Cambridge IGCSE Accounting 0452 — 2010 May/June Paper 1 · Variant 2

This document consists of 18 printed pages and 2 blank pages. IB10 06_0452_12/6RP © UCLES 2010 [Turn over *7471332988* For Examiner's Use 1 2 3 4 5 6 Total UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education ACCOUNTING 0452/12 Paper 1 May/June 2010 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 a soft pencil for any diagrams or graphs. Do not use staples, paper clips, highlighters, 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.

2 © UCLES 2010 0452/12/M/J/10 For Examiner's Use There are 10 parts to Question 1. For each of the parts (a) to (j) below there are four possible answers A, B, C and D. Choose the one you consider correct and place a tick (✓) in the box to indicate the correct answer. 1 (a) Businesses use financial records to prepare financial statements (final accounts). Which record is used in the preparation of the balance sheet? A bank statement B cash book C purchases journal D sales journal [1] (b) Which documents received by a business are used to write up the purchases returns journal? A credit notes B debit notes C statements D sales invoices [1] (c) A business keeps a petty cash book with an imprest amount of $300. During September the following transactions take place: $ imprest restored on 1 September 100 petty cash drawn from bank on 15 September 150 expenses paid from petty cash 400 What amount will be required to restore the imprest on 30 September? A $50 B $250 C $400 D $550 [1]

3 © UCLES 2010 0452/12/M/J/10 [Turn over For Examiner's Use (d) Which error would not be revealed by a trial balance? A completely omitting a transaction B incorrectly balancing an account C making only one entry for a transaction D recording a transaction twice on the same side [1] (e) Which will be shown on a bank statement? A cash paid into bank not yet credited B cheque dishonoured C cheque drawn not yet presented D petty cash payment [1] (f) What is meant by the realisation concept? A Revenue and profit should not be anticipated. B Revenue is recognised as being earned when ownership of goods passes to the customer. C Similar items should be accounted for in a similar way from one accounting period to the next. D Transactions must be expressed in monetary terms. [1] (g) A business values its inventory (stock) of items X and Y. The following information is available. item amount cost price per unit net realisable value per unit X 300 units $3 $4 Y 600 units $6 $5 What is the total value of the inventory (stock)? A $3900 B $4200 C $4500 D $4800 [1]

4 © UCLES 2010 0452/12/M/J/10 For Examiner's Use (h) What is the effect of not including intangible assets on the balance sheet? A overstate the value of the non-current (fixed) assets B overstate the value of the working capital C understate the value of the current assets D understate the total value of the assets [1] (i) Which will appear in the income statement (profit and loss account) of a limited company? A debenture interest paid B preference share dividend paid C retained profit brought forward D transfer to general reserve [1] (j) A trader does not keep proper accounting records. Her capital at the end of the financial year is higher than at the start. She has not introduced any further capital during the year. What does this show? A A net loss has been made during the year. B Annual drawings are greater than the net profit. C Assets less liabilities have reduced during the year. D Net profit is greater than annual drawings. [1] [Total: 10]

5 © UCLES 2010 0452/12/M/J/10 [Turn over For Examiner's Use 2 (a) Give two ratios used to measure the profitability of a business. (i) (ii) [2] (b) In the table below, place a tick (
) under the correct heading to show whether the item is a current asset or a current liability: Current asset Current liability Inventory (stock) Trade payables (creditors) Other receivables (prepayments) [3] (c) In the table below, place a tick (
) to show where an entry for a dishonoured cheque would be made in the cash book. Bank column Cash column Debit side Credit side [1] (d) Name the final account in which discount allowed should be shown. [1] (e) Imran buys a new machine but the cost is entered in the repairs account. Name the type of error which has been made. [1]

6 © UCLES 2010 0452/12/M/J/10 For Examiner's Use (f) State which accounting principle is being followed when a business makes a provision for a doubtful debt. [1] (g) Whangi’s business had credit purchases for the year ended 31 March 2010 of $45 500, and carriage inwards of $2500. His inventory (stock) at 1 April 2009 was $4000 and at 31 March 2010 was $5600. His trade payables (creditors) at 31 March 2010 were $3750. (i) Calculate his rate of inventory (stock) turnover. Give your answer to two decimal places. Show all your workings. [4] (ii) Calculate his payment period for trade payables (creditors) in days. Give your answer to the nearest whole day. Show all your workings. [4]

7 © UCLES 2010 0452/12/M/J/10 [Turn over For Examiner's Use (h) Hooper’s financial year ended on 31 March 2010. He paid wages for the year of $32 800. He had wages outstanding as follows: $ at 1 April 2009 300 at 31 March 2010 450 Write up the wages account in his ledger for the year ended 31 March 2010. Show the amount transferred to the income statement (profit and loss account). Hooper Wages account [5] [Total: 22]

8 © UCLES 2010 0452/12/M/J/10 For Examiner's Use 3 Arthur and Nancy formed a partnership on 1 May 2009 to start a business selling furniture. Their partnership agreement states: 1 Interest on capital is to be allowed at 3% per annum. 2 Salary of $15 000 per annum is to be paid to Arthur. 3 Interest is to be charged on drawings at 4% per annum on total drawings. 4 Arthur and Nancy are to share the balance of profits or losses in the ratio 2:3. The initial capital introduced on 1 May 2009 was: Arthur $30 000 Nancy $40 000 The partners’ drawings for the year ended 30 April 2010 were: Arthur $35 000 Nancy $15 000 The net profit of the partnership for the year ended 30 April 2010 was $89 000. REQUIRED (a) Calculate the interest on capital paid to each partner for the year ended 30 April 2010. Show all your workings. (i) Arthur [2] (ii) Nancy [2]

9 © UCLES 2010 0452/12/M/J/10 [Turn over For Examiner's Use (b) Calculate the interest on drawings charged to each partner for the year ended 30 April 2010. Show all your workings. (i) Arthur [2] (ii) Nancy [2] (c) Show how the balance of the net profit for the year ended 30 April 2010 was divided between Arthur and Nancy. Show all your workings. [7]

10 © UCLES 2010 0452/12/M/J/10 For Examiner's Use (d) Write up Arthur’s current account for the year ended 30 April 2010. Arthur Current account [6] (e) Arthur thinks that the partners should reduce the rate of interest charged on their drawings. Show, by placing a tick (
) in the table below, the effect this would have on his total earnings from the partnership: Increase Reduce Unchanged [2] [Total: 23]

11 © UCLES 2010 0452/12/M/J/10 [Turn over For Examiner's Use 4 The following summary list of balances was taken from the books of Deali, a sole trader, on 31 March 2010. $ Revenue (sales) 125 000 Inventory (stock) 14 500 Ordinary goods purchased (Purchases) 76 000 Bank (overdraft) 2 300 Cr Equipment 9 000 Trade receivables (debtors) 1 700 Trade payables (creditors) 2 800 Expenses 37 500 Capital 15 500 Drawings 8 000 REQUIRED (a) Give one reason for preparing a trial balance. [1]

12 © UCLES 2010 0452/12/M/J/10 For Examiner's Use (b) Prepare Deali’s trial balance at 31 March 2010. Show any difference you find as a balance on a suspense account. Deali Trial Balance at 31 March 2010 [11] After the trial balance had been prepared, it was found that an error had been made in the books of account. Sales of $1100 had been entered in the cash book but not posted to the ledger. REQUIRED (c) Show the journal entry, with narrative, to correct this error. Date Dr $ Cr $ [5]

13 © UCLES 2010 0452/12/M/J/10 [Turn over For Examiner's Use (d) Deali had inventory (stock) of $18 000 at 31 March 2010. Assuming that the journal entry in part (c) has been posted, complete Deali’s summary income statement (trading and profit and loss account) for the year ended 31 March 2010. Deali Summary Income Statement (Trading and Profit and Loss Account) for the year ended 31 March 2010 $ $ Revenue (sales) (i) Inventory (stock) at 1 April 2009 (ii) Ordinary goods purchased (Purchases) (iii) Inventory (stock) at 31 March 2010 (iv) Cost of sales (v) Gross profit (vi) Expenses (vii) Net profit (viii) [8] [Total: 25]

14 © UCLES 2010 0452/12/M/J/10 For Examiner's Use 5 (a) Explain what is meant by (i) a bad debt [2] (ii) a provision for doubtful debts. [2] Umtali sells goods on credit and his terms are for settlement within 30 days. At 31 March 2010 the total of his trade receivables (debtors) was $12 600 and included the following: Date Customer Amount $ 10 January 2010 Veeku 300.00 31 January 2010 Wlanda 550.00 At 31 March 2010 Umtali decided to: 1 write off the balances owed by Veeku and Wlanda as bad debts. 2 set up a provision for doubtful debts of 4% of the remaining balance of trade receivables (debtors). He had not previously made such a provision. REQUIRED (b) Show the journal entry to write off the bad debts. A narrative is not required. Date Dr $ Cr $ [4]

15 © UCLES 2010 0452/12/M/J/10 [Turn over For Examiner's Use (c) Calculate the amount of the provision for doubtful debts at 31 March 2010. [3] (d) Show the journal entry to create the provision for doubtful debts. A narrative is not required. Dr $ Cr $ [4] (e) Assuming that the journal entries in part (d) above are posted, write up the bad debts account and the provision for doubtful debts account in Umtali’s ledger below for the year ended 31 March 2010. Show the transfer to the income statement (profit and loss account) and bring down any balances at 1 April 2010. (i) Umtali Bad debts account [2] (ii) Umtali Provision for doubtful debts account [2]

16 © UCLES 2010 0452/12/M/J/10 For Examiner's Use (f) On 15 April 2010, Veeku paid the outstanding amount on his account in full. Write up the bad debts recovered account for the month of April 2010. Umtali Bad debts recovered account [2] [Total: 21]

17 © UCLES 2010 0452/12/M/J/10 [Turn over For Examiner's Use 6 Accounting statements can be used for decision-making purposes. REQUIRED (a) Give two examples of interested parties, other than the owner or shareholders, who may use accounting statements for decision-making purposes. (i) (ii) [4] (b) Selkirk Ltd decides to extend and improve their factory building. Show by placing a tick (
) in the table below which items of expenditure should be treated as capital and which as revenue. Capital Revenue New factory extension Repainting old factory Architect’s fees for designing extension New plant and equipment for extension [4] The cost of the new factory extension is $30 000 and the architect’s fees are 10% of this amount. The cost of the new plant and equipment is $6000. Selkirk Ltd decides to depreciate all the costs of the new factory extension on the straight line basis over its useful life of 20 years. The factory extension is not expected to have any residual value after this time. The company decides to depreciate the new plant and equipment on the straight line basis over its useful life of four years. The plant is expected to have a residual value of $800 after that time. REQUIRED (c) (i) Calculate the depreciation charge for a full year for the new factory extension. Show all your workings. [4]

18 © UCLES 2010 0452/12/M/J/10 For Examiner's Use (ii) Calculate the depreciation change for a full year for the new plant and equipment. [3] (d) It is not usual to charge depreciation on land. Suggest two reasons why depreciation should not be charged on land. (i) (ii) [4] [Total: 19]

19 BLANK PAGE © UCLES 2010 0452/12/M/J/10

20 BLANK PAGE 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. University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge. © UCLES 2010 0452/12/M/J/10

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education MARK SCHEME for the May/June 2010 question paper for the guidance of teachers 0452 ACCOUNTING 0452/12 Paper 12, maximum raw mark 120 This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes must be read in conjunction with the question papers and the report on the examination. • CIE will not enter into discussions or correspondence in connection with these mark schemes. CIE is publishing the mark schemes for the May/June 2010 question papers for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses.

Page 2 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 12 © UCLES 2010 MARKING GUIDELINES • Award marks only in accordance with the mark scheme. If a script contains an answer which is not anticipated please refer to Principal Examiner before awarding any marks. • Where a candidate makes an arithmetical error or selects the wrong figure in an account or a calculation, so that totals or the results of the calculation are wrong but are correct on his own figures, he will lose the mark for selecting the original figure but may earn an own figure (OF) mark for the result, total or calculation. • Where particular wording is shown on the mark scheme accept any reasonable spelling and abbreviation as long as the meaning is clear. • For example, for “Balance brought down” accept Balance b/down, Balance b/d, Balance, Bal b/down, Bal b/d, Bal, Brought down, b/down, b/d, but not Bbd, bd, or any variation of “Balance carried down”. • If a candidate gives two alternative answers without crossing one out, mark both answers and give credit for the better answer. If one is crossed out, mark the other answer. • Where a ledger account is to be prepared, each mark is usually for the date, narrative and amount together. If the candidate has correctly prepared the account but not shown some or all of the dates, he may earn some marks according to the mark scheme. • If a ledger account is completely reversed, no marks will be awarded for individual entries but there may be marks available for own figure balances carried and brought down. • Where an answer is to be shown as a ratio, it should be shown as xx:1 and not as 1:xx. An answer of just the correct figure xx may be accepted but not if any other description such as %, times, days etc. is shown and not if shown as negative when it should be positive. • Where a calculation is to be shown to two decimal places, an answer rounded up or down may be accepted (e.g. 2.85 or 2.86 if the true answer is 2.853) but not an answer shown to only the nearest whole number or one decimal place (e.g. 2.8 or 3). • Where dollars and cents are shown in a question and exact cents are required in a calculated answer (e.g. $35.60), many candidates will show $35.6, as their calculators will suppress the final 0. Although wrong this may be accepted. The $ sign is not required. • Ledger accounts may be accepted in either two sided or the running balance format and the mark scheme will show how marks should be allocated. • Where a final account is requested, a list of items will not normally earn any marks. • If candidates are required to prepare a Balance Sheet, either a two sided or a vertical presentation will be accepted and the mark scheme will show how marks are to be awarded.

Page 3 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 12 © UCLES 2010 1 Question Number Key Question Number Key (a) B (f) B (b) A (g) A (c) A (h) D (d) A (i) A (e) B (j) D [Total marks: 10] 2 (a) Return on capital employed ( or Return on Net Assets ). Percentage of gross profit to sales or GP margin or GP%. Percentage of net profit to sales or NP margin or NP%. Any two, (1) each [2] (b) Current asset Current liability Inventory (stock)
(1) Trade payables (creditors)
(1) Other receivables (prepayments)
(1) [3] (c) Bank column Cash column Debit side Credit side
(1) If more than one tick then 0 [1] (d) Income statement (trading/profit and loss account) [1] (e) Error of principle [1] (f) Matching or prudence or conservatism [1]

Page 4 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 12 © UCLES 2010 (g) (i) rate of inventory (stock) turnover = cost of goods sold/average stock = ( OS + Purch + CI – CS ) [*1 for + CI; 1 for other figs] = above) as * (2 (1) 800 4 600)/2 5 000 (4 400 46 600) 5 - 500 2 500 45 000 (4 = + = + + = 9.66 times (1)OF [4] (ii) Payment period for trade payables = creditors / credit purchases × 365 days = 3 750 (1)/45 500 (1) × 365 days = 30 days (2) (to nearest whole day) [OF for correct formula] [4] (h) Hooper – wages account _____________________________________________________ Bank (Cash) 32 800 (1) Balance b/d 300 (1) (or Accruals) Balance c/d 450 (1) Income statement 32 950 (1) OF (or Accruals) (Profit & Loss account) 33 250 33 250 Balance b/d 450 (1) [5] Narrative and amount for mark No aliens or extraneous items for OF [Total marks: 22] 3 (a) (i) Arthur $30 000 × 3% (1) = $900 (1) OF [2] (ii) Nancy $40 000 × 3% (1) = $1 200 (1) OF [2] (b) (i) Arthur $35 000 × 4% (1) = $1 400 (1) OF [2] (ii) Nancy $15 000 × 4% (1) = $600 (1) OF [2]

Page 5 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 12 © UCLES 2010 (c) Net profit 89 000 Interest on drawings 2 000 (1)OF 91 000 Less salary 15 000 (1) Interest on capital 2 100 (1)OF 17 100 Residual profit 73 900 Shared 2:3 Arthur:Nancy Arthur 29 560 (2)OF as below Nancy 44 340 (2)OF as below 73 900 2 OF for profit share only if based on Profit (not Capital ) 1 OF for profit share if any aliens (Drawings) [7] (d) Arthur – current account _____________________________________________________ Interest on drawings 1 400 (1)OF Interest on capital 900 (1) OF Drawings 35 000 (1) Salary 15 000 (1) Balance c/d 9 060 (1)OF Residual profit 29 560 (1)OF 45 460 45 460 Balance b/d 9 060 No OF if aliens or extraneous items [6] (e) Increase
(2) Reduce Unchanged [2] [Total marks: 23] 4 (a) Used to prepare final accounts. Can trace or identify errors. Other sensible comment. One reason [1]

Page 6 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 12 © UCLES 2010 (b) Deali Trial Balance at 31 March 2010 $ $ Revenue (sales) 125 000 (1) Inventory (stock) 14 500 (1) Purchases 76 000 (1) Bank (overdraft) 2 300 (1) Equipment 9 000 (1) Trade receivables (debtors) 1 700 (1) Trade payables (creditors) 2 800 (1) Expenses 37 500 (1) Capital 15 500 (1) Drawings 8 000 (1) Suspense 1 100 (1)OF 146 700 146 700 OF only if arithmetically correct [11] (c) Dr Cr Suspense (1) 1 100 (1) Revenue (sales) (1) 1 100 (1) Sales omitted from the ledger (1) must be related to error Marks for narrative not dependent upon correct figures. Marks carried with narrative. [5]

Page 7 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 12 © UCLES 2010 (d) Deali Summary Income Statement (Trading and Profit and Loss Account) for the year ended 31 March 2010 $ $ Revenue (sales) (1) Inventory (stock) at 1 April 2009 (1) Purchases (1) Inventory (stock) at 31 March 2010 (1) Cost of sales (1) OF Gross profit (1) OF Expenses (1) Net profit (1) OF [8] [Total marks: 25] 5 (a) (i) A bad debt is an amount owing to the business (1) which the debtor is unable or unwilling to pay (1). [2] (ii) A provision for doubtful debts is an estimate (not %)(1) of the amount likely to be lost through bad debts (1). [2] (b) Dr $ Cr $ Bad debts (income statement) (1) (profit and loss account) 850 (1) Veeku ) )(1) or Debtors (1) 300 ) )(1) Wlanda ) ) 550 ) ) [4] 126 100 14 500 76 000 90 500 72 500 53 600 37 500 16 100 18 000

Page 8 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 12 © UCLES 2010 (c) Balance on sales ledger 12 600 (1) Less: bad debts written off 850 (1) 11 750 Provision for doubtful debts @ 4% = 470 (1)OF [3] (d) Dr $ Cr $ Income statement (1) (Profit and Loss account) 470 (1) OF Provision for doubtful debts(1) 470 (1) OF [4] (e) Bad debts account ____________________________________________________ Debtors 850 (1) Income statement 850 (1) (Profit and loss) or Veeku 300 Wland 550 [2] Provision for doubtful debts account ____________________________________________________ Balance c/d 470 Income statement 470 (1) OF (Profit and loss) Balance b/d 470 (1) OF [2] (f) Bad debts recovered account ____________________________________________________ Income statement 300 (1) Bank (Cash/Veeku) 300 (1) (Profit and loss) OF [2] [Total marks: 21]

Page 9 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 12 © UCLES 2010 6 (a) Managers, bank or other lender, creditors, customers, suppliers. Employees, Government, competitors, potential investors. Other acceptable comment. Any two, 2 marks each [4] (b) Capital Revenue New factory extension
(1) Repainting old factory
(1) Architect’s fees for designing extension
(1) New plant and equipment for extension
(1) [4] (c) (i) Factory cost 30 000 (1) + Architect’s fees 3 000 (1) Total cost 33 000 Over useful life 20 years 20 (1) = 1 650 (1) OF [4] (ii) Plant and equipment 6 000 – residual value 800 = 5 200 5 200 (1) Over useful life 4 years (1) = 1 300 (1) OF [3] (d) Land has an indefinite expected life. Land does not wear out. Land is not consumed by use. Land increases in value over time. Other acceptable comment (allow NEVER). Any two, 2 each [4] [Total marks: 19]