Cambridge IGCSE Accounting 0452 — 2010 May/June Paper 2 · Variant 3

This document consists of 16 printed pages. DC (SM) 27812 © UCLES 2010 [Turn over UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education 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 the 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 7 0 6 9 9 4 5 4 6 * ACCOUNTING 0452/23 Paper 2 May/June 2010 1 hour 45 minutes Candidates answer on the Question Paper. No Additional Materials are required. For Examiner’s Use 1 2 3 4 5 6 Total

2 0452/23/M/J/10 For Examiner’s Use © UCLES 2010 1 On 1 May 2010 Beth Wilson’s cash book (bank column) had a credit balance brought down of $1668. On the same day her bank statement showed an overdrawn balance of $1600. REQUIRED (a) Explain why items are recorded on the opposite side of the cash book to that on which they appear on the bank statement. … … … … … …[4] Beth Wilson checked her cash book against the bank statement and the following differences were found. 1 Items not recorded in the cash book: $ bank charges 38 dividend received 262 2 The debit column of the cash book had been undercast by $100. 3 Items not recorded on the bank statement: $ cheque paid to Peter Smith 344 receipts from cash sales 650 4 The bank had credited the account with $50 which should have been credited to the account of Ben Wilson, another customer of the bank.

3 0452/23/M/J/10 [Turn over For Examiner’s Use © UCLES 2010 REQUIRED (b) Update Beth Wilson’s cash book. Bring down the updated cash book balance on 1 May 2010. Cash Book (bank columns only) … … … … … … … …[7] (c) Prepare a bank reconciliation statement for Beth Wilson at 1 May 2010. Bank Reconciliation Statement at 1 May 2010 … … … … … … … … …[8] (d) State the bank balance that should be shown in the balance sheet of Beth Wilson at 1 May 2010. State whether it is an asset or a liability. Amount … Asset or liability …[2] [Total: 21]

4 0452/23/M/J/10 For Examiner’s Use © UCLES 2010 2 DEC Ltd was formed some years ago. It raised funds from the issue of ordinary shares, preference shares and debentures. REQUIRED (a) Explain the meaning of the term ‘limited liability’. … … …[2] (b) State two differences between preference shares and debentures. (i) … … (ii) … …[4] (c) Explain the meaning of each of the following terms. (i) Authorised capital … … …[2] (ii) Called-up capital … … …[2] (iii) Paid-up capital … … …[2]

5 0452/23/M/J/10 [Turn over For Examiner’s Use © UCLES 2010 The following information was taken from the books of DEC Ltd on 31 March 2010. $ Profit for the year (net profit) 22 000 Profit and loss account balance 1 April 2009 4 300 6% Preference shares of $1 each 70 000 Ordinary shares of $1 each 150 000 During the year ended 31 March 2010 the company paid an interim dividend of 2% on the preference shares. On 31 March 2010 the directors proposed: 1 A transfer of $3000 to a general reserve. 2 To pay the remainder of the preference share dividend. 3 To pay a dividend of 8% on the ordinary shares. REQUIRED (d) Prepare the profit and loss appropriation account of DEC Ltd for the year ended 31 March 2010. DEC Ltd Profit and Loss Appropriation Account for the year ended 31 March 2010 … … … … … … … … … … … …[11] [Total: 23]

6 0452/23/M/J/10 For Examiner’s Use © UCLES 2010 3 Anwar El Wakiel is a trader. He maintains a full set of accounting records including a journal. REQUIRED (a) State why a narrative should be shown as part of a journal entry. … … …[2] Anwar El Wakiel prepared draft financial statements (final accounts) for the year ended 30 April 2010. The following errors were later discovered. 1 A cheque, $170, received from Zubin Khan had been credited to the account of Zaffar Khan, another debtor. 2 Purchase of equipment, $1000, had been debited to the office expenses account. 3 Stationery, $19, had been debited to the purchases account. 4 No entry had been made for sales returns, $25, from Mariam Sitar.

7 0452/23/M/J/10 [Turn over For Examiner’s Use © UCLES 2010 REQUIRED (b) Prepare the entries in Anwar El Wakiel’s journal to correct the above errors. Narratives are required. Journal Debit $ Credit $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [12]

8 0452/23/M/J/10 For Examiner’s Use © UCLES 2010 (c) Indicate the effect of correcting each of the above errors 1– 4 on the profit for the year (net profit). Circle the answer which you think is correct. Give reasons for your answers. The first one has been completed as an example. Effect on profit for the year (net profit) Error 1 Increase Decrease No effect Reason Correcting this error only affected the accounts of Zubin Khan and Zaffar Khan. These accounts do not affect the profit. Effect on profit for the year (net profit) Error 2 Increase Decrease No effect Reason … … … …[3] Effect on profit for the year (net profit) Error 3 Increase Decrease No effect Reason … … … …[3] Effect on profit for the year (net profit) Error 4 Increase Decrease No effect Reason … … … …[3] [Total: 23]

9 0452/23/M/J/10 [Turn over For Examiner’s Use © UCLES 2010 4 Asif Malik is a trader. His financial year ends on 31 March. He employs a bookkeeper to maintain his financial records. The following account appeared in Asif Malik’s ledger. Rates (property tax) account 2009 $ 2010 $ April 1 Balance b/d 320 March 31 Income statement 2010 (profit & loss) 2120 July 1 Bank 1620 March 31 Balance c/d 180 2120 2120 2010 April 1 Balance b/d 180 For candidates who are not familiar with the layout of the account shown above, an alternative presentation is provided. Rates (property tax) account Debit Credit Balance 2009 $ $ $ April 1 Balance 320 320 Dr 2010 July 1 Bank 1620 1940 Dr March 31 Income statement (profit & loss) 2 120 180 Cr REQUIRED (a) Explain each entry in the above account. State where the double entry for each transaction would have been made. Balance 1 April 2009 Explanation … … … Double entry …[3] Bank 1 July 2010 Explanation … … … Double entry …[3]

10 0452/23/M/J/10 For Examiner’s Use © UCLES 2010 Income statement (profit and loss) 31 March 2010 Explanation … … … Double entry …[3] (b) Explain the significance of the $180 shown at the end of the account. … … …[2] (c) (i) Explain the accruals (matching) principle. … … …[2] (ii) Explain how the bookkeeper applied this principle when he prepared the rates (property tax) account. … … …[2]

11 0452/23/M/J/10 [Turn over For Examiner’s Use © UCLES 2010 Asif Malik paid $1000 for insurance. This was for $750 insurance premium on his business premises and $250 insurance premium on his house. The bookkeeper credited the bank with $1000, debited the insurance account with $750 and debited the drawings account with $250. REQUIRED (d) Name the accounting principle the bookkeeper has applied. …[1] (e) The bookkeeper did not make any entries in the accounting records for orders received for goods to be supplied in the following financial year. Name the accounting principle the bookkeeper has applied. …[1] [Total: 17]

12 0452/23/M/J/10 For Examiner’s Use © UCLES 2010 5 Businesses may be divided into trading businesses and service businesses. REQUIRED (a) In the table below place a tick (✓) under the correct heading to show whether each of the following businesses is a trading business or a service business. Business Trading business Service business (i) Accountant (ii) Baker (iii) Travel agent [3] Martha Musa provides secretarial services for small businesses. Her financial year ends on 30 April. She does not maintain a full set of accounting records, but was able to provide the following information: $ At 1 May 2009 Amounts owing by clients 1 770 During the year ended 30 April 2010 Cheques received from clients 21 250 At 30 April 2010 Amounts owing by clients 1 820 REQUIRED (b) Calculate the fees for the year ended 30 April 2010. Your answer may be in the form of a ledger account or a calculation. … … … … … … …[4]

13 0452/23/M/J/10 [Turn over For Examiner’s Use © UCLES 2010 Martha Musa was also able to provide the following information for the year ended 30 April 2010. $ Rent received from tenant 2750 Rates (property tax) and insurance paid 1660 General expenses paid 7710 Additional information: 1 On 30 April 2010: rent received in advance amounted to $150 general expenses owing amounted to $230 2 During the year ended 30 April 2010 Martha Musa sold all her old office equipment for $1800. The equipment had cost $6000 and had been depreciated by $4000 at the date of sale. 3 On 1 November 2009 Martha Musa purchased new office equipment for $8000. She depreciates her equipment at the rate of 25% per annum. Depreciation is calculated from the date of purchase.

14 0452/23/M/J/10 For Examiner’s Use © UCLES 2010 REQUIRED (c) Using the above information and your answer to (b), prepare the income statement (profit and loss account) of Martha Musa for the year ended 30 April 2010. Martha Musa Income Statement (Profit and Loss Account) for the year ended 30 April 2010 … … … … … … … … … … … … … … … …[11] [Total: 18]

15 0452/23/M/J/10 [Turn over For Examiner’s Use © UCLES 2010 6 Ajit Singh is a trader. His financial year ends on 31 March. He provided the following information for the year ended 31 March 2010. $ Sales 54 000 Cost of sales 38 000 Expenses 9 000 Ajit Singh decided to compare his results with those for the previous financial year. REQUIRED (a) Complete the table to show the ratios for Ajit Singh’s business for the year ended 31 March 2010. You may use the space below for your workings. Calculations should be to two decimal places. Ratio Year ended 31 March 2009 Year ended 31 March 2010 (i) Percentage of gross profit to sales 35.50% … (ii) Percentage of net profit to sales 10.45% … [6] Workings

16 0452/23/M/J/10 For Examiner’s Use © UCLES 2010 (b) For each of the ratios in (a) comment on the change and suggest one reason for this. (i) Percentage of gross profit to sales Comment … … … Reason for change … …[4] (ii) Percentage of net profit to sales Comment … … … Reason for change … …[4] (c) Ajit Singh is concerned that his working capital has reduced during the year ended 31 March 2010. Explain two disadvantages to Ajit Singh of having insufficient working capital (i) … … (ii) … …[4] [Total: 18] 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.

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 0452/23 Paper 23, 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 23 © UCLES 2010 1 (a) The bank statement is a copy of the account of the business as it appears in the books of the bank. This is from the viewpoint of the bank – the business depositing money is a creditor of the bank. (2) The bank account in the cash book is prepared from the viewpoint of the business – the bank is a debtor of the business which has deposited the money. (2) [4] (b) Cash Book (bank columns only) 2010 $ 2010 $ May 1 Dividend 262 (1) May 1 Balance b/d 1668 (1) Error correction (1) 100 (1) Bank charges 38 (1) Balance c/d 1344 (1) 1706 1706 May 1 Balance b/d 1344 (1)OF [7] (c) Bank Reconciliation Statement at 1 May 2010 $ $ Balance shown on bank statement (1600) (1) Add amounts not yet credited – cash sales (1) 650 (1) (950) Less cheques not yet presented – Peter Smith (1) 344 (1) bank error (1) 50 (1) 394 Balance shown in cash book (1344) (1)OF [8] (c) Alternative presentation Bank Reconciliation Statement at 1 May 2010 $ $ Balance shown in cash book (1344) (1)OF Less cheques not yet presented – Peter Smith (1) 344 (1) bank error (1) 50 (1) 394 (950) Add amounts not yet credited – cash sales (1) 650 (1) Balance shown on bank statement (1600) (1) [8] (d) Answer to be based on OF balance in (b) $1344 (1) OF Liability (1) OF [2] [Total: 21]

Page 3 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 23 © UCLES 2010 2 (a) The liability of the members (shareholders) of a company for the debts of the company is limited to the amount they agree to pay the company for their shares. [2] (b) Preference shares receive a fixed rate of dividend: debentures receive a fixed rate of interest. Preference shareholders are members of the company: debenture holders are not members of the company. Preference shares are part of the capital of the company: debentures are long term loans. Preference shareholders are repaid after the debenture holders in the event of the company being wound up. Any 2 points (2) each [4] (c) (i) Authorised capital is the maximum amount of share capital a company is allowed to issue. (2) (ii) Called-up capital is the total amount of capital a company has requested from its shareholders. (2) (iii) Paid-up capital is that part of the called up capital for which a company has actually received the money from its shareholders. (2) [6] (d) DEC Ltd Profit and Loss Appropriation Account for the year ended 31 March 2010 $ $ Profit for the year (net profit) 22 000 (1) Less Transfer to general reserve 3 000 (1) Dividends paid – Preference 1 400 (2) Dividends proposed – Preference 2 800 (2) Ordinary 12 000 (2) 19 200 Retained profit for the year 2 800 (1) Retained profit brought forward (profit & loss balance) 4 300 (1) Retained profit carried forward 7 100 (1)OF [11] [Total: 23]

Page 4 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 23 © UCLES 2010 3 (a) A narrative explains the reasons for the entries which are to be made in the ledger. [2] (b) Journal Debit $ Credit $ Zaffar Khan Zubin Khan Correction of error Zaffar Khan incorrectly credited (1) Equipment Office expenses Correction of error equipment debited to office expenses (1) Stationery Purchases Correction of error stationery debited to purchases account (1) Sales returns Mariam Sitar Correction of error no entry made for sales returns (1) 170 (1) 1000 (1) 19 (1) 25 (1) 170 (1) 1000 (1) 19 (1) 25 (1) [12] (c) Error 2 Effect – Increase (1) Reason – Expenses are being reduced so the profit increases. (2) Error 3 Effect – No effect (1) Reason – The cost of sales is being reduced, but the expenses are being increased. The profit does not alter. (2) Error 4 Effect – Decrease (1) Reason – The sales are being decreased so the profit will also decrease. (2) [9] [Total: 23]

Page 5 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 23 © UCLES 2010 4 (a) Balance 1 April 2009 Explanation – This is the amount of rates (property tax) prepaid during the previous financial year which related to the current financial year. (2) Double entry – credit rates (property tax) account for year ended 31 March 2009. (1) Bank 1 July 2010 Explanation – This is the total amount of rates (property tax) paid by cheque. (2) Double entry – credit bank column in cash book. (1) Income statement (profit and loss) 31 March 2010 Explanation – This is the rates (property tax) relating to the current financial year transferred to the income statement (profit and loss). (2) Double entry – debit income statement (profit and loss). (1) [9] (b) The balance represents the amount of rates (property tax) still outstanding for the financial year ended 31 March 2010. [2] (c) (i) The accruals (matching) principle requires the revenue of the accounting period to be matched against the costs of the same period. (2) (ii) The total rates relating to the financial year ended 31 March 2010 were transferred to the income statement. (2) [4] (d) Business entity [1] (e) Realisation [1] [Total: 17]

Page 6 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 23 © UCLES 2010 5 (a) Accountant – service business (1) Baker – trading business (1) Travel agent – service business (1) [3] (b) Calculation of fees $ Cheques received during the year 21 250 (1) Add amounts owing 30 April 2010 1 820 (1) 23 070 Less amounts owing 1 May 2009 1 770 (1) Fees for the year 21 300 (1) Calculation in ledger account format acceptable [4] (c) Martha Musa Income Statement (Profit and Loss Account) for the year ended 30 April 2010 $ $ Fees 21 300 (1)OF Rent received (2750 – 150) 2 600 (2) 23 900 Rates (property tax) and insurance 1 660 (1) General expenses (7710 + 230) 7 940 (2) Loss on disposal (6000 – 4000 – 1800) 200 (2) Depreciation – office equipment (25% × 8000 × 6 months) 1 000 (2) 10 800 Profit for the year (net profit) 13 100 (1)OF Horizontal format acceptable [11] [Total: 18]

Page 7 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2010 0452 23 © UCLES 2010 6 (a) (i) (2) (1) 29.63% 1 100 000 54 000) 38 - 000 (54 = × (ii) (2) (1) 12.96% 1 100 000 54 000) 9 - 000 (16 = × [6] (b) All comments and reasons to be based on OFs from (a) Gross profit percentage has fallen from 35.50% to 29.63%. Is earning $29.63 per $100 sales compared to $35.50 previously. The business is less profitable in respect of gross profit. Or other suitable comment Any 1 comment (2) Reduction in selling prices. Increase in cost of supplies. Change in proportions of different goods. Not passing on increased costs to customers. Or other acceptable reason Any 1 reason (2) Net profit percentage has increased from 10.45% to 12.96%. Is earning $12.96 per $100 sales compared to $10.45 previously. The business is more profitable. Or other suitable comment Any 1 comment (2) Increased control of expenses. Change in types of expenses. Or other acceptable reason Any 1 reason (2) [8] (c) Cannot meet liabilities when they are due. May experience difficulties in obtaining further supplies on credit. Cannot take advantage of cash discounts. Cannot take advantage of business opportunities as they arise. Any 2 points (2) each [4] [Total: 18]