Cambridge IGCSE Accounting 0452 — 2012 May/June Paper 2 · Variant 2

This document consists of 19 printed pages and 1 blank page. IB12 06_0452_22/6RP © UCLES 2012 [Turn over *2725653254* For Examiner's Use 1 2 3 4 5 Total UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education ACCOUNTING 0452/22 Paper 2 May/June 2012 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 2012 0452/22/M/J/12 For Examiner's Use 1 Dalia Said is a trader. She maintains a full set of accounting records. She purchases and sells goods on credit. The following transactions took place in March 2012. March 2 Bought goods, $1950, on credit from Essam Wholesalers 8 Bought goods on credit from Ramy El Din, list price $680, subject to a trade discount of 20% 14 Returned goods, list price $120, to Ramy El Din 21 Paid the balance owing to Essam Wholesalers by cheque, less 2% cash discount 28 Paid a cheque for $300 on account to Ramy El Din REQUIRED (a) Write up the purchases journal and the purchases returns journal for March 2012. Total each journal and indicate the ledger account to which the total would be transferred. Dalia Said Purchases journal Date Details $ $ [3] Purchases returns journal Date Details $ $ [2]

3 © UCLES 2012 0452/22/M/J/12 [Turn over For Examiner's Use (b) Write up the accounts of Essam Wholesalers and Ramy El Din as they would appear in Dalia Said’s ledger for the month of March 2012. There was no balance on either of these accounts on 1 March 2012. Where traditional “T” accounts are used they should be balanced and the balance brought down. If there is no balance the account should be totalled. Where three-column running balance accounts are used the balance column should be updated after each entry. Dalia Said Essam Wholesalers account [3] Ramy El Din account [4] (c) Name the ledger in which Dalia Said would maintain the accounts of Essam Wholesalers and Ramy El Din. [1]

4 © UCLES 2012 0452/22/M/J/12 For Examiner's Use Dalia Said’s total purchases for the year ended 31 March 2012 were $33 400. On 31 March 2012 her trade payables amounted to $2600. Dalia Said is allowed a period of 30 days in which to pay her accounts. REQUIRED (d) Calculate the payment period for the trade payables. Your answer should be rounded up to the next whole day. Show your workings. [2] (e) State one advantage to Dalia Said of paying creditors after the due date. [1] (f) State one disadvantage to Dalia Said of paying creditors after the due date. [1] (g) Dalia Said is concerned that some of her credit customers are exceeding the period of credit allowed. Suggest three ways in which Dalia Said could improve the collection period for trade receivables. (i) (ii) (iii) [3] [Total: 20]

5 © UCLES 2012 0452/22/M/J/12 [Turn over For Examiner's Use 2 Simon Nyemba sells farm machinery. His financial year ends on 31 January. Mochudi Traders Ltd pay Simon Nyemba a commission on any goods purchased from them by Simon’s customers. The commission is paid six-monthly in arrears. On 1 February 2011 Simon Nyemba was owed $280 in commission. Simon Nyemba received cheques for commission as follows: $ 5 February 2011 280 3 August 2011 312 On 31 January 2012 Simon Nyemba was owed $296 commission. REQUIRED (a) Write up the commission received account as it would appear in Simon Nyemba’s ledger for the year ended 31 January 2012. Where a traditional “T” account is used it should be balanced and the balance brought down. Where a three-column running balance account is used the balance column should be updated after each entry. Simon Nyemba Commission received account [6]

6 © UCLES 2012 0452/22/M/J/12 For Examiner's Use Simon Nyemba owns premises and pays property tax to the authorities. On 1 February 2011 two months’ property tax, $520, was prepaid. On 24 April 2011 Simon Nyemba paid $1620 by cheque for property tax for six months to 30 September 2011. On 4 October 2011 he paid a further cheque for $1620 for property tax for six months to 31 March 2012. REQUIRED (b) Write up the property tax account as it would appear in Simon Nyemba’s ledger for the year ended 31 January 2012. Where a traditional “T” account is used it should be balanced and the balance brought down. Where a three-column running balance account is used the balance column should be updated after each entry. Simon Nyemba Property tax account [6] (c) Name the accounting principle applied in the preparation of the commission received account and the property tax account. [1]

7 © UCLES 2012 0452/22/M/J/12 [Turn over For Examiner's Use (d) Name the section of Simon Nyemba’s balance sheet on 31 January 2012 in which each of the following balances would appear. (i) Commission receivable account [1] (ii) Property tax account [1] (e) On 31 January 2012 Simon Nyemba’s discount allowed account had a debit balance of $324. Prepare the journal entry Simon Nyemba would make to transfer the discount allowed account to the income statement for the year ended 31 January 2012. A narrative is required. Simon Nyemba Journal Debit $ Credit $ [3]

8 © UCLES 2012 0452/22/M/J/12 For Examiner's Use Simon Nyemba maintains a provision for doubtful debts. On 1 February 2011 there was a credit balance of $460 on the provision for doubtful debts account. At 31 January 2012 Simon Nyemba’s trade receivables amounted to $14 300 and he decided to maintain the provision for doubtful debts at 3% of the trade receivables. REQUIRED (f) Write up the provision for doubtful debts account as it would appear in Simon Nyemba’s ledger for the year ended 31 January 2012. Where a traditional “T” account is used it should be balanced and the balance brought down. Where a three-column running balance account is used the balance column should be updated after each entry. Simon Nyemba Provision for doubtful debts account [5] (g) Name one accounting principle which Simon Nyemba is applying by maintaining a provision for doubtful debts. [1] [Total: 24]

9 © UCLES 2012 0452/22/M/J/12 [Turn over For Examiner's Use Question 3 is on the next page

10 © UCLES 2012 0452/22/M/J/12 For Examiner's Use 3 Herman Wagner makes furniture. He provided the following information for the year ended 30 April 2012 $ Inventories 1 May 2011 – Raw materials 14 300 Finished goods 12 100 Work in progress 6 520 Revenue 600 000 Purchases of raw materials 168 900 Purchases of finished goods 3 450 Carriage on purchases of raw materials 2 600 Wages – Factory direct 193 700 Factory indirect 43 600 Administration 121 100 General expenses – Factory 24 450 Administration 9 640 Factory machinery at cost 98 000 Office equipment at cost 14 500 Provision for depreciation of factory machinery 35 280 Provision for depreciation of office equipment 4 350 Loose tools 1 May 2011 at valuation 950 Additional information 1 At 30 April 2012: $ Inventories were valued at Raw materials 16 400 Finished goods 11 300 Work in progress 6 970 2 The factory general expenses include rates and insurance, $6200, which should be apportioned – factory ¾ and office ¼. 3 The factory indirect wages include $10 000 taken by Herman Wagner for personal use. 4 The factory machinery is being depreciated at 20% per annum using the reducing balance method. The office equipment is being depreciated by 10% per annum using the straight line method. 5 During the year additional loose tools, $45, were purchased. At 30 April 2012 the loose tools were valued at $890.

11 © UCLES 2012 0452/22/M/J/12 [Turn over For Examiner's Use REQUIRED (a) Select the relevant information and prepare the manufacturing account of Herman Wagner for the year ended 30 April 2012. Herman Wagner Manufacturing Account for the year ended 30 April 2012 [16]

12 © UCLES 2012 0452/22/M/J/12 For Examiner's Use (b) Define and give one example of each of the following types of inventory in Herman Wagner’s business. (i) Raw materials [2] (ii) Work in progress [2] (iii) Finished goods [2] (c) Explain why Herman Wagner revalues the loose tools at the end of each financial year rather than using the straight line or reducing balance method of depreciation. [2]

13 © UCLES 2012 0452/22/M/J/12 [Turn over For Examiner's Use After the preparation of the manufacturing account for the year ended 30 April 2012, Herman Wagner prepared an income statement showing a gross profit of $170 200 and total expenses of $144 000. On 1 May 2011 Herman Wagner’s capital was $130 000. On that date he borrowed $20 000 (repayable on 30 April 2016) from Cashco Ltd. REQUIRED (d) Calculate the return on capital employed (ROCE) for Herman Wagner. Use the total capital employed on 1 May 2011. The calculation should be correct to two decimal places. Show your workings. [3] (e) The return on capital employed (ROCE) calculated on 30 April 2011 was 19.50%. State and explain whether Herman Wagner will be satisfied with the ratio you calculated in (d). Will he be satisfied? Explanation [3] [Total: 30]

14 © UCLES 2012 0452/22/M/J/12 For Examiner's Use 4 The financial year of Creekside Ltd ends on 30 April. The following information is available after the preparation of the income statement and appropriation account for the year ended 30 April 2012. $ Issued share capital 5% Preference shares of $1 each 80 000 Ordinary shares of $1 each 100 000 Retained profit at 1 May 2011 6 500 General reserve 10 000 Premises at cost 120 000 Plant and machinery at cost 90 000 Fixtures and fittings at cost 32 000 Inventory 24 660 Trade payables 26 960 Trade receivables 21 600 Provision for depreciation on machinery 15 500 Provision for depreciation on fixtures and fittings 6 400 Provision for doubtful debts 660 Cash 200 Bank overdraft 5 340 4% Debentures 30 000 Additional information 1 The profit retained for the year, after appropriations, was $7100. 2 The preference dividend for the year ended 30 April 2012 has been paid in full. REQUIRED (a) Prepare the balance sheet of Creekside Ltd at 30 April 2012.

15 © UCLES 2012 0452/22/M/J/12 [Turn over For Examiner's Use Creekside Ltd Balance Sheet at 30 April 2012 [15]

16 © UCLES 2012 0452/22/M/J/12 For Examiner's Use Creekside Ltd wishes to purchase additional premises costing $40 000. It is proposed to obtain this money by issuing either 4% debentures or 5% preference shares. REQUIRED (b) (i) Calculate the amount of additional debenture interest which would have to be paid each year if debentures are issued. [1] (ii) State the effect on the profit for the year if additional debentures are issued. Give a reason for your answer. Effect Reason [2] (c) (i) Calculate the amount of additional preference dividend which would have to be paid each year if preference shares are issued. [1] (ii) State one way in which the existing ordinary shareholders may be affected if the company issues additional preference shares. [2] (d) State one way in which the existing ordinary shareholders may be affected if the company obtained the money by issuing additional ordinary shares. [2] [Total: 23]

17 © UCLES 2012 0452/22/M/J/12 [Turn over For Examiner's Use 5 Bethany Searle is a trader. Her financial year ends on 31 March. The trial balance prepared on 31 March 2012 failed to agree. The difference was entered in a suspense account. The following errors were later discovered. 1 The total of the discount received column in the cash book, $96, had not been posted to the ledger. 2 Cash received from a tenant, $340, had been entered in the cash book but had not been posted to the rent received account. 3 Stationery returned to the supplier, $24, had been correctly entered in the supplier’s account but had been entered in the purchases returns journal. 4 The balance of the petty cash book, $100, had not been included in the trial balance. 5 The total of the sales journal had been overcast by $1000. REQUIRED (a) Prepare the entries in Bethany Searle’s journal to correct the above errors. Narratives are not required. The first one has been completed as an example. Bethany Searle Journal Debit $ Credit $ 1 Suspense 96 Discount received 96 2 3 4 5 [8]

18 © UCLES 2012 0452/22/M/J/12 For Examiner's Use Before the errors were discovered Bethany Searle calculated that she had made a profit for the year ended 31 March 2012 of $14 940. REQUIRED (b) Prepare a statement to show the effect of correcting errors 1-5 on the original profit for the year. If the error does not affect the profit for the year write “No effect”. The first correction has been completed as an example. Bethany Searle Statement of corrected profit for the year ended 31 March 2012 $ Profit for the year before corrections 14 940 Effect on profit Increase Decrease $ $ Error 1 96 2 3 4 5 Corrected profit for the year [9] Bethany Searle provided the following information at 31 March 2012. $ Trade payables 21 570 Trade receivables 19 540 Bank overdraft 2 880 Cash 100 Inventory 14 210 REQUIRED (c) Calculate the quick ratio. The calculation should be correct to two decimal places. Show your workings. [2]

19 © UCLES 2012 0452/22/M/J/12 For Examiner's Use (d) Explain the importance of the quick ratio to Bethany Searle. [2] (e) Explain why the quick ratio is more reliable as an indicator of liquidity than the current ratio. [2] [Total: 23]

20 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 2012 0452/22/M/J/12 BLANK PAGE

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education MARK SCHEME for the May/June 2012 question paper for the guidance of teachers 0452 ACCOUNTING 0452/22 Paper 2, 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 May/June 2012 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 2012 0452 22 © University of Cambridge International Examinations 2012 1 (a) Dalia Said Purchases journal Date 2012 March 2 8 31 Details Essam Wholesalers Ramy El Din Less 20% Trade discount Transfer to Purchases a/c $ 680 136 $ 1950 544 ____ 2494 (1) (1) (1) [3] Purchases returns journal Date 2012 March 14 31 Details Ramy El Din Less 20% Trade discount Transfer to Purchases returns a/c $ 120 24 $ 96 __ 96 (1) (1) [2] (b) Dalia Said Essam Wholesalers account 2012 $ 2012 $ Mar 21 Bank 1911 (1) Mar 2 Purchases 1950 (1) Discount 39 (1) ____ (1) 1950 (1) 1950 (1) [3] Ramy El Din account 2012 $ 2012 $ Mar 14 Returns 96 (1) Mar 8 Purchases 544 (1) 28 Bank 300 (1) 31 Balance c/d 148 (1) ___ (1) 544 (1) 544 (1) 2012 Apl 1 Balance b/d 148 (1)O/F [4]

Page 3 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0452 22 © University of Cambridge International Examinations 2012 (c) Purchases ledger/Creditors ledger [1] (d) 1 365 400 33 2600 × (1) = 28.41 = 29 days (1) [2] (e) Money can be used for other things within the business May avoid bank charges/bank interest Any 1 point (1) [1] (f) Loss of cash discounts Creditors may refuse further supplies Creditors may insist on cash purchases in future Damage to good relationship with suppliers May be charged interest Any 1 point (1) [1] (g) Offer cash discount for prompt payment Charge interest on overdue accounts Improve credit control/send invoices or statements promptly Refuse further supplies until outstanding balance paid Invoice discounting and debt factoring Any 3 points (1) each [3] [Total: 20]

Page 4 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0452 22 © University of Cambridge International Examinations 2012 2 (a) Simon Nyemba Commission received account 2011 $ 2011 $ Feb 1 Balance b/d 280 (1) Feb 5 Bank 280} (1) 2012 Aug 3 Bank 312} (1) Jan 31 Income 2012 Statement 608 (2) Jan 31 Balance c/d 296 (1) O/F 888 (1) 888 (1) 2012 Feb 1 Balance b/d 296 (1) + (1) dates [6] (b) Simon Nyemba Property tax account 2011 $ 2012 $ Feb 1 Balance b/d 520} (1) Jan 31 Income Apl 24 Bank 1620} (1) statement 3220 (2)O/F Oct 4 Bank 1620} (1) Balance c/d 540 (1) 3760 (1) 3760 (1) 2012 Feb 1 Balance b/d 540} (1) + (1) dates [6] (c) Accruals (matching) [1] (d) (i) Current assets (1) (ii) Current assets (1) [2] (e) Journal Debit $ Credit $ Income statement Discount allowed Total discount allowed transferred to the income statement 324 324 (1) (1) (1) [3] Continued/

Page 5 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0452 22 © University of Cambridge International Examinations 2012 (f) Simon Nyemba Provision for doubtful debts account 2012 $ 2011 $ Jan 31 Income Feb 1 Balance b/d 460 (1) Statement 31 (2) O/F Balance c/d 429 (1) ___ (1) 460 (1) 460 (1) 2012 Feb 1 Balance b/d 429 (1) + (1) dates [5] (g) Prudence OR Accruals (matching) [1] [Total: 24] 3 (a) Herman Wagner Manufacturing Account for the year ended 30 April 2012 $ $ Cost of materials consumed (1) Opening inventory of raw materials 14 300 (2) Purchases of raw material 168 900 (2) Carriage on purchases 2 600 (2) 185 800 (2) Less Closing inventory of raw materials 16 400 (2) 169 400 (1) Direct factory wages 193 700 (1) Prime cost 363 100 (1) O/F Factory overheads Indirect wages (43 600 – 10 000) 33 600 (2) General expenses (24 450 – (¼ × 6200)) 22 900 (2) Depreciation – Factory machinery (20% × (98 000 – 35 280)) 12 544 (2) Loose tools (950 + 45 – 890) 105 (2) 69 149 (2) 432 249 (1) O/F Add Opening work in progress 6 520 (1) 438 769 (2) Less Closing work in progress 6 970 (1) Production cost of goods completed 431 799 (1) O/F [16]

Page 6 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0452 22 © University of Cambridge International Examinations 2012 (b) (i) Inventory of raw materials Goods remaining at the year-end which were originally purchased for converting into finished articles (1) Example – wood, nails, screws, handles or other suitable example (1) [2] (ii) Inventory of work in progress Furniture which is partly made at the year end (1) Example – partly made table/ wardrobe/chair/other suitable example (1) [2] (iii) Inventory of finished goods Completed furniture which is awaiting sale (1) Example – finished table/wardrobe/chair/other suitable example (1) [2] (c) This is an application of the principle of materiality. It is not practical to keep detailed records of loose tools. Any 1 comment (2) [2] (d) ( ) ( ) 17.47% 1 100 000 20 000 130 000 144 - 200 170 = × + (1) (1) [3] (e) Unsatisfied (1) The ratio is lower than the previous year. (1) The capital is not being employed as efficiently as in the previous year. (1) Accept answer based on the answer to (d) [3] [Total: 31]

Page 7 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0452 22 © University of Cambridge International Examinations 2012 4 (a) Creekside Ltd Balance Sheet at 30 April 2012 $ $ $ Non-current assets Cost Depreciation Book to date value Premises 120 000 (1) 120 000 (1) Plant and machinery 90 000 (1) 15 500 (1) 74 500 (1) Fixtures and fittings 32 000 (1) 6 400 (1) 25 600 (1) 242 000 (1) 21 900 (1) 220 100 (1) O/F Current assets Inventory 24 660 (1) Trade receivables 21 600 (1) Less Provision for doubtful debts 660 (1) 20 940 (1) Cash 200 (1) 45 800 (1) Current liabilities Trade payables 26 960 (1) Bank overdraft 5 340 (1) 32 300 (1) Net current assets 13 500 (1) O/F 233 600 (1) 4% Debentures 30 000 (1) 203 600 (1) Capital and reserves 5% Preference shares of $1 each 80 000 (1) Ordinary shares of $1 each 100 000 (1) General reserve 10 000 (1) Retained profits (6 500 (1) + 7 100 (1)) 13 600 (1) 203 600 (1) [15] (b) (i) $1600 [1] (ii) Effect Profit for the year is reduced (1) Reason Debenture interest is an expense (1 [2] (c) (i) $2000 [1] (ii) Reduction in profit (or dividend) available for ordinary shareholders Prior claim on the assets of the company in the event of a winding up Any 1 point (2) [2]

Page 8 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0452 22 © University of Cambridge International Examinations 2012 (d) The new shares rank equally with the existing ordinary shares with regard to dividend. The new shares rank equally with the existing ordinary shares with regard to repayment in a winding up. The percentage of ownership of the existing ordinary shareholders is diluted. Any 1 point (2) [2] [Total: 23] 5 (a) Bethany Searle Journal Debit $ Credit $ 2 3 4 5 Suspense Rent received Purchases returns Stationery - Suspense Sales Suspense 340 24 – 1000 340 24 100 1000 (1) (1) (1) (1) (1) (1) (1) (1) [8]

Page 9 Mark Scheme: Teachers’ version Syllabus Paper IGCSE – May/June 2012 0452 22 © University of Cambridge International Examinations 2012 (b) Bethany Searle Statement of corrected profit for the years ended 31 March 2012 $ Profit for the year before corrections 14 940 Effect on profit Increase Decrease $ $ Error 1 96 (2) 2 340 (2) 3 No effect (2) 4 No effect (2) 5 ___ (2) 1 000 (2) 436 (2) 1 000 (2) 564 (2) Corrected profit for the year 14 376 (1) O/F [9] (c) (19 540 + 100) : (21 570 + 2 880) = 19 640 : 24 450 (1) = 0.80 : 1 (1) [2] (d) Shows whether the immediate liabilities can be paid from liquid assets Shows whether the business relies on the sale of inventory to pay the immediate liabilities Any 1 comment (2) [2] (e) The quick ratio does not include inventory. (1) Either Inventory is not regarded as a liquid asset (1) Or Inventory is two stages away from being a liquid asset. (1) [2] [Total: 23]