Cambridge IGCSE™(9–1)

* 4 2 3 4 3 6 7 9 5 3 *

ACCOUNTING 0985/21
Paper 2 Structured Written Paper May/June 2023

1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

INSTRUCTIONS
● Answer all questions.
● Use a black or dark blue pen. You may use an HB pencil for any diagrams or graphs.
● Write your name, centre number and candidate number in the boxes at the top of the page.
● Write your answer to each question in the space provided.
● Do not use an erasable pen or correction fluid.
● Do not write on any bar codes.
● You may use a calculator.
● International accounting terms and formats should be used as appropriate.
● You should show your workings.

INFORMATION
● The total mark for this paper is 100.
● The number of marks for each question or part question is shown in brackets [ ].
● Where you are asked to complete a layout, you may not need all the lines for your answer.

This document has 20 pages. Any blank pages are indicated.

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1 Shvan maintains a petty cash book using the imprest system. The imprest amount, which is $200,
is restored every Wednesday.

All payments of less than $75 are made from petty cash. All cash receipts of less than $75 are
paid into petty cash.

On 1 March 2023 Shvan had $61 in his petty cash box. He provided the following information for
the first week in March 2023.

March 1 Restored petty cash imprest from the business bank account

2 Paid $55 to Giles, a trade payable

3 Paid taxi fare, $21

6 Paid $18 for notepads and pens

6 Received cash, $25, from Mitchell, a trade receivable

7 Paid $30 for office cleaning

REQUIRED

(a) Prepare Shvan’s petty cash book for the first week of March 2023, on the page opposite.
Balance the petty cash book at 7 March 2023 and bring down the balance at 8 March 2023.

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 Shvan
Petty Cash Book

Total Date Details Total Office Travel Ledger

© UCLES 2023
received paid expenses accounts
$ $ $ $ $

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Shvan makes payments to Giles from his bank account as well as by cash. He provided the
following information.

March 1 Owed Giles, $165, from February

13 Paid Giles the amount outstanding on his account, by cheque

22 Purchased goods on credit from Giles, list price $150, subject to a trade discount
of 4%

(b) Prepare the account for Giles as it would appear in the books of Shvan. Balance the account
at 31 March 2023 and bring down the balance at 1 April 2023.

Shvan
Giles account
Date Details $ Date Details $

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[4]

Shvan is considering whether to stop keeping cash at his business premises. He would require
all customers to transfer payment directly into his bank account and he would make all business
payments from his bank account.

REQUIRED

(c) (i) State one way Shvan could pay his suppliers, from his bank account, other than by
cheque.

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(ii) Advise Shvan whether he should stop using cash. Justify your answer by providing two
advantages and two disadvantages of stopping using cash.

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[Total: 20]

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2 Stalla is a sole trader who sells on credit. She maintains a provision for doubtful debts at 4% of
trade receivables.

Stalla’s trade receivables were:

$
At 31 December 2021 75 000

At 31 December 2022 77 000

REQUIRED

(a) (i) Prepare Stalla’s provision for doubtful debts account for the year ended
31 December 2022. Balance the account at 31 December 2022 and bring down the
balance at 1 January 2023.

Stalla
Provision for doubtful debts account
Date Details $ Date Details $

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[3]

(ii) State two reasons why Stalla maintains a provision for doubtful debts.

1 ........................................................................................................................................

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2 ........................................................................................................................................

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Stalla charges depreciation at 25% per annum, using the reducing balance method. She charges
a full year’s depreciation in the year a vehicle is purchased and none in the year it is sold.

On 31 December 2022, Stalla sold a vehicle for $9500. The vehicle had cost $16 000 on
1 September 2020.

REQUIRED

(b) Calculate the gain or loss on disposal of the vehicle.

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The balances on Stalla’s ledger accounts at 1 January 2022 included the following.

$
Motor vehicles 48 000

Provision for depreciation on motor vehicles 21 000

(c) (i) Prepare Stalla’s motor vehicles account for the year ended 31 December 2022.
Balance the account at 31 December 2022 and bring down the balance at
1 January 2023.

Stalla
Motor vehicles account
Date Details $ Date Details $

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(ii) Prepare Stalla’s provision for depreciation on motor vehicles account for the year ended
31 December 2022. Balance the account at 31 December 2022 and bring down the
balance at 1 January 2023.

Stalla
Provision for depreciation on motor vehicles account
Date Details $ Date Details $

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[5]

Stalla had an extension to her retail premises built during 2023. The extension will be used as an
office.

REQUIRED

(d) Place a tick (3) in the correct box below to indicate whether each cost is capital expenditure
or revenue expenditure.

Capital Revenue
expenditure expenditure
Legal fees for obtaining permission to build the extension
Building costs for the extension
Insurance for the office
Painting the office extension
Office calendar for 2023
Purchase of office equipment
Installation of office equipment
Stationery for office
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[Total: 20]
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3 Eshe is a trader. She has prepared a trial balance at 31 March 2023. The totals did not agree and
the difference was placed in a suspense account.

Eshe later discovered the errors shown in the following table.

REQUIRED

(a) Complete the table to show the entries required to correct each error. The first one has been
completed as an example.

Entries required to correct the error

Error Debit Credit
Account $ Account $

A payment for rent, $300, had been Rent paid 300 Insurance 300
debited to the insurance account.

Credit sales to Raymond of $105 ................... ............ ................... ............

had been debited to the sales
account and credited to Raymond’s ................... ............ ................... ............
account.

Eshe’s total drawings from the bank ................... ............ ................... ............
for her own use, $9500, had been
debited to the cash account. ................... ............ ................... ............

A purchases invoice from Danika ................... ............ ................... ............

for $137 had been recorded in her
account and in the purchases journal ................... ............ ................... ............
as $173.

Returns inwards, $44, had not been ................... ............ ................... ............
recorded in the returns inwards
account. ................... ............ ................... ............

The motor expenses account had ................... ............ ................... ............

been overcast by $100.
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(b) Prepare the suspense account. Include the balancing figure as the original difference on the
trial balance.

Eshe
Suspense account
Date Details $ Date Details $

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[3]

Eshe’s capital at 1 April 2022 was $31 000. Her draft profit for the year ended 31 March 2023
before correction of the errors was $15 600.

REQUIRED

(c) Calculate Eshe’s capital at 31 March 2023 after the errors have been corrected.

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4 Salman owns a footwear factory. He sells to all of the three local shoe shops.
Salman prepares his financial statements to 30 April each year.

At 30 April 2023, Salman’s ledger account balances included the following.

$
Inventory at 1 May 2022

Raw materials 8 190

Work in progress 15 200

Finished goods 23 860

Purchases of raw materials 78 420

Purchases of finished goods 90 144

Wages

Factory supervisor 27 500

Factory operatives 52 396

Rates and insurance 17 528

Factory electricity 11 442

General factory expenses 8 244

Factory equipment – at cost 90 000

Factory equipment – provision for depreciation 43 920

Balance at bank 31 000 debit

Additional information

1 Inventory at 30 April 2023

Raw material 8 000

Work in progress 16 100

Finished goods 24 590

2 Salman applies a mark-up of 50% to his cost of sales.

3 Rates and insurance are to be apportioned three quarters to the factory and one quarter to
the office.

4 At 30 April 2023, factory electricity of $1048 was unpaid.

5 Factory equipment is depreciated at 20% per annum using the reducing balance method.
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REQUIRED

(a) Prepare Salman’s manufacturing account for the year ended 30 April 2023.

Salman
Manufacturing Account for the year ended 30 April 2023

$ $

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(b) Prepare the trading section of Salman’s income statement for the year ended 30 April 2023.

Salman
Income Statement (trading section) for the year ended 30 April 2023

$ $

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Salman is considering converting some of his office space into additional factory capacity.

(c) Advise Salman whether he should convert some of his premises from office use to factory
use. Justify your answer by providing arguments for and against this conversion of office
space into additional factory capacity.

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[Total: 20]

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5 Q Limited prepares its financial statements to 31 March each year.

The company’s retained earnings at 1 April 2022 were $16 250.

During the year ended 31 March 2023, the company made a profit of $43 500 (after charging all
expenses and interest). The total dividends of $39 000 for the year were paid by 31 March 2023.

The following balances were extracted from the company’s ledger accounts after the income
statement had been prepared.

Fittings and equipment at cost 150 000

Provision for depreciation of fittings and equipment 40 650
Motor vehicles at cost 72 000
Provision for depreciation of motor vehicles 31 125
Inventory 51 790
Balance at bank 1 076 debit
Trade receivables 19 700
Provision for doubtful debts 591
Trade payables 31 450
5% Debentures (repayable 2029) 40 000
Bank loan (repayable 2027) 10 000
Ordinary share capital 120 000

REQUIRED

(a) Calculate the retained earnings of Q Limited at 31 March 2023.

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(b) Prepare the statement of financial position for Q Limited at 31 March 2023.

Q Limited
Statement of Financial Position at 31 March 2023

$ $ $

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(c) Calculate the liquid (acid test) ratio to two decimal places.

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The directors (who are also the shareholders) would like to expand the company and wish to
borrow $50 000 to fund the expansion. They are considering whether to issue further ordinary
shares or to request another long-term bank loan.

REQUIRED

(d) (i) Suggest two reasons why although the company has made a profit, there is little cash
available in the bank account to fund the expansion.

1 ........................................................................................................................................

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2 ........................................................................................................................................

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[2]

(ii) Advise the directors whether they should fund the expansion by issuing ordinary shares
or requesting a bank loan. Justify your answer.

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Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.
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To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
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Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download
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at www.cambridgeinternational.org after the live examination series.

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Cambridge Assessment International Education is part of Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
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