in
advance by offering a 10% reduction in annual subscription fees.

(c) Advise the treasurer whether or not VL Sports Club should offer this reduction in annual
subscription fees to members who pay in advance. Justify your answer with one advantage
and one disadvantage.

...................................................................................................................................................

............................................................................................................................................. [3]

[Total: 20]

PAGE 311

Cambridge O Level
* 9 6 1 9 9 2 5 2 5 2 *

ACCOUNTING 7707/21
Paper 2 Structured Written Paper May/June 2022

1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

This document has 20 pages. Any blank pages are indicated.

1 Nakul is a trader. He buys and sells goods on credit. He buys most of his supplies from one
supplier, Nadia, who allows Nakul a trade discount of 20%.

The following transactions took place in January 2022.

Jan 2 Paid $441 by cheque to Nadia, in full settlement of $450 owed to her at
1 January 2022.

12 Bought goods on credit from Nadia, list price $350

14 Returned faulty goods to Nadia, list price $80

18 Bought goods on credit from Nadia, list price $400

23 Sold goods on credit, $800

29 Bought goods on credit, $60, from Sophie

30 Returned goods to Sophie, $9

REQUIRED

(a) Prepare the purchases journal for January 2022.

Total the journal and indicate the ledger account to which the total would be posted.

Nakul
Purchases journal
Date Details $ $

............. ...................................................................... ....................... .......................

............. ..................................................................... ....................... .......................

............. ...................................................................... ....................... .......................

[4]

PAGE 313

(b) Prepare the purchases returns journal for January 2022.

Total the journal and indicate the ledger account to which the total would be posted.

Nakul
Purchases returns journal
Date Details $ $

............. ...................................................................... ....................... .......................

[3]

(c) Prepare the account for Nadia, for January 2022, as it would appear in the books of Nakul.
Balance the account and bring down the balance on 1 February 2022.

Nakul
Nadia account
Date Details $ Date Details $

............. ................................. ............ ............ ................................. ............

[6]

(d) Complete the table by placing a tick () to show where each item is shown on the statement
of financial position.

Current liabilities Non-current liabilities

Trade payables

Nakul has a bank overdraft and would like to reduce it. He is considering paying his suppliers later
than he currently does in order to help him reduce his bank overdraft.

REQUIRED

(e) Advise Nakul whether or not he should take longer to pay his suppliers. Justify your answer
by providing two advantages and two disadvantages.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 315

2 Fatima is a sole trader. She prepares her financial statements to the end of March each year.

At 31 March 2022, Fatima’s ledger account balances included the following.

$
Revenue 79 400

Sales returns 3 970

Purchases 36 500

Rent and rates 9 000

Wages 10 100

General expenses 1 287

Insurance 1 800

Discount received 1 095

Inventory at 1 April 2021 3 000

Fixtures and equipment at cost 80 000

Fixtures and equipment – provision for depreciation 39 040

Trade receivables 6 400

Trade payables 4 995

Provision for doubtful debts 156

Cash drawings 8 580

Capital at 1 April 2021 59 000

The following information is also available.

1 Inventory at 31 March 2022 was $3120.

2 Fatima took goods for her own use from the business during the year ended 31 March 2022.
These goods cost $1300.

3 Depreciation on fixtures and equipment is to be charged at 20% per annum using the reducing
balance method.

4 Accrued wages at 31 March 2022 were $800.

5 Rent includes a payment of $1500 for the 3 months from 1 March 2022 to 31 May 2022.

6 An irrecoverable trade receivable of $200 is to be written off.

7 The provision for doubtful debts is to be set at 3% of trade receivables.

PAGE 316

REQUIRED

(a) Prepare Fatima’s income statement for the year ended 31 March 2022.

Fatima
Income Statement for the year ended 31 March 2022

$ $

................................................................................................. ................... ...................

................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
................................................................................................. ................... ...................
[11]
© UCLES 2022 7707/21/M/J/22 [Turn over
PAGE 317

(b) Prepare Fatima’s capital account for the year ended 31 March 2022. Balance the account
and bring down the balance on 1 April 2022.

Fatima
Capital account
Date Details $ Date Details $

........... ................................. ............ ........... ................................. ............

[4]

Fatima would like to expand the business. She thinks that additional finance of $20 000 would be
required for the equipment which she would need. Fatima’s bank have offered to lend her $20 000,
to be repaid after four years at interest of 6% per annum.

REQUIRED

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 318

3 Jules is a hairdresser. He bought some new energy-saving hairdrying equipment, $1900, on credit
from YZH Limited on 30 April 2022.

REQUIRED

(a) Prepare the journal entry to record the purchase of these hairdryers. A narrative is required.

Jules
Journal
Date Details Debit Credit
$ $

............. ........................................................................... ..................... .....................

[3]

The new hairdryers will use less electricity than his old ones. There will be an additional insurance
charge for the new hairdryers. The old hairdryers had been fully depreciated so that their net book
value was nil.

REQUIRED

(b) Complete the table by placing a tick () to show whether these changes in expenses increase
or decrease the profit.

Expense Increase Decrease

in profit in profit
Heat and light

Depreciation

Insurance

[3]

Jules has discovered the following five errors in his accounting records for the year ended
30 April 2022.

1 The total for general expenses, $28, in the petty cash book for April 2022 has not been posted
to the general ledger.

2 A direct debit to Isaac, a supplier, $195 had been recorded as $159 in the account for Isaac.

3 A payment by credit transfer for wages, $144, has not been recorded in the accounting
records.

PAGE 319

4 The discount received total for January 2022, $38, had been debited to the discount received
account.

5 The account for rent and the account for commission receivable had both been overcast by
$200.

REQUIRED

Jules
Journal
Error Details Debit Credit
number $ $

............. ........................................................................... ..................... .....................

[10]

PAGE 320

(d) Prepare the suspense account. Include the original difference on the trial balance as a
balancing figure.

Jules
Suspense account
Date Details $ Date Details $

………. .……………………… ……….. ………. .……………………… ………..

[4]

[Total: 20]

PAGE 321

4 Ekua is a trader who sells household furnishings. She has provided the following information.

$
At 30 April 2022:

Inventory 14 650

Trade receivables 12 700

Bank overdraft 5 375

Trade payables 7 125

For the year to 30 April 2022:

Revenue 112 300

Purchases 72 250

Expenses 19 820

All sales and purchases are on credit.

Inventory at 1 May 2021 was valued at $12 800.

REQUIRED

(a) Complete the following tables.

Gross margin
workings answer (to two decimal places)

Profit margin
workings answer (to two decimal places)

PAGE 322

Rate of inventory turnover (times)

workings answer (to two decimal places)

Current ratio
workings answer (to two decimal places)

Liquid (acid test) ratio

workings answer (to two decimal places)

[11]

PAGE 323

One of Ekua’s suppliers has offered to sell her a large quantity of inventory at a reduced price.
Ekua is considering accepting this offer and increasing her expenditure on advertising in order to
sell more inventory.

REQUIRED

(b) Advise Ekua whether she should purchase the additional inventory. Justify your answer by
providing two advantages and two disadvantages.

...................................................................................................................................................

............................................................................................................................................. [5]

...................................................................................................................................................

............................................................................................................................................. [2]

(d) State two non-financial factors which may affect Ekua’s trading results.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

5 The Sew and Soup Club offers membership to people who are interested in sharing sewing and
knitting patterns. It runs a refreshment café for members. The club had the following assets and
liabilities at 31 December.

2020 2021

$ $

Subscriptions in advance 2 260 1 745

Subscriptions in arrears 1 820 2 115

Inventory of refreshments 1 070 1 130

Rent paid in advance 500 500

Trade payables for refreshment supplies 1 940 1 580

Bank balance 4 628 7 743

The following totals are for the year ended 31 December 2021.

Receipts

Subscriptions received (all by cheque) 13 900

Cash sales from refreshments 17 650

Payments

Rent 6 000

Wages 7 000

Other expenses 5 000

Trade payables for refreshment supplies 10 435

PAGE 325

REQUIRED

(a) (i) Prepare the subscriptions account for the year ended 31 December 2021. Balance the
account and bring down the balances on 1 January 2022.

Sew and Soup Club

Subscriptions account

Date Details $ Date Details $

........... ................................ ............. ........... ................................ .............

[6]

(ii) Explain whether the treasurer should be satisfied with the amount of cash received from
member subscriptions during the year ended 31 December 2021.

...........................................................................................................................................

..................................................................................................................................... [3]

PAGE 326

(b) Calculate the profit on refreshments for the year ended 31 December 2021.

$ $

.............................................................................................. ................... ...................

(c) Prepare the current assets section of the club’s statement of financial position at
31 December 2021.
Sew and Soup Club
Statement of financial position (extract) at 31 December 2021

$ $

Current Assets
.............................................................................................. ................... ...................
.............................................................................................. ................... ...................
.............................................................................................. ................... ...................
.............................................................................................. ................... ...................
.............................................................................................. ................... ...................
.............................................................................................. ................... ...................
.............................................................................................. ................... ...................
.............................................................................................. ................... ...................
[4]

Cambridge O Level
* 1 1 4 6 4 2 7 6 4 6 *

ACCOUNTING 7707/22
Paper 2 Structured Written Paper May/June 2022

1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

This document has 20 pages. Any blank pages are indicated.

1 Peter is a trader. The following transactions took place in April 2022.

April 2 Cash sales, $410, were paid directly into the bank account

3 Paid $798 to Rahat, by cheque, in full settlement of a debt of $840

8 Paid $42 cash for a motor vehicle repair

15 Purchased goods, list price $320, on credit subject to a trade discount of 10%, from
Rahat

18 Cash sales, $460

20 Paid $392 to Samir by telephone transfer, having deducted 2% cash discount from
the amount due

25 A cheque for commission receivable, $115, was paid into the bank account

29 Paid $285 to Rafael by cash, in full settlement of a debt of $300

REQUIRED

(a) Prepare Peter’s cash book on the page opposite.

Balance the cash book and bring down the balances on 1 May 2022.

Peter
Cash Book

Date Details Discount Cash Bank Date Details Discount Cash Bank

Apr 1 Balance b/d 135 920 ........... ........................................ …............ …............ …............

........... ........................................ …............ …............ …............ ........... ........................................ ................ ................ ................

7707/22/M/J/22
PAGE 329

........... ........................................ …............ …............ …............ ........... ........................................ …............ …............ …............

[11]

[Turn over
PAGE 330

Peter has received a bank statement for April. He is using it to prepare a bank reconciliation
statement and to update his cash book.

REQUIRED

(b) Place a tick () to show how each item in the table below would be used to prepare the bank
reconciliation statement or to update the cash book.

Prepare bank reconciliation Update cash book

statement
Added Deducted
Items to be adjusted to bank from bank Debited to Credited to
statement statement cash book cash book
balance balance
Bank charges

Direct debit for rent

Cheque paid to a supplier

but not yet cashed
Cheque for commission
received dishonoured
Dividend received

[5]

REQUIRED

(c) Prepare the account for Rahat as it would appear in the ledger of Peter.
Balance the account and bring down the balance on 1 May 2022.

Peter
Rahat account
Date Details $ Date Details $
2022 2022

............ ..................................... ............. Apr 1 Balance b/d 840

............ ..................................... ............. ............ ..................................... ............

2 Stalla started trading on 1 April 2021. All receipts are paid into the bank and all payments are made
from the bank. She has not kept a full set of books but has provided the following information.

Summary of receipts and payments for the year ended 31 March 2022

Receipts

Capital introduced 8 000

Loan received (repayable 2027) 5 000

Sales (all cash) 36 000

Payments

Trade payables 17 850

Fixtures and fittings 12 000

General expenses 1 920

Rent and insurance 7 100

Drawings ?

Bank balance at 31 March 2022 2 330

REQUIRED

(a) Record the total receipts and total payments to Stalla’s bank account showing the cash
drawings for the year ended 31 March 2022. Balance the bank account and bring the balance
down on 1 April 2022.

Stalla
Bank account
Date Details $ Date Details $

............. ................................. ............... ............. ................................ ...............

[4]

PAGE 332

During the year ended 31 March 2022, Stalla took goods from the business for her own personal
use. The selling price of these goods is $3375. Her mark-up is 25%.

REQUIRED

(b) Calculate Stalla’s total drawings for the year ended 31 March 2022.

...................................................................................................................................................

............................................................................................................................................. [2]

Stalla has provided a list of balances at 31 March 2022.

Fixtures and fittings (net book value) 10 800

Inventory 2 150

Prepaid rent 500

Balance at bank 2 330

Trade payables 1 875

Loan (repayable 2027) 5 000

Capital ?

REQUIRED

(c) Prepare a statement of affairs to calculate Stalla’s capital at 31 March 2022.

PAGE 333

Stalla
Statement of Affairs at 31 March 2022
$ $
......................................................................................... ....................... .......................

......................................................................................... ....................... .......................

[5]

(d) Calculate Stalla’s profit for the year ended 31 March 2022.

...................................................................................................................................................

............................................................................................................................................. [4]

PAGE 334

Stalla is now considering whether she should start to sell at least some of her goods on credit.

REQUIRED

(e) Advise Stalla whether or not she should start selling on credit terms. Justify your answer.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 335

3 Mosi is a trader. The totals of his trial balance at 30 April 2022 did not agree and the difference
was placed in a suspense account.

Mosi later discovered the following errors.

1 Commission received, $96, had been debited to the discount received account. The entry to
the bank account was correctly made.

2 The total of the sales journal for April 2022, $1258, was transferred to the sales account as
$2185.

3 A cheque payment for motor expenses, $77, had been omitted from the book-keeping
records.

4 A payment by electronic transfer, $135, was recorded as a payment in the petty cash book.

5 An invoice received from Tracey, $160, was credited to the account for Stacey.

REQUIRED

(a) Prepare the journal entries to correct errors 1–5. Narratives are not required.

PAGE 336

Mosi
Journal
Error Details Debit Credit
number $ $

................. ...................................................……........ .................…… .................……

[11]

PAGE 337

(b) Prepare the suspense account. Include the original difference on the trial balance as a
balancing figure.

Mosi
Suspense account
Date Details $ Date Details $

.............. ................................. .............. .............. ................................. ..............

[4]

Mosi’s original draft profit, before correcting the errors, was $39 970.

REQUIRED

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

PAGE 338

4 Nala is a trader who buys and sells stationery.

She provided the following information about her inventory at 28 February 2022.

Item Number of Cost per unit Carriage Selling Selling

units inwards per expenses price per
unit per unit unit
$ $ $ $
Packs of paper 240 4.50 – – 8.00
Packs of envelopes 225 5.50 1.00 1.50 10.00
Notepads 150 4.00 2.00 – 5.00
Boxes of pencils 96 3.50 – – 6.00

REQUIRED

(a) (i) Calculate the value of Nala’s inventory at 28 February 2022.

...........................................................................................................................................

..................................................................................................................................... [6]

(ii) State the accounting principle used to value inventory.

..................................................................................................................................... [1]

(b) (i) Complete the table by placing a tick () to show how Nala should treat each item of her
expenditure.

Capital Revenue
expenditure expenditure
Computer printer paper
Computer equipment
Installation of computer equipment
Motor vehicle
Insurance of motor vehicle
Delivery of motor vehicle
[4]
© UCLES 2022 7707/22/M/J/22 [Turn over
PAGE 339

(b) (ii) Explain how the materiality principle is applied to the treatment of non-current assets.

...........................................................................................................................................

..................................................................................................................................... [2]

Nala has treated the receipt of a bank loan as a revenue receipt.

REQUIRED

overstated understated

Effect on capital

Effect on liabilities
[2]

Nala has charged depreciation on her shop fittings at 25% per annum using the reducing balance
method. This year she is considering changing this to 10% per annum using the straight-line
method, as this would improve her profit for the year.

REQUIRED

(d) Advise Nala whether or not she should change her depreciation method. Justify your answer.

...................................................................................................................................................

............................................................................................................................................. [5]

5 The trial balance of M Limited at 30 November 2021 was as follows.

M Limited
Trial Balance at 30 November 2021

Debit Credit

$ $

Revenue 203 600

Inventory at 1 December 2020 12 945

Purchases 143 750

Rent and rates 12 460

Operating expenses 12 920

Wages 24 380

Equipment at cost 40 000

Provision for depreciation of equipment 17 500

Trade receivables 9 800

Provision for irrecoverable debts 295

Bank 162

Trade payables 11 585

Ordinary share capital 20 000

General reserve 3 000

Retained earnings 2 037

Dividend paid on ordinary shares 1 600

258 017 258 017

Additional information

1 Inventory at 30 November 2021 was valued at $12 830.

2 Depreciation on equipment is to be charged at 25% per annum using the reducing balance
method.

3 Accrued operating expenses at 30 November 2021 were $415.

4 Rent includes a payment of $2250 for the 3 months from 1 October 2021 to 31 December
2021.

5 The provision for doubtful debts is to be set at 4% of trade receivables.

6 No dividends were outstanding at 30 November 2021.

7 $1000 is to be transferred to the general reserve at 30 November 2021.

REQUIRED

(a) Prepare the income statement for M Limited for the year ended 30 November 2021.

M Limited
Income Statement for the year ended 30 November 2021
$ $
......................................................................................... ....................... ..................….

......................................................................................... ..................…. ..................….

[7]

PAGE 342

(b) Prepare the statement of changes in equity for M Limited for the year ended 30 November 2021.

M Limited
Statement of Changes in Equity for the year ended 30 November 2021
Details Ordinary General Retained Total
Share capital reserve earnings

$ $ $ $

On 1 December 2020 .................… .................… .................… .................…

...................................……. .................… .................… .................… .................…

On 30 November 2021 .................… .................… .................… .................…

[5]

(c) Calculate the liquid ratio for M Limited at 30 November 2021.

The answer should be correct to two decimal places.

Liquid (acid test) ratio

workings answer

[3]

PAGE 343

The managing director, Emily, plans to buy new equipment to be used to improve the profitability
of the company. She is considering whether to fund the equipment by issuing further ordinary
shares or requesting a bank overdraft.

REQUIRED

(d) Advise Emily whether to fund the purchase of the equipment by issuing further ordinary
shares or by requesting a bank overdraft. Justify your answer.

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]

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O Levels Accounts P2 (2018-2022)

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O Levels Accounts P2 (2018-2022)

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O LEVEL

Cambridge International Examinations

PRINCIPLES OF ACCOUNTS 7110/22

READ THESE INSTRUCTIONS FIRST

Answer all questions.

This document consists of 21 printed pages and 3 blank pages.

DC (SCD (AC)) 148995/3

Date Details Debit Credit

Cash book (bank columns only)

Date Details  Date Details 

© UCLES 2018 7110/22/M/J/18

© UCLES 2018 7110/22/M/J/18 [Turn over

The following information relates to George, a credit customer of Nuri.

23 George paid by cheque for the goods purchased on 10 April.

Date Details  Date Details 

(e) &RPSOHWHWKHWDEOHWRQDPHWKHVXEGLYLVLRQRI1XUL·VOHGJHUZKLFKZRXOGFRQWDLQeach of the

Account Subdivision of the ledger

© UCLES 2018 7110/22/M/J/18

(a) Name each type of error in 1 to 4.

© UCLES 2018 7110/22/M/J/18 [Turn over

(c) 3UHSDUHWKHHQWULHVLQWKHJHQHUDOMRXUQDOWRFRUUHFWHUURUVWR1DUUDWLYHVDUHnot required.

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

….….....……..….….....……..….….....…….….….....……... ….….....…….. ….….....……..

© UCLES 2018 7110/22/M/J/18

Calculate the revised profit for the year.

Statement of Corrected Profit for the year ended 31 March 2018

Error Increase Decrease

2 'LVFRXQW DOORZHG WR %ORRP 

4 A purchase of goods from Stilson,

Revised profit for the year

© UCLES 2018 7110/22/M/J/18 [Turn over

The following information is available.

Summarised Receipts and Payments Account

Balances at: 1 May 2017 30 April 2018

© UCLES 2018 7110/22/M/J/18

(c) Calculate the profit or loss on the special event.

© UCLES 2018 7110/22/M/J/18 [Turn over

© UCLES 2018 7110/22/M/J/18

© UCLES 2018 7110/22/M/J/18 [Turn over

2 Working capital ratio (current ratio) is 2.5:1.

(a) Calculate the value at 30 April 2018 of the:

(ii) bank loan (repayable 2022)

© UCLES 2018 7110/22/M/J/18

(b) Calculate the following ratios to twoGHFLPDOSODFHV7KHSUHYLRXV\HDU·VUDWLRVDUHVKRZQLQ

Workings 30 April 2018 30 April 2017

Profit for the year to capital 

(i) Quick ratio (acid test ratio)

(ii) Profit for the year to capital employed

Proposal 1 Sell some non-current assets on credit at book value.

Proposal 4 Reduce credit sales and increase cash sales.

Proposal Working capital Profit for the year

increase decrease no effect increase decrease no effect

© UCLES 2018 7110/22/M/J/18

© UCLES 2018 7110/22/M/J/18

Additional information at 30 April 2018

7 Depreciation is charged as follows:

© UCLES 2018 7110/22/M/J/18 [Turn over

......................................................................................... ........................ ........................

......................................................................................... ........................ ........................

......................................................................................... ........................ ........................

......................................................................................... ........................ ........................

......................................................................................... ........................ ........................

......................................................................................... ........................ ........................

......................................................................................... ........................ ........................

Date Details Date Details

Date Details Date Details

(c) 3UHSDUHWKHHQWULHVLQWKHJHQHUDOMRXUQDOWRFRUUHFWHUURUVWR1DUUDWLYHVDUHnot required.

2 'LVFRXQW DOORZHG WR %ORRP

(b) Calculate the following ratios to twoGHFLPDOSODFHV7KHSUHYLRXV\HDU·VUDWLRVDUHVKRZQLQ

Profit for the year to capital