Cambridge IGCSE Accounting 0452 — 2011 Oct/Nov Paper 1 · Variant 2

This document consists of 17 printed pages and 3 blank pages. IB11 11_0452_12/FP © UCLES 2011 [Turn over *6476070419* 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 October/November 2011 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 2011 0452/12/O/N/11 [Turn over For Examiner's Use 1 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. (a) Why does the owner of a business calculate profit? A to find out how much debtors owe him B to find out how much he owes to creditors C to know how much money may be taken as drawings without reducing capital D to reconcile the cash book balance with the balance on the bank statement [1] (b) What is another name for a copy of a customer’s account in the sales ledger when it is sent to the customer? A credit note B debit note C invoice D statement [1] (c) It is important to match a business’s expenses to the appropriate accounting period. Why is this? A the business needs to pay the correct amount of expenses B to calculate the correct profit or loss for the period C to calculate unpaid expenses for the period D unpaid expenses cannot be carried forward to the next year [1]

3 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use (d) Paul returns goods previously purchased on credit from Peter. Where will this transaction be recorded in Peter’s accounting records? book of prime (original) entry nominal (general) ledger A purchases returns journal credit purchases returns account B purchases returns journal debit purchases returns account C sales returns journal credit sales returns account D sales returns journal debit sales returns account [1] (e) A business made a loss for the year. What effect would this have on the balance sheet? A decrease current liabilities B decrease net assets C increase capital employed D increase capital owned [1] (f) Which item would appear in a partnership income statement? A interest on loans from partners B interest on partners’ capital C interest on partners’ drawings D partners’ salaries [1]

4 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use (g) A limited company has issued debentures. Which statement is correct? A Debentures are part of the share capital B Debentures earn a fixed rate of interest C The holders of debentures can vote at shareholders’ meetings D The rate of dividend on debentures varies according to profits [1] (h) Which is not used to calculate cost of production? A inventory of finished goods B inventory of raw materials C purchase of raw materials D work in progress [1] (i) Which is the best indicator of the liquidity of a business? A current ratio B quick ratio C return on capital employed D working capital [1] (j) Suzanne’s financial year ends on 31 December. She carried forward the closing inventory on 31 December 2010 so it became the opening inventory at the start of the following financial year. Which accounting principle is Suzanne applying? A business entity B consistency C going concern D money measurement [1] [Total 10]

5 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use 2 (a) Give two examples of a current asset. (i) (ii) [2] (b) State the accounting equation. [1] (c) Mikhail rents a workshop for his car repair business. In the table below, place a tick (
) under the correct heading to show whether his expenditure is capital or revenue. Capital expenditure Revenue expenditure Repairs to workshop windows Installation of alarm system Storage shelves for tools [3] (d) Name the section of the ledger in which you would find the following accounts: (i) a customer’s account; (ii) the provision for bad debt account. [2] (e) (i) Susie’s trial balance does not balance. Give one example of an error which may have been made. [1] (ii) Japo has bought inventory for $1000 but this has been entered in his books as $1100. Name the error which has been made. [1]

6 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use (f) For the year ended 30 September 2011 Ahern’s business had sales of $125 000, cost of sales of $85 000 and expenses of $15 000. Calculate Ahern’s percentage of net profit to sales. Show your workings. [3] (g) Arthur’s cash book showed a debit balance of $2400 on 30 September 2011. He received a bank statement dated 30 September 2011 showing that cheques issued to the amount of $860 had not been presented for payment. Calculate the balance shown on the bank statement at 30 September 2011. [3] (h) Farling Limited has issued share capital of 120 000 ordinary shares of $0.25 each and 10 000 preference shares of $1.00 each. State the amount of share capital shown in the company balance sheet. [4] [Total: 20]

7 © UCLES 2011 0452/12/O/N/11 [Turn over Question 3 is on the next page

8 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use 3 Moloch has a furniture store and sells goods for cash and on credit. He puts the cash receipts in his cash box and enters them into his three-column cash book each week. He offers a cash discount of 2½% to his credit customers for payment within 15 days. He buys inventory in bulk from a wholesaler for cash and receives trade discount of 4% for orders in excess of $1500. He pays staff wages each week in cash. On 1 October 2011 Moloch’s cash book showed cash in hand of $650 and cash at bank of $3200. Moloch had the following transactions for the first week of October 2011. He writes up his cash book and ledger each week. October $ 3 Cheque received from Justin for goods sold on 19 September 390 4 Sold goods on credit to Hercules 800 5 Paid cash to Andrews for goods purchased 2880 6 Cheque received from Munira for goods sold on 2 September 150 7 Cash sales for the week 3650 7 Wages paid for the week 630 REQUIRED (a) Make the necessary entries in Moloch’s cash book on the following page to record the above transactions for the week ended 7 October 2011.

9 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use Bank $ Cash $ Discount Received $ Details Date Bank $ Cash $ Discount Allowed $ Details Moloch Cash Book Date [8]

10 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use (b) From the information given above, and the entries in the cash book, write up the accounts in Moloch’s ledger below to record the transactions for the week. Revenue (sales) account Purchases account Discount received account Discount allowed account Hercules account Justin account Munira account [9]

11 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use (c) Calculate Moloch’s total sales for the week. Show your workings. [2] Moloch had trade receivables of $8200 at 31 October 2011 and is concerned that some of his credit customers may not pay their outstanding debts. He proposes to create a provision for doubtful debts of 5% of his trade receivables. REQUIRED (d) Explain what is meant by a provision for doubtful debts. [2] (e) Calculate the amount of the provision for doubtful debts which Moloch will create at 31 October 2011. Show your workings. [2] (f) Explain how Moloch will be able to decide in the future if the provision for doubtful debts is adequate. [3] [Total: 26]

12 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use 4 The following balances were taken from the books of Henrietta, a sole trader, on 30 September 2011. $ Revenue (sales) 124 100 Inventory (opening) 14 500 Purchases 77 000 Bank (overdraft) 2 800 Cash 1 100 Equipment 19 000 Administrative expenses 26 500 Capital (equity) 25 000 Drawings 15 600 REQUIRED (a) Prepare Henrietta’s trial balance at 30 September 2011, showing any difference you find as a balance on a suspense account. Henrietta Trial Balance at 30 September 2011 $ $ [10]

13 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use After the trial balance had been prepared, the following errors were found. 1 Cash sales of $2200 had been paid into the bank but had not been posted to the revenue (sales) account. 2 Drawings of $900 had been correctly entered in the cash book but posted to the drawings account as $500. 3 No entry had been made for wages of $650 paid in cash. REQUIRED (b) Prepare the journal entries required to correct these errors. The date and narrative are not required. Dr $ Cr $ [6] (c) Write up the suspense account in Henrietta’s ledger. Dates are not required. Henrietta Suspense account [3] [Total 19]

14 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use 5 (a) Explain what is meant by a non-current asset. [2] Queresh has bought a machine costing $3600 for use in his business. He estimates the machine will have a useful life of three years and will have a scrap value of $450 after that time. Queresh decides he will depreciate the machine on the straight line method. REQUIRED (b) Calculate the depreciation to be charged on the machine in Queresh’s income statement for each of the three years of its useful life. Show your workings. (i) Year 1 (ii) Year 2 (iii) Year 3 [5] Queresh is preparing his financial statements for the year ended 30 September 2011 and has extracted the following items from his trial balance at that date. Queresh Trial Balance (extract) at 30 September 2011 $ Revenue (sales) 72 500 Rent receivable 6 500 Sales returns 800 Inventory at 1 October 2010 6 000 Raw materials (purchases) 48 800 Distribution expenses 2 580 Administrative expenses 8 225 Other operating expenses 1 600 Finance costs 1 380 Drawings 12 000 No entry has yet been made for depreciation on the above machine.

15 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use The following additional information is available. 1 Queresh has valued his inventory at 30 September 2011 at $7600. 2 Rent receivable includes $1300 received in advance. 3 Additional administrative expenses of $375 are to be accrued. 4 Depreciation (as calculated in (b) above) is to be included. REQUIRED (c) Prepare Queresh’s income statement (showing the trading account) for the year ended 30 September 2011. Queresh Income Statement for the year ended 30 September 2011 [15]

16 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use Queresh believes that his profit for the year is too small. He is considering not including the depreciation charge on his machine in his income statement so the profit will be increased. REQUIRED (d) (i) Explain why Queresh should include the depreciation charge in his income statement. [2] (ii) Suggest one other way in which Queresh may increase his profit for future years. [2] [Total: 26]

17 © UCLES 2011 0452/12/O/N/11 [Turn over Question 6 is on the next page

18 © UCLES 2011 0452/12/O/N/11 [Turn over For Examiner's Use 6 Vasco and Xavier each have a garage. Vasco sells only fuel. Xavier does not sell fuel. He sells parts for cars and has a workshop where he does repairs. The following information is available for the year ended 30 September 2011. Vasco’s garage Xavier’s garage $ $ Revenue (sales) – fuel 124 000 nil Revenue (sales) – parts and repairs nil 80 000 Cost of sales 114 700 60 000 Operating expenses 5 600 12 000 Capital employed 20 000 60 000 REQUIRED (a) For each garage, show the percentage of gross profit to sales in the table below. Use the space given for your workings and give your answer to one decimal place. Percentage of gross profit to sales Vasco’s garage Xavier’s garage Workings Workings Answer Answer [6] (b) For each garage, show the return on capital employed in the table below. Use the space given for your workings and give your answer to one decimal place. Return on capital employed Vasco’s garage Xavier’s garage Workings Workings Answer Answer [6]

19 © UCLES 2011 0452/12/O/N/11 For Examiner's Use Xavier decides he will increase his profit by also selling fuel. This will not require him to introduce any additional capital. REQUIRED (c) In the table below, place a tick (
) under the correct heading to show the effect on each ratio if Xavier also sells fuel. Increase Decrease No effect Percentage of gross profit to sales Return on capital employed [4] (d) Advise Vasco about whether he should also sell parts and open a workshop. He would need to introduce additional capital to do this. Give reasons for your answer. [3] [Total: 19]

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 2011 0452/12/O/N/11

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education MARK SCHEME for the October/November 2011 question paper for the guidance of teachers 0452 ACCOUNTING 0452/12 Paper 1, 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. • Cambridge will not enter into discussions or correspondence in connection with these mark schemes. Cambridge is publishing the mark schemes for the October/November 2011 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 – October/November 2011 0452 12 © University of Cambridge International Examinations 2011 1 Key (a) C [1] (b) D [1] (c) B [1] (d) D [1] (e) B [1] (f) A [1] (g) B [1] (h) A [1] (i) B [1] (j) C [1] [Total 10] 2 (a) Inventory (stock), trade receivables (debtors), other receivable (prepayment), bank, cash. (Any two, 1 mark each). [2] (b) Assets = capital (equity) + liabilities (or any variation of the correct equation) [1] (c) Capital Revenue Repairs to workshop windows
(1) Installation of alarm system
(1) Storage shelves for tools
(1) [3]

Page 3 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2011 0452 12 © University of Cambridge International Examinations 2011 (d) (i) Sales (debtors, receivables) [ledger] [1] (ii) Nominal (general) [ledger] [1] (e) (i) Error of addition in trial balance or ledger account, single entry, entering item on wrong side entering transaction twice on same side of ledger, entering different credit and debit amounts. (Any one description, or an actual example of one of these) [1] (ii) Original entry [1] (f) Percentage of net profit to revenue = (125 000 – 85 000 – 15 000) / 125 000 = 25 000 (1) / 125 000 (1) = 20.00 % (1)OF [3] (g) Balance per bank statement = balance per cash book + unpresented cheques = 2 400 (1) + 860 (1) = 3 260 (1) (Actual figure only) [3] (h) Share capital = ordinary shares 120 000 × 0.25 = 30 000 (2) + preference shares 10 000 × 1.00 = 10 000 (2) = 40 000 [4] [Total: 20]

Page 4 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2011 0452 11 © University of Cambridge International Examinations 2011 3 (a) Moloch Cash book Date Details Discount Cash Bank Date Details Discount Cash Bank Allowed Received $ $ $ $ $ $ October October 1 Balance b/d 650 3 200 (1) 5 Purchases 2 880 (1) (not Andrews) 3 Justin 10 (1) 390 (1) 7 Wages 630 (1) 6 Munira 150 (1) 7 [Cash] sales 3 650 (1) 7 Balance c/d 790 3 740 Totals 10 4 300 3 740 Totals 4 300 3 740 [8] Notes: Total reversal – no marks Award 1 mark for both correct opening balances Narrative and correct amount for mark No marks for balances carried down or totals + 1 mark for correct dates (but disregard any date where no mark allocated to that entry)

Page 5 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2011 0452 11 © University of Cambridge International Examinations 2011 (b) Revenue (sales) account October 4 Hercules 800 (1) 7 Cash (not sales) 3 650 (1) accept cash book Purchases account October 5 Cash [book] 2 880 (1)OF (not Andrews) Discount received account Discount allowed account October 7 Total [for week] 10 (1)OF allow cash book not Justin Hercules account October 4 Sales 800 (1) Justin account October 3 Bank 390 (1)OF} accept 3 Discount 10 (1)OF} cash book Munira account October 6 Bank 150 (1)OF accept cash book [9] Note: Allow own figures from part (a) where errors have been made in calculating discounts Correct narrative and figure for each mark + 1 mark for correct dates No mark for any reversal (c) Total sales $4 450 (2) [2] (d) A provision for doubtful debts is [an estimate of] the amount which a business may lose because of bad debts. [2]

Page 6 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2011 0452 11 © University of Cambridge International Examinations 2011 (e) Trade receivables $8 200 @ 5% = $410 (2) [2] (f) By comparing (1) the amount of actual bad debts (1) with the provision made. (1) [3] (or equivalent wording to convey correct meaning) [Total: 26] 4 (a) Henrietta Trial Balance at 30 September 2011 $ $ Revenue 124 100 (1) Inventory 14 500 (1) Purchases 77 000 (1) Bank (overdraft) 2 800 (1) Cash 1 100 (1) Equipment 19 000 (1) Administrative expenses 26 500 (1) Capital (equity) 25 000 (1) Drawings 15 600 (1) Suspense 1 800 (1)OF 153 700 153 700 OF mark for suspense account if trial balance balances [10] Must be in trial balance format – no marks for e.g. balance sheet layout (b) Dr Cr Suspense 2 200 (1) Revenue (sales) 2 200 (1) Drawings 400 (1) Suspense 400 (1) Wages 650 (1) Cash [book] 650 (1) Narrative, correct amount and on correct side for mark [6] (c) Henrietta Suspense account Difference on t/b 1 800 (1)OF from 4(a) (accept Balance) Sales 2 200 (1) Drawings 400 (1)OF from 4(b) 2 200 2 200 [3] [Total 19]

Page 7 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2011 0452 11 © University of Cambridge International Examinations 2011 5 (a) A non-current asset is an asset held for the long term for use by a business (1) and is not for resale.(1) (Accept comments about allowing a business to earn revenue) (Do not accept just fixed asset) [2] (b) Depreciation (i) Year 1 (3 600 – 450) (1) / 3 (1) = 1 050 (1)OF (ii) Year 2 1 050 (1)OF from (i) (iii) Year 3 1 050 (1)OF from (i) Only award component marks (max 2) in (i) if candidate gives NBV as their answer [5] (c) Queresh Income statement for the year ended 30 September 2011 $ $ Revenue (sales) 72 500 (1) Less returns 800 (1) 71 700 Cost of sales Inventory at 1 October 2010 6 000 (1) Raw materials (purchases) 48 800 (1) 54 800 Inventory at 30 September 2011 7 600 (1) 47 200 Gross profit 24 500 (1)OF Other operating income (6 500 (1) – 1 300 (1)) 5 200 (accept rent receivable, award 1 mark for 7 800 with or without workings) 29 700 Expenses Distribution expenses 2 580 (1) Administrative expenses (8 225 (1) + 375 (1)) 8 600 (award 1 mark for 7 850 with or without workings) Other operating expenses 1 600 (1) Depreciation (accept OF from year 1 only) 1 050 (1)OF Finance costs 1 380 (1) 15 210 Profit for the year 14 490 (1)OF (Do not award marks for rent receivable if shown as an expense, but you may award an OF mark for the profit for the year if arithmetically correct even if rent is included as an expense.) [15] (d) Depreciation should be included as a charge to the income statement so that the cost of the non-current asset is spread over the life of the asset or he is following the matching principle (1) and the profit is not overstated (accept accurate or realistic) or he is following the prudence principle (1). [2] (e) Increase revenue, increase prices, reduce cost of sales, reduce (control) expenses. (any one) [2] [Total 26]

Page 8 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – October/November 2011 0452 11 © University of Cambridge International Examinations 2011 6 (a) Vasco’s garage Xavier’s garage Workings: 124 000 – 114 700 = 9 300 (1) 9 300 / 124 000 (1) = Workings: 80 000 – 60 000 = 20 000 (1) 20 000 / 80 000 (1) = Answer: 7.5 % (1)OF Answer: 25.0 % (1)OF [6] (b) Vasco’s garage Xavier’s garage Workings: 9 300 – 5 600 = 3 700 (1)OF 3 700 / 20 000 (1) = Workings: 20 000 – 12 000 = 8 000 (1)OF 8 000 / 60 000 (1) = Answer: 18.5 % (1)OF Answer: 13.3 % (1)OF [6] Answer must be expressed as a percentage with or without % sign – answers expressed as decimals e.g. 0.2 (0.185) are not acceptable. (c) Increase Decrease No effect Percentage of gross profit to sales
(2) Return on capital employed
(2) [4] (d) Yes (1) Reasons: 1 Selling car parts and opening a workshop would increase Vasco’s profits (1) 2 The percentage of gross profit to sales would increase as the profitability of selling parts is higher than selling fuel (1) [3] (Not possible to award marks for comments about return on capital as not known) [Total 19]