Centre Number Candidate Number Name

CAMBRIDGE INTERNATIONAL EXAMINATIONS

General Certificate of Education Ordinary Level
PRINCIPLES OF ACCOUNTS 7110/02
Paper 2
October/November 2003

1 hour 45 minutes
Candidates answer on the Question Paper.
Additional Materials: Multi-column Accounting Paper

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 in the spaces provided on the Question Paper.
You may use a soft pencil for any diagrams, graphs or rough working.
Do not use staples, paper clips, highlighters, glue or correction fluid.

Answer all questions.

Question 6 may be answered either in this booklet or on multi-column accounting paper.
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.
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.

For Examiner’s Use

3
If you have been given a label, look at the
details. If any details are incorrect or 4
missing, please fill in your correct details
in the space given at the top of this page. 5

Stick your personal label here, if 6

provided.
TOTAL

This document consists of 10 printed pages and 2 lined pages.

SJF2870 S43609/2
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1 The balances given below were taken from the books of K. Lyon on 1 July 2003.

$
Stationery 480 Dr.
Rent received 1 000 Cr.
M. Millan 640 Dr.

The following transactions took place during July 2003.

July 3 Bought stationery $160 on credit from Boss Supplies.

4 Received a cheque from M. Millan for the amount due less 5% cash discount.
8 Received $100 rent in cash.
11 Bought stationery $220 by cheque.
12 Sold goods to M. Millan on credit for $360.
23 Sent a credit note to M. Millan for $30 for wrong goods supplied.
25 Lyon was told that Millan was insolvent. He decided to write off her account as bad
immediately.
30 Received a cash refund of $40 for unsatisfactory stationery returned.

Additional information:

1. The tenant of Lyon’s premises had agreed to pay a monthly rental of $100 from
1 August 2002.
2. The stock of stationery at 31 July 2003 was valued at $210.
3. Lyon prepares his final accounts on 31 July 2003.

REQUIRED:

Prepare the following ledger accounts, balanced at 31 July 2003. Pay attention to dates and
details. Include, where appropriate, the transfers to the Profit and Loss Account.

(a) Stationery account

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(b) Rent received account

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(c) M.Millan

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2 A Trial Balance was taken out for A. Suma on 31 August 2003. Unfortunately, the Trial
Balance failed to agree and a suspense account was opened for the difference.

Investigations revealed the following errors:

1. A sale of goods worth $910 to J. Lee had been correctly entered in the Sales
Journal but had not been posted to Lee’s account.

2. A credit note for $140 received from F. Kerry had been correctly entered in the
appropriate journal but had been posted to Kerry’s account as $410.

3. Discounts allowed $190 had been wrongly credited to the Discounts Received
account. No entry had been made in the Discounts Allowed account.

REQUIRED:

(a) Prepare Journal entries, with narratives, to correct the above errors:

Details Dr. Cr.

$ $

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(b) Draw up the Suspense account showing all the necessary corrections from (a) and the
opening Trial Balance difference.

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3 What conclusions do you draw from the following information relating to the accounts of
P. Moyo? Assume that the ledger accounts have been balanced and the final accounts
prepared.

(a) Darien’s account in the Purchases Ledger has a credit balance.

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(b) P. Gee’s account in the Sales Ledger has a credit balance.

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(c) There is a debit balance on the Insurance account.

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4 The following information for the year ended 30 September 2003 was extracted from the
books of Preserves Ltd, manufacturers of jam and fruit juices.

1 October 2002 30 September 2003

$ $
Stocks: – raw materials 6 800 6 400
– jars, lids and labels 10 400 10 000
– finished goods 21 000 21 600

Purchases: – raw materials 70 600

– jars, lids and labels 17 000

Sales 365 000

Factory wages 36 800
Factory light and power 29 200
Factory machines repairs 11 400
Carriage on raw materials 11 000
Depreciation of plant and machinery 12 600

REQUIRED:

(a) Prepare, in good style, the Manufacturing Account for the year ended
30 September 2003.

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(b) Prepare the Trading Account for the year ended 30 September 2003.

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5 Karl’s final accounts for the year ended 31 December 2002 contain the following information.

$
Sales 116 000
Cost of sales 72 000
Expenses 23 000

Karl’s assets and liabilities at the same date of 31 December 2002 were
$
Fixed assets 224 000
Stock 16 000
Debtors 14 000
Creditors 13 000
Bank overdraft 9 000

Karl’s brother, Matt, runs a similar business and the two brothers decided to compare
results. Matt supplied the following ratios.

Ratio Matt Column (a)

Gross profit as a percentage of sales 34.1%

Net profit as a percentage of sales 16.81%

Net profit as a percentage of capital 10.33%

Current ratio 2.15:1

REQUIRED:

(a) Calculate

(i) Karl’s gross profit

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(ii) Karl’s net profit

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(b) Complete column (a) in the table above to show the ratios for Karl’s business.

Calculation should be to two decimal places.

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(c) For each ratio suggest one possible reason for the difference between Karl’s ratio and
Matt’s ratio.

Gross profit as a percentage of sales

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Net profit as a percentage of sales

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Net profit as a percentage of capital

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Current ratio

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6 Jenny Lee is a trader and the following Trial Balance was extracted from her books on 31
December 2002.

Dr. Cr.
$ $
Purchases and Sales 474 000 648 000
Stock, 1 January 2002 46 000
Debtors and Creditors 53 000 39 000
Sundry expenses 16 600
Carriage on purchases 2 400
Equipment 9 000
Delivery vehicle 33 000
Rent and insurance 18 000
Provision for doubtful debts, 1 January 2002 1 200
Bad debts 900
Discounts received 5 500
Wages and salaries 76 400
Lighting and heating 8 000
Bank 9 500
Drawings 55 000
Capital 108 100
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801 800
_______ 801 800
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Additional information:

1. Stock at 31 December 2002 was valued at $64 400.

2. $700 was owing for sundry expenses at 31 December 2002.
3. The provision for doubtful debts is to be reduced to $800.
4. Jenny Lee’s imperfect attempt at the Delivery Vehicle account was entered in the
ledger as follows:
Delivery Vehicle
$ $
2002 2002
Jan 1 Balance (old vehicle) b/d 12 000 Jan 1 Cash (sale of old vehicle) 15 000
Cash (cost of new Dec 31 Balance c/d 33 000
vehicle) 36 000
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48 000
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2003
Jan 1 Balance b/d 33 000

Jenny Lee wishes to charge depreciation on the new vehicle at 20% on cost.

5. During 2002, Lee took goods at cost, $3000, from the business for her private use.
No entries were made in the books.

REQUIRED:

(a) Prepare the Trading and Profit and Loss Accounts for the year ended
31 December 2002. [19]

(b) Draw up the Balance Sheet as at 31 December 2002. [15]

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