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Name Date Full marks Percentage Grade

Question number

1. 2. 3. 4. 5. BONUS QUESTION Total marks

Full marks

Marks obtained

52 49 32 32 32 10 165

Grade

A

B

C

Lowest mark for award of grade

80

75 65

D

E

55

50

This question paper includes a bonus question. You are eligible for answering it only if you attempt the full question paper. TEACHERS COMMENTS:

Parent’s feedback:

ACCOUNTING UNIT -1 TEST 3.

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Section A Answer all the questions 1.

Hammad and Wasif are in partnership sharing profits and losses equally. On 1st January 2007 they admitted Soheb as a partner and he paid £20000 into the business bank account. Goodwill at that date was valued at £800000, but it was agreed this would not be retained in the books of the new partnership. The partnership has completed the first year of trading, sharing profits and losses in the ratio 2:2:1 respectively. Interest is paid at the rate of 5% per annum. No interest is paid on drawings. Salaries are paid at the rate of £8000 each per annum to Hammad and Wasif; No salary is paid to Soheb. On 31st December 2007, the following balances were extracted from the partnership books after the preparation of the trading account.

Gross profit Stock Rent receivable Wages Office staff salaries Light and power Marketing Administration costs Equipment (cost £60000) Creditors Debtors Provision for bad and doubtful debts Drawings: Hammad Wasif Soheb Current accounts at 1st January 2007 Hammad Wasif Capital accounts Hammad Wasif Soheb

£ 150000 18000 3500 42000 30700 9750 15000 7000 12000 24850 40000 1600 7000 8000 6000 6500 CR 3500 DR

17000 10000 4000

Additional information at 31 December 2007: i. Rent receivable was due to the partnership. Premises had been rented out at the rate of £400 per month for the year. ii. Marketing expenses were prepaid by £3000. iii. Light and power is owing £650.

ACCOUNTING UNIT -1 TEST 3.

PAGE 3 OF 9 iv.

Provision for bad and doubtful debts is to be maintained at the level of 4% of debts less than 3 months and 6% for debts over three months. Three quarter of the debts are less than three months. (Provision for bad debts should be calculated on a monthly basis.) v. Depreciation on equipment is charged at the rate of 10% reducing balance method. The equipment has been a residual value of £8000. Required: a. Prepare for the year ended 31st December 2007. i. Capital accounts for the partners recording the entry of Soheb. ii. Profit and loss account iii. Appropriation account iv. Current accounts of the partners. (10X 3= 30) The partnership values stock on the first in first out periodic method each quarter year, but is considering a transfer to the Last in first out method. The stock records for the year, but is considering a transfer to the last in first out method. The stock records for the year 2007 show: Opening balance 700 @ £18 each. Receipts Issues January to March 500 @£20 each 600 April to June 400 @ £24 each 300 July to September 400 @ £27 each 500 October to December 600 @ £30 each 600 b. Calculate the value of the closing balance of stock using the L.I.F.O method. c. Explain the effect on the net profit if the partnership changes to the L.I.F.O. method. (7X2= 14) d. One of the partners, Hammad said. “When we provide depreciation on the equipment, this means that we will have the cash to replace the equipment at the end of its life.” Evaluate this statement (8)

HINT: IGNORE THE ITEMS YOU THINK ARE UNNECESSARY.

ACCOUNTING UNIT -1 TEST 3.

PAGE 4 OF 9 2. Mariam is a sole trader selling satellite navigation unit for cars. Mariam has not kept a full set of double entry accounts. Additional information for the year ended 30th April 2008. i. Most of the sales have been in cash. Where sales have been made on credit, these have been invoiced to customers. ii. On 1st may 2007, Mariam had a stock of 80 satellite navigation units in her shop which had cost £100 each. During the year she purchased stocks of Navigation units on 1 May, 1 August, 1 November and 1 February on credit. Mariam calculates her closing stock on the Last in First out basis. The following information is available. Purchases Sales in units 1 may to 31st July 90 units@ £110 120 270 units @ £120 150 1st august to 31st October st st 180 1 November to 31 January 150 units @ £130 120 units @ £140 150 1st February to 30th April iii. iv. v.

Sales are made at the rate of £200 per satellite navigation unit sold. During the year Mariam was given a £1200 discount for prompt payment. The following payments were made in cash in each of the 52 weeks of the year from the cash till. £ Rent of shop 100 Sales assistants wages 250 plus bonus of 2% of sales Drawings 80

vi.

After deducting cash expenditure in (v) above, all cash takings had been paid into the bank. The following analysis of the bank account is available: £ Receipts Cash sales 75000 Credit sales banked 19640 Payments Telephone and internet 890 Electricity 315 Sundry expenses 3720 Suppliers of goods 69850 Shop fixtures 900

vii.

Other assets and liabilities were valued as follows: 1st May 2007 £ Shop fixtures 11000 Telephone and internet due 130 Electricity prepaid 80 Sundry expense dues 450 Sundry expenses prepaid Trade debtors 3400 Trade creditors 5350

ACCOUNTING UNIT -1 TEST 3.

30th April 2008 £ 10500 210 95 630 160 ? ?

PAGE 5 OF 9 Required: a. Calculate the value of closing stock at 30th April 2008 using the Last in first out perpetual method (10) b. Prepare for Mariam the trading profit and loss account for the year ended 30th April 2008. (18). c. Calculate at 30th April 2008 the value of the: i. Trade debtors ii. Trade creditors (8) d. Mariam depreciates her shop fixtures by the revaluation method each year. Discuss the alternative methods of depreciation available to Mariam when calculating the value of her shop fittings at the end of each year. (8) e. Evaluate the decision of Mariam not to keep a full set of double entry accounts. (5).

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HINT: Revaluation method of depreciation occurs when fixed assets are revalued according to the wear and tear of the asset every year and there ARE no percentage is used to measure depreciation.

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Cash received from debtors includes all the money paid by customers......

ACCOUNTING UNIT -1 TEST 3.

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Section B Answer any two 3. Huzaifa started a business as a self employed furniture maker on 1 July 2006. He decided that until he could expand his business he would concentrate on manufacturing and selling the single product a table. He contacted a number of retailers and succeeded in obtaining some orders which she agreed to supply on credit. Huzaifa has no formal training in accounting, but at the end of his first six months in business of trading he prepared the following profit statement: £ £ Sales 10800 Raw materials purchased 5090 Wages to Huzaifa 2250 General expenses paid 2880 Selling expenses paid 400 (10620) Profit 180 Additional information: i. During the six months 90 tables were made, of which 80 had been sold to retailers. ii. At the end of the six months there was a stock of raw materials, £540 valued at cost, and a stock of finished tables valued at manufacturing cost. iii. In each week, Huzaifa spent three days on manufacturing, one day on administration and one day on selling. iv. Half of the general expenses related to manufacturing and half to administration. Required: a. Distinguish between fixed costs and semi- fixed costs, giving examples of each. (4) b. Identify four additional adjustments which might be required to the profit statement to ensure an accurate net profit or loss is calculated. (8) c. Calculate for each table the: i. Manufacturing costs ii. Total costs (16) d. Evaluate whether Huzaifa should use an accountant to assist him with the accounts of the business. (4)

ACCOUNTING UNIT -1 TEST 3.

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4. Saima has business manufacturing wind turbines for the home generation of electricity. Saima is considering expansion by purchase of another business and have a choice of two businesses for sale: New Orleans and Washington. Saima only has the fund to purchase of one business and have the following information relating to the two businesses for the year ended 31st December 2007:

Sales Cost of sales Production wages Other expenses and salaries Fixed assets Stock Debtors and prepayments Cash and bank Creditors and accruals Long term loan

New Orleans £ 400000 140000 165000 85000 170000 75000 30000 25000 50000 -

Washington £ 400000 120000 110000 90000 210000 90000 15000 5000 60000 50000

Required: a. Distinguish between the terms profitability and liquidity (4) b. Calculate for New Orleans and Washington, from the balances given: i. Net profit as a percentage of sales ii. Return on capital employed iii. Current ratio iv. Liquid (acid test) ratio. (10) c. Comment upon the ratios calculated. (8) If Saima decides to buy one of the businesses, the following actions will be taken: Purchase of New Orleans: The business employs 12 production workers. Each is paid 50 hours a week, 50 weeks per year at an hourly rate of £5.50. The payment system for the production workers would be changed to a group piece work scheme paying £25 for each unit of the 5000 units produced. All the other expenses and running of the firm will remain the sale. Purchase of Washington: Stock will be reduced by £30000. Creditors will be reduced by £20000. The long term loan will be repaid. Required: d. Calculate for New Orleans and Washington, revised: i. Return on capital employed ii. Liquid (acid test) ratio. (6) e. Evaluate whether Saima should purchase New Orleans or Washington. (4) HINT: ALL FORMULAE’S FOR CAPITAL EMPLOYED ACCEPTED.

ACCOUNTING UNIT -1 TEST 3.

PAGE 8 OF 9 5. Urn, Pot and Pail are in partnership sharing profit and loss equally. The balance sheet on 31st March 2003 was as follows: £ £ Fixed assets Premises at book value 140000 Vehicles at net book value 28000 Tools and equipment at net book value 23550 191550 Current assets Stock of materials 8960 Debtors 12480 Insurance prepaid 700 Bank 16000 38140 Less: current liabilities Creditors (10300) Expenses owing (1040) Working capital 26800 218350 Financed by: Capital: Urn 70000 Pot 70000 Pail 70000 210000 Current accounts: Urn 4100 Pot 3050 Pail 1200 8350 218350 On 1st April 2003 Pail retired and in order to calculate the amount due to him the following adjustments were made: i. Assets to be revalued: Premises £158000 Tools and equipment £18550 Stock of materials £7960 ii. Goodwill is to be valued at £21000. It was decided not to retain it into the books. iii. Pail would take over one vehicle at its net book value of £9000. iv. Urn and Pot will continue trading and share profit and losses in the ratio 3:2. v. Urn will introduce additional capital of £35000. vi. The amount due to Pail was partly paid by cheque for £40000. The balance is to remain as a loan in the new partnership. Required: a. Distinguish between fixed and floating capital. (4) b. The revaluation account (5) c. The capital accounts of Urn, Pot and Pail as at 1st April 2003 (15) d. The Balance sheet of Urn and Pot as 1st April 2003. (8)

ACCOUNTING UNIT -1 TEST 3.

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BONUS QUESTION: This question should be attempted if you have answered all the questions. (If you have left any question this answer will not be considered for grading purpose.)

Answer any two a. Evaluate the usefulness of accounting ratios in assessing the success of a business. (4) b. Explain how the accounting concepts of accruals and materiality may be in conflict when preparing the final accounts of a business. (4) c. What is the importance of labour or staff for a business entity? (4) d. Suggest some ways to make your debtors pay promptly. Identify some disadvantages of the suggestions you have suggested. (2X2) Answer one question e. Explain the term “net realisable value”. (2) f. Explain the term goodwill. (2) g. Evaluate the extent to which control account will detect fraud in the business. (2) GOOD LUCK!!!!

ACCOUNTING UNIT -1 TEST 3.