Aslevel Mock 2

Name Date HIGHEST MARK IN CLASS TIME ALLOWED Percentage Grade Question number

1. 2. 3. 4. 5. 6. 7. Total marks

Full marks

3 hours

Marks obtained

52 52 52 32 32 32 32 200

Grade

A

B

C

Lowest percentage for award of grade

80 75 65

D

E

55

50

Information for candidates: • • • • • • • •

The total marks for this paper is 200. The paper has seven questions. any Answer a ny two in section A and any three in Section B. Write your answers neatly and in good English. Please do not talk with each other. Understanding the questions is part of the exam. Remember the pledge of not talking to each other. Minimise the use the mobile phones.

TEACHERS COMMENTS:

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SECTION A ANSWER ANY TWO

1. The happy wanderers club is a non-profit organisation providing leisure pursuits. The previous director was axed and was replaced with a young, energetic and ambitious financial director who brought in radical changes in the club. Fees are also charged for each outing. Below is the summary of the cash book maintained by the treasurer.

Balance b/d Subscription Outings and excursion Bar and snack takings Loan from member Interest from investment

£ 300 13800 490 1030 25000 25

Wages: bar staff Rent and rates Insurance Lighting and heating Equipment and fittings Investment account Creditors: bar and snacks Telephone, postage & stationery Magazines and periodicals Movie theatre for members Redecoration of premises Loan repayment Balance at 31 December 1992

40645

£ 200 400 80 110 140 10000 500 85 76 20000 2000 6500 554 40645

The following balances are available:

5% investment Loan from member Bar stock Creditors: bar Redecoration of premises Pre-payments: rent and rates Insurance Accruals: rent and rates Insurance Telephone, postage and stationery Lighting and heating Wages- bar staff Subscription owing Subscriptions advance

1st January 1992 £ 30 40 100 15 20 400 -

31st December 1992 £ 10000 20000 60 110 4000 20 75 15 15 25 500 100

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Additional information: i. Certain members owed a total of £15 for outing and excursions at 31 December 1992. ii. Equipment and fittings had a book value at 1 January 1992 of £1200 with £800 depreciation having been provided to that date. All fixed assets owned to the date are depreciated at a rate of 10% per annum on cost. iii. The £140 spent on purchases and repairs of equipment and fittings included £40 for repairs. It is the clubs policy to charge full years depreciation in the year of purchase. iv. To upgrade the facilities of happy wanderers club the directors introduced cinema facilities for its member. The loan for the movie theatre was taken from a member on 1 April 1992. v. Seeing the surplus of cash in the bank account the financial director opened an investment account which will yield 5% interest p.a. the payment into the investment account took place on 1 October 1992. vi. No interest on loan is outstanding. vii. To boost the profitability happy wanderers club introduced a 10 membership scheme at a cost £900. Ten members accepted offer. (The amount doesn’t include the subscription advance.) viii. The accumulated fund for the year was £1155

Required: a. Prepare the income and expenditure account for the year ended 31 December 1992. (18) b. Prepare the balance sheet as at 31 December 1992. (12) c. Explain why the application of the accrual concept will be important in determining how the redecoration of the premises and the extension to the premises will be treated in the income and expenditure account. (8) d. Explain why the accounting concepts if accruals and materiality may be in conflict when preparing accounts. (6) e. Evaluate the decision of the club to offer the ten year membership subscriptions at a reduced rate. (8)

An expense can be prepaid in the beginning of the year and be outstanding by the end of the year and vicevice-versa too.

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2. Hammad printers are a small business producing in batches to customer’s orders. The business has two production departments: printing and packing. There is one service department administration. The following information is available: i. Standard materials of paper and card are held in stock. Special materials are purchased to customers orders. The business operates a FIFO system of stock control. ii. Production workers are paid £7.50 per hour for 40 hours per week and 46 weeks per year. It is estimated that each production worker spends 30 hours per week on work that can be charged to the customer and 10 hour on non productive work such as checking stocks and cleaning machinery. iii. Administration salaries are £81000. iv. Annual overheads are estimated to be Rent and rates £30000 Heat, light and utilities £20000 Equipment depreciation £40000 Production supervision salaries £36000 v.

Other information: Floor area (sq m) Production workers Machinery value

vi.

Printing 500 6 120

Packing 400 3 60

administration 100 20

It is estimated that the services of administration are utilised 60% printing 40% packing. Required: a. Calculate the overheads to be allocated and apportioned to each of the three departments. (8) b. Reapportion the total administration cost to the two production departments. (2) c. Calculate an overhead recovery rate for each of the two production departments based upon direct labour hours (5) d. After the end of the year the following information was available: Printing Packing Actual overheads £140000 £75000 Actual labour hours 8000 3500

i. ii.

Calculate the under or over absorption of overheads for the departments and the business as a whole. (8) Evaluate the problems of under or over recovery of overheads to a business. (8)

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e. The excellence school has requested a quotation for an order of 10000 booklets. The following information is available. Materials Required: • 200 packs of A4 paper. • Specialist card for covers purchased at a cost of £560. Stock of A4 paper: Stock brought forward 300 packs @ £1.70 per ream 100 packs @£2.00 per ream 7 December Issued 200 packs 12 December Received 100 packs @£2.20 per ream 15 December Issued 200 packs 20 December Received 300 packs @£ 2.30 per ream Direct labour Printing Packing

50 hours 40 hours

Pricing policy • Saima has a Profit margin of 25%. i.

Prepare the quotation for the Excellence school. (15)

ii.

The actual costs of the order was: Direct labour Printing Packing Raw materials: Unanticipated cost

40 hours 43hours no change £150

Required: Calculate the actual profit margin. (6)

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3. Kimberly products produces and sells a single high quality product. The production and sales of the product were 10000 units in the year ended 30 April 2005. The information related to the year ended 30 April 2005: i. Summary, manufacturing, trading and profit/loss account £ £ Sales (10000 units) 1000000 Less, manufacturing costs: Raw materials 400000 Direct labour 200000 Overheads including depreciation 200000 (800000) Gross profit 200000 Marketing costs 15000 Administration costs 105000 (120000) Net profit 80000 ii.

Direct labour was paid on a day work basis. In the year 20 workers had been paid an hourly rate of £5 for 40 hours per week and 50 weeks per year. iii. Other balances at that date included: Current liabilities £200000 Fixed assets £1500000 Current assets £300000 iv. The owner considers that the profitability of the business was low for the year and must be improved. Demand for the product is high and the owner introduced new proposals on 1 May 2005 to increase the production and sales to 20000 units. The new proposals were: • Paying a bonus to all direct labour. • Purchasing a new machine to reduce the time required for completion of each unit. • Purchasing larger premises. The following information relates to the year ended 30 April 2006. i. Production and sales were 20000 units. ii. In the year 30 workers were paid at an hourly rate of £5 for 40 hours per week and 50 weeks per year. An additional payment was made equal to 60% of the time saved increased production. The standard time for producing a unit was 4 hours. iii. On 1 May 2005, a new machine was purchased at a cost of £900000. The old machine was given in part exchange at an agreed valuation of £110000. The old machine had been purchased on 1 May 2002 at a cost of £36000. iv. Depreciation on machinery is calculated at the rate of 20% on cost using the straight line method, on assets owned at the end of the financial year.

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v.

Other balances at 30 April 2006 included: Sales Raw materials Manufacturing overheads (including depreciation) Marketing costs Administration costs Current liabilities Fixed assets Current assets

£ 2000000 740000 400000 125000 175000 100000 3500000 600000

Required: a. Prepare for the year ended 30 April 2006, the: i. Summary manufacturing, trading, profit and loss account. ii. Machinery, provision for depreciation account iii. Machinery disposal (24) b. Calculate for Kimberly products for the year ended 30 April 2005 and for the year ended 30 April 2006 the: i. Gross profit as a percentage of sales ii. Net profit as a percentage of sales iii. Return on capital employed (12) c. Explain two disadvantages of Kimberly products remunerating its employees using the bonus schemes. (8) d. Evaluate, from the actions taken by the success of Kimberly products in improving the: i. Profitability of the business and ii. Quality of the product. (8)

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SECTION B ANSWER ANY THREE QUESTIONS

4. Farha is in business trading in goods on credit. Coldstream Traders, a debtor, have received the following statement from Farha. Coldstream traders £ £ Balance b/d 2500 Bank 2450 Discount allowed 50 Office expenses 600 Sales 4300 ____ Balance c/d 5000 7450 7450 The following errors were discovered in the books of Farha. i. A payment of Coldstream Traders of £2450 with £50 discount allowed had been correctly entered in the cash book, but incorrectly recorded in the Coldstream Traders account. ii. A cash payment for office expenses by Farha had been entered in the sales account of Farha. This transaction been recorded as £4300 in the account of Coldstream Traders. iii. The sale of £450 worth of goods to Coldstream Traders had been entered in error into the account of R Crossland. iv. A further sale of goods to Coldstream Traders of £1750 had not been recorded in the books of Farha. Required: a. Prepare the following for Farha: i. Journal entries correcting the errors. (8) ii. Corrected ledger account of Cold Stream Traders (8) b. Distinguish between errors of commission and errors of principle (4) c. From the ledger account Coldstream Traders, identify one example of an error of commission and one example of an error of principal (4) d. Evaluate the role of trial balance in ensuring the accuracy of the books of accounts. (4) e. Trial balance is regarded as a checking device identify and the contribution of any other checking device. (4)

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5. The following information relates to a partnership. The partners are considering expansion.

e. Explain the provisions of the partnership Act 1890. (8) f. Evaluate the usefulness of the partnership deed when trading as a partnership (8)

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6. Cathy is concerned at the level bad debts with in her business. She has found that bad debts have risen steadily for the last three years. All bad debts are written off against the provision for bad debts account. The following information is available: i. Provision for doubtful debts account balance 1 January 2004 £2250. ii. Bad debts written off in the year ended 31 December 2004 £670. iii. On 31 December 2004 the length of time the debts had been outstanding was as follows: Total 1 month 2-3 months 4-6 months 7-12 Over 12 months months £ £ £ £ £ £ 38500 14200 13600 5100 2900 2700 iv.

v.

The policy of Cathy on bad and doubtful debts is to: • Write off all bad debts when notified • Write of all amounts outstanding for over 12 months at year end. • Make a provision at year end of 3% for debts up to 3 months and 6% for debts of 4 to 12 months. The policy of Cathy on providing credit to customers is that: • Trade credit references’ for new customers are only sought if the initial order is over £2500. • No bank references’ are obtained. • All attempts to recover debts are by letter. • Statements are sent to customers monthly, but letters demanding payment are only made for amounts outstanding for 4 months or more. • Letters threatening legal action to recover debts are sent to customers outstanding for 7 months or more. • No legal action to recover the debt is taken. Required: a. The provision for bad and doubtful debts account for the year ended 31 December 2004. (10) b. Discuss two accounting concepts that are applied when making provisions for bad and doubtful debts. (6) c. Critically evaluate the policy of Cathy on providing credit to his customers, making reference to any three points in his policy. (6) d. How can Cathy make her debtors pay quicker? (5) e. Discuss disadvantages of the methods suggested. (5)

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7. The following information is available from the accounts of king retail for year ended 31 March 2007. i.

The percentage of debtors used to maintain the provision for doubtful debts was raised from 4% to 5% of outstanding debtors on 31 March 2007. Debtors 31 March 2006 £28000 Debtors 31 March 2007 £19000

ii.

Rent receivable of £500 per quarter was owing to king’s retail on 1 April 2006. Payments were received as follows: 3 April 2006 receipts by cheque £500 5 July 2006 receipts by cheque £500 4 October 2006 receipts by cheque £500 3 January 2006 receipts by cheque £500 On 1 January 2007, king’s retail raised the rent to £700. The payment received on 4 October 2006 had been correctly entered in the bank account but had been entered in the rent receivable account at £50. This error was corrected.

iii.

The telephone account records the payments of two companies- western telephones totalling £2060 for actual usage. It was estimated that the following sums were owing to western telephones on: 1 April 2006 £160 31 March 2006 £320 Mobile phone payments to Blue phones are by bank instruction of £500 per quarter. It was estimated that the following sums were prepaid to Blue Phones on: 1 April 2006 £480 31 March 2007 £250 Required: a. Prepare the following ledger accounts for the year ended 31 March 2007. Each account should include the transfer to the profit and loss account for the year, and the balances to be carried down. i. Provision for doubtful debts account ii. Rent receivable account iii. Telephone account. (18) b. Explain why a business might maintain a provision for bad debts account. (4) c. Evaluate the usefulness of accounting standards in the preparation of final accounts of business. (4) d. Distinguish between the accruals and realisation concepts in accounting. (6)

GOOD LUCK!!!!

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