Cambridge International Examinations

Cambridge International General Certificate of Secondary Education

* 6 5 1 5 2 4 0 7 8 3 *

ACCOUNTING 0452/23
Paper 2 October/November 2016
1 hour 45 minutes
Candidates answer on the Question Paper.
No Additional Materials are required.

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.
You may use an HB pencil for any diagrams or graphs.
Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.

Answer all questions.

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.

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.

This document consists of 19 printed pages and 1 blank page.

DC (RCL (JDA)) 116458/3

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1 Jolindi is a trader who maintains a full set of accounting records including a three column cash
book.

Her transactions for September 2016 included the following.

September 5 Cash sales, $515, of which $400 was paid directly into the bank

10 A cheque received in August for $190 from C Barnes was dishonoured

15 Received a cheque from H Magagula to settle her debt of $480, less 2½% cash
discount

21 Paid $324 by cheque, for new office equipment, $280, and repairs to existing
office equipment, $44

28 Paid all the cash into the bank except $50

REQUIRED

(a) Complete Jolindi’s cash book on the page opposite.

Balance the cash book and bring down the balances on 1 October 2016.
[10]

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© UCLES 2016
Jolindi
Cash Book

Date Details Discount Cash Bank Date Details Discount Cash Bank
allowed received
2016 $ $ $ 2016 $ $ $

Sept 1 Balance b/d ............... 193 ................ Sept 1 Balance b/d ............... ............... 1560

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3

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0452/23/O/N/16
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 4

(b) State why it is not possible for Jolindi to have a credit balance in the cash column of her cash
book.

...................................................................................................................................................

.............................................................................................................................................. [1]

Jolindi decided to compare the bank column of her cash book with her bank statement and to
prepare a bank reconciliation statement.

REQUIRED

(c) State two reasons for preparing a bank reconciliation statement.

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

...................................................................................................................................................

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

............................................................................................................................................. [2]

(d) Suggest two items which may appear in the cash book but not on the bank statement.

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

...................................................................................................................................................

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

............................................................................................................................................. [2]

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Jolindi believes that her working capital could be improved. She is considering five courses of
action.

REQUIRED

(e) State whether each of the following courses of action would increase, decrease or have no
effect on the working capital. Give a reason for your answer in each case.

The first one has been completed as an example.

Effect on Reason
working
capital
Reduce credit sales No effect Trade receivables decrease and cash
and increase cash increases so total current assets
sales is unchanged. No effect on current
liabilities.

Create a provision
for doubtful debts

Take a long-term
bank loan

Take a short-term
bank loan

Pay credit suppliers

early to earn cash
discount

[8]

[Total: 23]
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2 The financial year of Crossroads Limited ends on 31 October.

The partially completed statement of changes in equity for the year ended 31 October 2016 was
as follows:

Ordinary General Retained Total

share reserve earnings
capital
$ $ $ $

On 1 November 2015 350 000 16 000 46 000 412 000

Share issue 50 000 50 000
Profit for the year 72 000 72 000
Final dividend paid (for year
ended 31 October 2015) (17 500) (17 500)
Interim dividend paid (for year
ended 31 October 2016) (10 500) (10 500)
Transfer to general reserve 15 000 (15 000)

On 31 October 2016

The following additional information was also available on 31 October 2016.

$
Premises at cost 363 000
Machinery and equipment at cost 185 000
Fixtures and fittings at cost 70 000
Provision for depreciation – machinery and equipment 83 250
fixtures and fittings 24 073
Inventory 30 853
Trade receivables 28 000
Trade payables 31 600
Rates paid in advance 1 340
Debenture interest accrued 800
Wages accrued 320
Bank 11 400 credit
Provision for doubtful debts 750
4% debentures (repayable 2026) 20 000

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REQUIRED

(a) Prepare the statement of financial position on 31 October 2016.

Crossroads Limited
Statement of Financial Position at 31 October 2016
$ $ $

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[15]

(b) State the meaning of each of the following terms.

Issued share capital

...................................................................................................................................................

...................................................................................................................................................

Called-up share capital

...................................................................................................................................................

...................................................................................................................................................

Paid-up share capital

...................................................................................................................................................

............................................................................................................................................. [3]

[Total: 18]

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3 The financial year of Kristy ends on 31 October. She maintains a provision for doubtful debts. The
following account appeared in her ledger.

Provision for doubtful debts account

Date Details $ Date Details $

2016 2015
Oct 31 Income statement 75 Nov 1 Balance b/d 525
Balance c/d 450 ___
525 525

REQUIRED

(a) Explain the following entries in the above account. Name the account in which the double
entry would be made for each item. State whether the account would be debited or credited.

1 November 2015 Balance b/d

Explanation ................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

Double entry ..............................................................................................................................

31 October 2016 Income statement

Explanation ................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

Double entry ..............................................................................................................................

31 October 2016 Balance c/d

Explanation ................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

Double entry ........................................................................................................................ [6]

(b) State the entry for provision for doubtful debts that would appear in the statement of financial
position on 31 October 2016.

...................................................................................................................................................

............................................................................................................................................. [2]

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On 31 October 2016 the following transactions took place.

1 Kristy transferred her personal computer system to the business. When purchased it cost
$1200 and was now valued at $740.

2 An invoice was received from Comp4u for $266, consisting of $40 for repairs to the computer
system and $226 for a new printer.

REQUIRED

(c) Prepare journal entries to record the transactions which took place on 31 October 2016.

Narratives are required.

Kristy
Journal

Debit Credit
$ $

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

.......................................................................... ........................ ........................

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

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[7]

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During the year ended 31 October 2016 the payments made by Kristy included both capital and
revenue expenditure.

REQUIRED

(d) Complete the following table by placing a tick () in the correct column to show whether each
payment is capital expenditure or revenue expenditure.

Capital Revenue
expenditure expenditure
Wages paid to employees to
build new office block
Insurance premium for new
office block
Cost of painting new office
block
Cost of moving furniture into
new office block
[4]

On 31 October 2016 it was found that two receipts had been incorrectly classified.

REQUIRED

(e) Complete the following table by placing a tick () in the correct column to indicate the effect
of each error on the profit for the year.

Effect of error on profit

overstated understated
Proceeds of sale of old fixtures (at book
value) included in income statement
Interest received on loan to employee
recorded as part repayment of loan
[2]

[Total: 21]

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4 Hamza is a trader who does not maintain a full set of accounting records. His financial year ends
on 31 August.

In December 2015 it was discovered that some errors had been made in the financial statements
for the year ended 31 August 2015.

REQUIRED

(a) Complete the following table to indicate the effect of correcting each error on the profit for
the year.

The first one has been completed as an example.

Effect on profit of correcting error

increase decrease
$ $
Purchases returns, $2000, had not
been recorded. 2000
Wages owing at 31 August 2015, $450,
were not recorded.
Discount allowed, $115, had been
recorded as discount received.
The provision for doubtful debts, $950,
should have been adjusted to 2½% of
trade receivables, who owed $36 000.
Inventory at 1 September 2014 had
been valued at net realisable value,
$16 700, instead of at cost, $15 300.
[8]

Hamza had no record of the purchases for the year ended 31 August 2016, but the following
information was available.

$
Inventory 1 September 2015 14 100
Inventory 31 August 2016 13 700
Revenue 385 500
Returns from customers 7 500
Carriage inwards 2 100
General expenses 3 910
Wages and salaries 21 500
Rates and insurance 5 320
Depreciation of non-current assets 5 660

Mark-up on cost 20%

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REQUIRED

(b) Prepare the income statement for the year ended 31 August 2016 showing the purchases for
the year.

Hamza
Income Statement for the year ended 31 August 2016

$ $

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[14]

[Total: 22]

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5 Tom’s financial year ends on 31 July. He depreciates his non-current assets using the reducing
(diminishing) balance method.

REQUIRED

(a) Name one other method of depreciation which Tom could apply.

............................................................................................................................................. [1]

(b) Explain how providing for depreciation of non-current assets is an application of the principle
of accruals (matching).

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [2]

(c) Name one other accounting principle which is applied when providing for depreciation of
non-current assets.

............................................................................................................................................. [1]

Tom depreciates his machinery using the reducing (diminishing) balance method at 20% per
annum on all machinery held at the end of the year. No depreciation is charged in the year of
disposal.

On 1 August 2014 he owned one machine (Machine A) which had cost $3000, and which had
been depreciated by $600.

On 1 January 2015 Tom purchased another machine (Machine B) for $3500, paying by cheque.

REQUIRED

(d) (i) Calculate the depreciation of Machine A for each of the years ended 31 July 2015 and
31 July 2016.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [2]

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(ii) Calculate the depreciation of Machine B for each of the years ended 31 July 2015 and
31 July 2016.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

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...........................................................................................................................................

..................................................................................................................................... [2]

(e) Prepare the following accounts in the ledger of Tom.

(i) Machinery account

Balance the account on 31 July 2015 and bring down the balance on 1 August 2015.

Tom
Machinery account

Date Details $ Date Details $

2014
Aug 1 Balance (A) b/d 3000 ............ ................................ ............

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(ii) Provision for depreciation of machinery account

Balance the account at the end of each year and bring down the balance on
1 August 2015 and 1 August 2016.

Tom
Provision for depreciation of machinery account

Date Details $ Date Details $

2014
............ ................................ ............ Aug 1 Balance b/d 600

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[7]

On 1 October 2016 Tom sold Machine A for $1640.

REQUIRED

(f) Calculate the profit or loss on the disposal of Machine A.

...................................................................................................................................................

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...................................................................................................................................................

............................................................................................................................................. [4]

[Total: 19]

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6 Joey is a trader. His financial year ends on 30 September. He provided the following information
for the year ended 30 September 2016.

$
Revenue 290 000
Cost of sales 224 025
Expenses 38 860

Joey obtained the trading results of DT Traders, another business in the same town, and decided
to compare the profitability of the two businesses.

REQUIRED

(a) Complete the following table to show the ratios for Joey’s business.

The calculations should be to two decimal places.

Ratio Joey DT Traders

Percentage of gross profit to revenue

(gross profit margin) ...................% 18.50%

Percentage of profit for the year to revenue ...................% 10.25%

(net profit margin)

You may use the space below for your workings. [4]

Workings

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(b) Suggest two reasons for the difference in the percentage of gross profit to revenue (gross
profit margin).

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

...................................................................................................................................................

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

............................................................................................................................................. [2]

(c) Suggest two reasons for the difference in the percentage of profit for the year to revenue (net
profit margin).

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

...................................................................................................................................................

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

............................................................................................................................................. [2]

(d) State which business had better control on its expenses.

............................................................................................................................................. [1]

Joey is hoping to increase the percentage of profit for the year to revenue (net profit margin) in the
following financial year. He is considering four courses of action.

REQUIRED

(e) Complete the following table by placing a tick () in the correct column to show how each
course of action would affect Joey’s percentage of profit for the year to revenue (net profit
margin).

increase decrease no effect

Buy in bulk from suppliers to obtain
trade discount
Offer cash discount to encourage
credit customers to pay early
Pay employees monthly instead of
weekly
Write off damaged inventory at the
year end
[4]

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(f) State how each of the following may be regarded as a limitation of financial statements.

Historical cost

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

Non-financial factors

...................................................................................................................................................

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...................................................................................................................................................

............................................................................................................................................. [4]

[Total: 17]

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© UCLES 2016 0452/23/O/N/16