Cambridge General Certificate of Education Ordinary Level

7110 Principles of Accounts November 2015

Principal Examiner Report for Teachers

PRINCIPLES OF ACCOUNTS

Paper 7110/11

Multiple Choice

Question Question
Key Key
Number Number

1 B 16 B

2 D 17 C

3 B 18 B

4 A 19 A

5 D 20 D

6 A 21 C

7 C 22 A

8 D 23 D

9 A 24 B

10 C 25 C

11 C 26 C

12 B 27 D

13 A 28 D

14 B 29 B

15 A 30 C

Key Messages

Those candidates who had a good knowledge of the subject were able to apply that knowledge to the

situations described in the multiple choice items.

Candidates are advised to read each item very carefully before attempting an answer. This ensures that an

important word or phrase is not overlooked.

General Comments

The mean marks were 14. One item proved to be easier than anticipated and two items proved to be more

difficult than anticipated.

Comments on Specific Questions

Item 4

The majority of candidates understood that the total of the sales journal would be credited to the sales

account, but only some candidates also realised that the total of the purchases returns journal would be

credited to the purchases returns account. In both instances the goods are leaving the business so must be

credited.

© 2015
 Cambridge General Certificate of Education Ordinary Level

7110 Principles of Accounts November 2015

Principal Examiner Report for Teachers

Item 5

This was a straightforward item to candidates with a good knowledge of double entry. From the payer’s

viewpoint, the discount was discount received so the discount received account should have been credited

and the supplier debited.

Item 6

A significant number of candidates found this question challenging. The bank statement would have shown a

smaller balance than the cash book because bank charges had already been deducted, and would also

show a smaller balance because deposits had not yet been credited by the bank. This means that the

balance on the bank statement should have been $2838 ($3204 - $78 - $288).

Item 8

Most of the candidates understood that the purchases would be overstated by $900 because of the error. If

an invoice is overstated by $900 in the purchases journal it will also be overstated in the account of the credit

supplier, so in the trial balance the trade payables would be overstated.

Item 9

At the end of the financial year the commission received is transferred to the income statement by debiting

commission received and crediting income statement. Applying the matching principle, only the amount

relating to that particular financial year ($4640) is transferred to the income statement.

Item 13

A significant number of candidates indicated that interest charged would appear as a debit entry and seemed

unsure whether it affected the credit customers or the credit suppliers. Interest charged on an overdue

account increases the amount owing to the supplier so will appear as a credit entry in the purchases ledger

control account.

Item 15

The inventory should have been valued at the lower of cost ($100 000) and the net realisable value

($70 000).

Item 17

The majority of candidates understood that the capital would increase by $2000 and that the liabilities would

increase by $5000. Only some candidates appreciated that the assets would increase by $7000. Applying

the accounting equation candidates should have realised that the assets must equal the total of the capital

and the liabilities.

Item 18

When a trader takes goods for personal use, this is deducted from the purchases so the gross profit and the

profit for the year will increase. The final figure of capital will not be affected as the profit for the year has

increased and the drawings have increased by the same amount.

Item 20

Few candidates provided correct response to this item. When a partner makes a loan to the business the

loan interest is an expense to the business which is debited to the income statement.

Item 23

Candidates did not perform well on this question. Drafting a “T” account for the total trade receivables may

have helped candidates calculate the missing figure of credit sales.

© 2015
 Cambridge General Certificate of Education Ordinary Level

7110 Principles of Accounts November 2015

Principal Examiner Report for Teachers

Item 24

Statement of changes in equity shows the changes which have taken place in the share capital, retained

earnings and general reserves during the financial year. Proposed ordinary share dividend will not appear in

such a statement as it is only a proposal and has not actually taken place.

Item 27

The wages actually paid to employees of $7500 would be credited to the bank and debited to the wages

account. The statutory deductions ($1750) would not be paid to the authorities until the following month: until

that time it is a liability so is credited to the statutory deductions account and debited to the wages.

Item 29

It was expected that candidates would be able to correctly calculate the profit as a percentage of capital

employed. A significant number used the owner’s capital rather than the capital employed. The total of the

capital employed can be calculated by adding the long term loan to the capital. An alternative calculation is

to deduct the current liabilities from the total assets.

© 2015
 Cambridge General Certificate of Education Ordinary Level

7110 Principles of Accounts November 2015

Principal Examiner Report for Teachers

PRINCIPLES OF ACCOUNTS

Paper 7110/12

Multiple Choice

Question Question
Key Key
Number Number

1 B 16 A

2 B 17 A

3 D 18 D

4 B 19 D

5 B 20 A

6 B 21 B

7 D 22 B

8 C 23 C

9 C 24 A

10 A 25 D

11 A 26 C

12 C 27 C

13 C 28 D

14 B 29 A

15 D 30 A

Key Messages

Those candidates with good knowledge of the subject were to use that knowledge by applying it to the

situations described in the multiple choice items. A thorough knowledge of the use of the ledger and the

double entry system is essential for performing well on this paper.

General Comments

Candidates are advised to read each item very carefully before attempting an answer. This ensures that an

important word, phrase or figure is not overlooked.

Comments on Specific Questions

Item 3

This involved an understanding of the effect of entries in ledger accounts. Many candidates showed a lack of

understanding of ledger entries.

Item 4

The majority of candidates understood that a debit note and a credit note would be involved. Reading the

question carefully, candidates would see that the document was issued by the customer and so would be a

debit note.

© 2015
 Cambridge General Certificate of Education Ordinary Level

7110 Principles of Accounts November 2015

Principal Examiner Report for Teachers

Item 6

Almost half of the candidates appear to incorrectly believe that a dishonoured cheque is a bad debt. The

entries for a dishonoured cheque are a credit to the bank and debit to the customer (i.e. the reverse of those

made when the cheque was received).

Item 7

The question required candidates to have a good knowledge of double entry. From the payer’s viewpoint, the

discount was discount received, so the discount received should have been credited and the supplier

debited.

Item 8

It was expected that the majority of candidates would understand that prepaid expenses are represented by

a debt balance on a ledger account.

Items 9 and 10

These items involved interpretation of entries in a ledger account. Candidates required a good knowledge of

double entry in order to select the Keys (C for Item 9 and A for Item 10).

Item 11

Drafting a “T” account may have helped candidates understand that both the opening prepayment and the

closing accrual had to be added to the amount paid in order to calculate the expense for the year.

Item 14

The depreciation had to be calculated on the closing net book value of the machinery, so the net book value

of the machine sold had to be deducted from the total net book value of all the machinery at the start of the

year. The 20% depreciation should have been calculated on $33 440

($36 000 – ($4000 – $1440)).

Item 16

This item involved an understanding of ledger accounts. Interest charged on an overdue account increases

the amount owing to the supplier so will appear as a credit entry in the purchases ledger control account.

Item 17

The inventory should have been valued at the lower of cost ($240) and net realisable value ($260 – $30).

Item 18

Instead of using the closing owner’s capital, as instructed, many candidates incorrectly used the opening

capital.

Item 19

The majority of candidates incorrectly included the owner’s cash drawings as a business expense. A

significant number did not include the amount owing by customers ($1720) in the revenue for the year.

Item 21

Goodwill is credited to the partner who introduced that asset to the new business. When goodwill is written

off it is done so in the profit-sharing ratios. This means that X’s capital would be $30 000 – (2/3 x $9000) and

Y’s capital would be $29 000 – (1/3 x $9000).

© 2015
 Cambridge General Certificate of Education Ordinary Level

7110 Principles of Accounts November 2015

Principal Examiner Report for Teachers

Item 22

In order to calculate the subscriptions for the year, it was necessary to add the closing accrual and deduct

the closing prepayment from the amount received.

Item 23

It was anticipated that candidates would understand that the purchase of equipment by a sports club is

capital expenditure. This will be included in the receipts and payments account and the statement of financial

position but not the income and expenditure account.

Item 24

Drafting a “T” capital account may have helped candidates to determine the formula for the calculation of the

profit for the year.

Item 25

It was anticipated that the majority of candidates would be able to calculate the total sales. Once again,

drafting a “T” ledger account could have been of assistance. Such an account for credit customers would

have revealed credit sales of $8700. Adding on the cash sales would have given total sales of $35 500.

Item 28

The vast majority of candidates correctly calculated the cost of sales at $60 000 and made the correct

adjustments of the opening and closing inventories, giving a figure of $54 000. The adjustment for the goods

taken for personal use caused problems: the $7000 should have been added back to get the actual

purchases of $61 000. Drafting out a trading account may have helped candidates to determine the correct

treatment of the items.

© 2015
 Cambridge General Certificate of Education Ordinary Level

7110 Principles of Accounts November 2015

Principal Examiner Report for Teachers

PRINCIPLES OF ACCOUNTS

Paper 7110/21

Paper 2

Key Messages

Candidates who performed well on this paper were well prepared and practiced in the accounting techniques

of producing ledger accounts with appropriate detail such as dates, narratives and figures. Well prepared

candidates were also able to apply these skills within a small business context and record transactions for a

supplier and related expense account.

In addition to these skills the better performing candidates produced well presented formal accounting

statements such as partnership appropriation and current accounts and sole trader income statement and

statement of financial position.

General Comments

Candidates are required to have a broad knowledge of how information flows through an accounting system.

This should be further supported by a knowledge of the different types of revenues and expenditures and the

resulting impact upon capital and assets.

Comments on Specific Questions

Question 1

The question required knowledge of detailed book-keeping for a small business and the application of

knowledge to determine capital or revenue receipts and expenditure.

Parts (a) to (c) were generally not well answered. Many candidates used incorrect narratives such as fuel

and tyres instead of motor expenses or Carston garages. Many candidates did not deduct trade discount.

Well prepared candidates answered (d) and (e) well. They explained the two terms and correctly classified

the listed transactions as capital or revenue receipts and expenditure.

Question 2

Good responses clearly depicted that the candidates understood the purpose of writing up the journal and

resolving a suspense account balance. This an essential skill that is used for resolving errors on manual and

accounting systems. Part (a) required the journal entries to correct single entry errors. Most candidates

answered this well. Some candidates did not post them correctly through into the suspense account in part

(b) or show the effect on profit of correcting each error in part (c). Part (d) was answered reasonably well.

Question 3

Most candidates were well practiced in the production of partnership appropriation accounts and the related

transactions that linked to the partners current accounts.

Most candidates answered part (a) well. A common error was not deducting loan interest to arrive at profit

before appropriation. The result of this error was incorrect calculation of interest on capital for Barry. Part (b)

was also answered reasonably well.

In part (c) many candidates said that partnerships automatically made for better decision making. This is not

always the case, and opportunities to discuss decision making was a significant difference on this point.

© 2015
 Cambridge General Certificate of Education Ordinary Level

7110 Principles of Accounts November 2015

Principal Examiner Report for Teachers

Question 4

The question required a reconstruction of a trading account and incorporated a knowledge of gross margins

and mark-up and their calculation.

Candidates varied on their performance on parts (a) and (b) of this question.

Good responses could reconstruct a trading account using the information given and gross profit calculated

as 40% of the the cost of goods sold. The key ratios of inventory turnover, working capital and quick ratio are

standard calculations. Even after allowing for own figure workings many weaker candidates could not derive

answers to these ratios which was disappointing.

Own figures and related comments were awarded but weaker candidates who were unable to calculate basic

ratios were limited in terms of performing well on their written comments in part (c).

Question 5

The question required a thorough knowledge of the skills necessary to produce formal accounting

statements for a sole trader. The full range of accounting adjustment techniques were assessed and needed

to be applied across both the income statement and statement of financial position consistently.

Most candidates performed well on this question. Common errors were to calculate rent and interest on bank

loan incorrectly and a not reducing the cash and bank balance by $3000.

The bank loan should have been shown under a heading of non-current or long-term liabilities in the

statement of financial position.

© 2015
 Cambridge General Certificate of Education Ordinary Level

7110 Principles of Accounts November 2015

Principal Examiner Report for Teachers

PRINCIPLES OF ACCOUNTS

Paper 7110/22

Paper 2

Key Message

Candidates who performed well on this paper were well prepared and practiced in the basic principles of

accounting techniques of preparing ledger accounts with appropriate detail such as dates, narratives and

figures. These candidates were also able to relate transactions to cash books and control accounts and the

role they play as control documents within all accounting systems.

In addition to a strong foundation of these accounting skills, better candidates were able to produce well

presented formal accounting statements such as manufacturing accounts, income statements and

statements of financial position in a structured order that is essential to all users of internal and external

accounts.

General comments:

Candidates should have a broad knowledge of how information flows through an accounting system, being

able to replicate the control procedures in place and then to generate the final outcome statements from the

system.

Comments on specific questions

Question 1

(a) Whilst good answers were seen, many candidates attempted to include all transaction within the

cash book. Many did not include basic information such as dates, the name of the debtor and just

entered ‘dishonoured cheque’. The balance brought down was often incorrect.

(b) Some candidates answered this question correctly. Many candidates included everything, or just

listed figures without supporting details.

(c) Generally well answered but a common error was simply to state ‘invoice’ instead of ‘sales invoice’

in (ii).

(d) The ledger account was sometimes reversed. Some candidates made references to

purchases/purchase returns rather than sales/sales returns. The trade discount was often

incorrectly included in the account. A common error was to include the returns at the list price not

the price after trade discount. Dates were often omitted. Many candidates inserted a balance in the

account as well as writing off a bad debt.

(e) Own figure entries were allowed, but many candidates incorrectly tried to transfer bad debts to the

income statement.

(f) This part was well answered by most candidates.

© 2015
 Cambridge General Certificate of Education Ordinary Level

7110 Principles of Accounts November 2015

Principal Examiner Report for Teachers

Question 2

The question focused on sales ledger control accounts and how errors would be resolved using a suspense

account linked to the practical skill of resolving them through journal entries.

(a) Common errors were the use of incorrect narratives in the sales ledger control account such as

receipts and interest was shown as a credit entry.

(b) This was generally well answered.

(c) Generally well answered although a common error was not doubling the entry for the transaction

of discount allowed and R.Biggs.

(d) Most candidates were able to provide a reason why a trader may use a suspense account.

Question 3

(a) Many candidates provided good responses to this question. Poor responses included entering

finished goods or office items or lacked key labels such as ‘prime cost’ and ‘cost of production’.

(b) All candidates were awarded full marks due to a date error in the original question.

(c) Most candidates answered this part correctly.

Question 4

(a) Candidate responses varied on this question.

Many candidates did not correctly work out the cost of sales and therefore did not calculate the

inventory figure accurately. The calculation of the expenses proved challenging to some

candidates. Many candidates calculated the working capital and quick ratios correctly while others

found these ratios challenging.

(b) Candidates performed reasonably well on this part.

Question 5

(a) Most candidates answered this question well.

Many candidates did not calculate the advertising expenses correctly (but correctly calculated the

distribution costs). Depreciation on lease was often given as $3000 instead of $4000. The amount

of the loan interest was sometimes incorrectly stated. Some candidates incorrectly included loss on

disposal with other income.

(b) This part was also answered well by most candidates. Common errors were to include all the loan

as a non-current liability and to omit accruals and prepayments from the correct section of the

statement of financial position.

© 2015