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Paper Reference(s)
6001/01
London Examinations GCE
Accounting (Modular Syllabus)
Advanced Subsidiary/Advanced Level
Unit 1 The Accounting System and Costing
Monday 12 January 2009 Afternoon
Source booklet for use with Questions
1 to 7.
Do not return the insert with the
question paper.
Printers Log. No.
H33191A
This publication may be reproduced only in accordance with Edexcel Limited copyright policy. 2009 Edexcel Limited.
W850/6001/57570 4/4/4/
*H33191A*
H33191A 2
SECTION A
SOURCE MATERIAL FOR USE WITH QUESTION 1
1. Kehly is in business installing computer networks for two customers: TB Internet and Super
Broadband. The following balances were extracted from Kehlys books on 31 December 2008.

Sales 300 000
Purchases of materials 62 500
Wages of network installers 84 000
Management salaries 31 500
Vehicle running expenses 11 250
Vehicles at cost 35 000
Vehicles provision for depreciation 14 000
Office rent and expenses 43 400
Office equipment at cost 18 000
Office equipment provision for depreciation 6 000
Stock of materials at 1 January 2008 7 850
Debtors 90 000
Creditors 47 950
10% Bank loan repayable 31 December 2011 30 000
Interest on bank loan 1 500
Bank overdraft 9 150
Provision for doubtful debts 2 500
Capital 25 000
Drawings 49 600
Additional information:
(i) Stock of materials at 31 December 2008, 10 350.
(ii) Office rent and expenses includes a payment of 7 200 for the 3 months to 31 January 2009.
(iii) Depreciation is charged at the rate of 10% on vehicles using the straight line method and 20%
on office equipment using the reducing balance method.
(iv) Kehly has the credit control policy of issuing invoices immediately after jobs are completed;
submitting monthly statements to debtors; and telephoning debtors when debts are 3 months
old. A schedule of outstanding debts is as follows:
Age of debt 0 3 months 3 6 months Over 6 months
TB Internet 22 000 18 000 17 000
Super Broadband 27 000 6 000 Nil
(v) A provision for doubtful debts is to be maintained at 31 December 2008 at the following rate:
Age of debt 0 3 months 3 6 months Over 6 months
Rate 3% 6% 10%
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Required:
(a) Prepare for Kehly the:
l trading and profit and loss account for the year ended 31 December 2008
l balance sheet as at 31 December 2008.
(28)
Kehly remunerates the network installers by paying an hourly rate. To save money, Kehly is
considering changing the remuneration method to a piecework system.
(b) Explain two disadvantages to Kehly of changing the remuneration system to piecework.
(8)
(c) Calculate for Kehly at 31 December 2008 the:
l debtors collection period in days
l liquid (acid test) ratio.
(Calculations should be made to the nearest one decimal place.)
(8)
(d) Evaluate the credit control policy of Kehly.
(8)

(Total 52 marks)
Answer space for question 1 is on pages 2 to 7 of the question paper.
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SOURCE MATERIAL FOR USE WITH QUESTION 2
2. The following information relates to the machinery owned by Keaton Manufacturing, for the year
ended 31 December 2008.
(i) Balances 1 January 2008:
l Machinery account 110 000
l Provision for depreciation on machinery account 42 000
(ii) Disposal of machinery:
Low Speed Printer (machine number 108)
l Purchased on 20 December 2005 for 30 000
l Estimated economic life 10 years
l Residual value 5 000
l Depreciation has been charged using the straight line method
l Sold on 30 November 2008 for 13 000.
(iii) Purchase of machinery:
High Speed Printer (machine number 515)
l Purchased on 31 December 2008 for 60 000 plus 4 000 installation cost
l Estimated economic life 8 years
l Residual value 8 000
l Depreciation is to be charged using the straight line method.
(iv) The machinery depreciation policy of Keaton Manufacturing is to charge a full years
depreciation in the year of sale and to charge no depreciation in the year of purchase.
(v) The total depreciation on machinery for the year ended 31 December 2008 was 20 500.
Required:
(a) Explain
l the term depreciation
l why depreciation is an application of the going concern concept.
(8)
(b) Prepare, for the year ended 31 December 2008, the
l machinery account
l provision for depreciation account
l asset disposal account.
(12)
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A director of Keaton Manufacturing has requested that the calculation for depreciation on machinery
be changed from the present straight line method to the reducing balance method. The reducing
balance method would be calculated at the rate of 25% per annum.
(c) (i) Calculate, for the High Speed Printer (machine number 515), the annual depreciation for
the first three years of ownership, 2009, 2010 and 2011, using the:
l straight line method
l reducing balance method.
(ii) Explain two advantages to Keaton Manufacturing of changing to the reducing balance
method of depreciation.
(12)
(d) (i) Distinguish between capital and revenue expenditure.
(ii) Advise, stating clearly your reasons, whether each of the following are capital or revenue
expenditure:
l machinery installation costs
l staff training costs.
(12)
(e) Evaluate whether, by charging annual depreciation, Keaton Manufacturing will have sufficient
cash to replace the High Speed Printer (machine number 515) with a new machine at the end
of its economic life.
(8)
(Total 52 marks)
Answer space for question 2 is on pages 8 to 13 of the question paper.
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SOURCE MATERIAL FOR USE WITH QUESTION 3
3. The treasurer of the Gateway Social Club prepares yearly accounts on 31 December. The following
information was available for the year ended 31 December 2008.
(i) Receipts and Payments Account (extract)

Sales receipts: Payments to suppliers:
Food 47 500 Food 17 800
Drinks 27 000 Drinks 19 150
Subscriptions 23 800 Wages: Catering staff 17 950
Bar steward 10 650
Club manager 15 000
Newspapers and journals 1 600
General running expenses 9 250
Expenditure fixtures
and fittings 3 500
Loan interest 2 700
(ii) Stock at 1 January 2008:
Food Nil
Drinks 80 boxes @ 6.50
(iii) Receipts and issues for boxes of drinks for the year were:
Receipts Issues
(boxes) (boxes)
January March 480 @ 7.00 per box 460
April June 560 @ 7.50 per box 480
July September 700 @ 8.00 per box 750
October December 600 @ 8.50 per box 614
(iv) The club uses the Last In First Out (L.I.F.O) perpetual inventory method for valuing all
stock.
(v) There were no stocks of food on 31 December 2008.
(vi) Other balances:
1 January 2008 31 December 2008

Fixtures and fittings (book value) 40 000 37 500
Creditors Food 1 900 3 100
Drink 5 070 4 180
Subscriptions in advance 5 320 4 120
Subscriptions in arrears 660 480
8 % Loan 35 000 35 000
(vii) During the year subscriptions of 180 had to be written off as irrecoverable.
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(viii) The expenditure on fixtures and fittings which is shown in the Receipts and Payments Account
includes an amount of 2 000 which was spent during the year on additional fixtures and
fittings. The remainder of the total spent was for repairs, which the Club considers to be
revenue expenditure.
Required:
(a) Calculate the value of the stock of drinks at 31 December 2008.
(8)
(b) Prepare for the year ended 31 December 2008, the:
l subscriptions account
l bar trading account, in columnar format, showing the profit or loss on the sale of food and
the sale of drinks (a total column is not required)
l income and expenditure account.
(32)
The cost of membership of the Gateway Social Club is 50 per year. On 1 January 2007, the Club
offered a 5 year membership for a single discounted payment of 150.
(c) Explain the accounting treatment of a 5 year membership fee in both the income and
expenditure account and the balance sheet for the year ended 31 December 2008.
(4)
(d) Evaluate, from the view of the Gateway Social Club, the offer of a 5 year membership for
150.
(8)
(Total 52 marks)
Answer space for question 3 is on pages 14 to 19 of the question paper.
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SECTION B
SOURCE MATERIAL FOR USE WITH QUESTION 4
4. Maisha and Shiban are partners in a business but they have no partnership agreement. The partners
decided to dissolve the partnership on 30 November 2008.
After the preparation of the final accounts for the year ended 30 November 2008, the following
balances remained in the books:

Fixed assets
Premises 65 000
Vehicle 8 700
Fixtures 2 000
75 700
Current assets
Stock 15 000
Debtors 9 400
24 400
100 100
Current liabilities
Creditors (28 300)
Bank overdraft (1 800)
(30 100)
70 000
Financed by:
Capital Maisha 40 000
Shiban 30 000 70 000
The details of the dissolution were as follows:
(i) As part of the settlement, Maisha would take the vehicle at an agreed valuation of 6 500.
(ii) A cheque for sale of the premises, 100 000, was received from City Developments.
(iii) A cheque was received for 25 000 for all other assets.
(iv) Creditors were paid 27 000 in full settlement.
(v) Dissolution expenses were 700.
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Required:
(a) State the provisions of the Partnership Act which would apply in the absence of a partnership
agreement.
(6)
(b) Prepare for the dissolution of the partnership, the:
l realisation account
l bank account
l capital accounts of Maisha and Shiban.
(22)
(c) Evaluate the need for a Partnership Agreement when trading as a partnership.
(4)
(Total 32 marks)
Answer space for question 4 is on pages 20 to 23 of the question paper.
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SOURCE MATERIAL FOR USE WITH QUESTION 5
5. Faraz manufactures two products: the Standard and the Classic. The following information relates
to the manufacture and sale of the Standard for December 2008.
(i) Raw materials used:
l 400 kilos @ 9.60 per kilo list price
l Trade discount received 12.5%
(ii) Labour costs:
l 280 hours @ 7 per hour
l 30 hours @ time and a half
l Bonus payment of 215
(iii) Overheads:

Premises rent 4 000
Supervision and management 1 800
Electricity 800
Depreciation 1 600
Additional information:
Standard Classic Administration
Employees (Number) 2 4 2
Area occupied (Sq m) 400 200 200
Value of equipment () 1 000 2 000 5 000
Capacity (Kwh) 20 30 30
Total administration costs are re-allocated on the basis of 60% Standard and 40% Classic.
(iv) All units of Standard manufactured in December were sold in the month.
(v) 1 150 units of Standard were sold in December at a price of 12 per unit.
Required:
(a) l Distinguish between allocation and apportionment of overheads.
l State two reasons why overheads are fixed costs or have a large fixed cost element.
(8)
(b) Calculate, for the month of December 2008:
l Overhead cost of manufacturing the Standard.
l Total cost of manufacturing one unit of Standard.
l Percentage profit margin on one unit of Standard.
(20)
(c) Evaluate the use of apportionment of overheads in product costing.
(4)
(Total 32 marks)
Answer space for question 5 is on pages 24 to 27 of the question paper.
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SOURCE MATERIAL FOR USE WITH QUESTION 6
6. The following information relating to the month of December 2008 was extracted from the books
of Mafruda:

Debtors at 1 December 9 240
Creditors at 1 December 10 450
Stock at 1 December 22 600
Sales on credit 89 710
Sales for cash 15 390
Sales returns 1 400
Cheques received from debtors 78 580
Discount allowed 2 450
Discount received 1 100
Bad debts written off 3 200
Cheques paid to creditors 64 500
Debtors at 31 December ?
Creditors at 31 December 11 900
Stock at 31 December 20 850
Required:
(a) State three reasons why a business might offer cash discount to customers.
(6)
(b) Calculate the purchases for the month of December 2008.
(6)
(c) Prepare, for the month of December 2008, the:
l sales ledger control account
l trading account.
(16)
Mafruda recently stated that control accounts ensure that the ledgers are always correct and without
errors.
(d) Evaluate this statement.
(4)
(Total 32 marks)
Answer space for question 6 is on pages 28 to 32 of the question paper.
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SOURCE MATERIAL FOR USE WITH QUESTION 7
7. On 1 January 2008 the following balances remained in the books of Gibbs Wholesalers:


Electricity 164 Cr
Buildings insurance 160 Dr
Rent receivable 200 Cr
During the year ended 31 December 2008 the following bank transactions were recorded:
(i) Electricity
2 April Payment 462
1 May Receipt for refund 38
9 October Payment 365
On 31 December 2008 it was estimated that 175 was due for electricity used.
(ii) On 1 April 2008 a payment of 360 was made for 12 months buildings insurance to 31 March
2009.
(iii) Ten monthly payments of 200 were received from the tenant. The rent of the premises is 200
per month.
Required:
(a) Distinguish between an error of commission and an error of principle, giving an example of
each type.
(8)
(b) Prepare the following ledger accounts for the year ended 31 December 2008, showing the
transfers to the profit and loss account and the balances brought down.
l Electricity account.
l Buildings insurance account.
l Rent receivable account.
(20)
(c) Evaluate the role of the accruals (matching) concept in calculating the profitability of a
business.
(4)
(Total 32 marks)
Answer space for question 7 is on pages 33 to 36 of the question paper.