Cambridge IGCSE Accounting 0452 — 2012 Oct/Nov Paper 1 · Variant 3

This document consists of 19 printed pages and 1 blank page. IB12 11_0452_13/6RP © UCLES 2012 [Turn over *5431740230* For Examiner's Use 1 2 3 4 5 6 Total UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education ACCOUNTING 0452/13 Paper 1 October/November 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 0452/13/O/N/12 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) Which document is used by a supplier to notify a customer of goods supplied, goods returned and payments received in a month? A credit note B debit note C invoice D statement [1] (b) A trader buys a motor vehicle, for use in his business, on credit from J. Sango. How is this recorded in the trader’s ledger? account to be debited account to be credited A bank motor vehicle B motor vehicle bank C motor vehicle J. Sango D J. Sango motor vehicle [1] (c) On 1 January 2009 a trader bought a computer for use in his business. He sold the computer on 31 December 2011. How should the transaction of 31 December be classified? A capital expenditure B capital receipt C revenue expenditure D revenue receipt [1]

3 © UCLES 2012 0452/13/O/N/12 [Turn over For Examiner's Use (d) A trader provides the following information for the year ended 30 April 2012. $ sales 60 000 expenses 15 000 profit for the year 10 000 What is the cost of sales for the year ended 30 April 2012? A $25 000 B $35 000 C $45 000 D $50 000 [1] (e) Which is a non-current liability? A bank loan repayable in five years B bank overdraft repayable in six months C freehold property D trade payables [1] (f) A business provides for the depreciation of its non-current assets. What is the effect of this? net profit net book value of non-current assets A decrease decrease B decrease increase C increase decrease D increase increase [1]

4 © UCLES 2012 0452/13/O/N/12 For Examiner's Use (g) In a partnership appropriation account, which is correct? A Salaries and interest on capital will increase divisible profit. B Interest on capital and interest on drawings will increase divisible profit. C Salaries and interest on capital will decrease divisible profit. D Interest on capital and interest on drawings will decrease divisible profit. [1] (h) How is factory cost of production calculated? A prime cost – factory overheads – increase in work in progress B prime cost – factory overheads + increase in work in progress C prime cost + factory overheads – increase in work in progress D prime cost + factory overheads + increase in work in progress [1] (i) What is shown by the percentage of net profit to revenue? A whether the cost of revenue has decreased B whether the expenses are well controlled C whether the selling price has increased D whether the inventory is being sold quickly enough [1] (j) A trader included his personal telephone bill in the telephone expenses account of his business. Which accounting principle is the trader not applying? A business entity B going concern C matching (accruals) D prudence [1] [Total: 10]

5 © UCLES 2012 0452/13/O/N/12 [Turn over Question 2 is on the next page.

6 © UCLES 2012 0452/13/O/N/12 For Examiner's Use 2 (a) Name two books of prime (original) entry. 1 2 [2] (b) In the table below, place a tick (✓) under the correct heading to show whether the item is income or an expense of a business. Income Expense Debenture interest Factory overheads Commissions received [3] (c) Bedou is a new supplier of goods on credit to Anwar. Suggest one reason why Bedou would be interested in Anwar’s financial statements. [2] (d) Alan’s trial balance does not balance. Give two possible reasons for this. 1 2 [4] (e) Jenny has received her bank statement. The following items have not yet been entered in her cash book. Place a tick (✓) in the table below under the correct heading to show whether the item will increase, reduce, or have no effect on the debit balance in her cash book. Increase Decrease Have no effect Bank charges Credit transfer Dishonoured cheque [3]

7 © UCLES 2012 0452/13/O/N/12 [Turn over For Examiner's Use (f) Give one example of an intangible non-current asset. [1] (g) Singh bought goods, $240, on credit from Malik. This was recorded in Singh’s books as $420. (i) Name the type of error which has been made. [1] (ii) Show the journal entry required to correct this error. A narrative is not required. Singh Journal Debit $ Credit $ [3] (h) Lindie maintains a provision for doubtful debts of 3% of her trade receivables. Her trade receivables amounted to $28 000 on 1 November 2011 and $32 000 on 31 October 2012. Calculate the amount of the increase in Lindie’s provision for doubtful debts on 31 October 2012. [3] [Total: 22]

8 © UCLES 2012 0452/13/O/N/12 3 Prince makes engine parts. His financial year ends on 30 September. The following items remained on Prince’s books after the preparation of the income statement for the year ended 30 September 2012. $ Bank 500 Dr Bank loan (repayable 2018) 2800 Capital 6800 Equipment at cost 3500 Inventory 3300 Motor vehicle at cost 4500 Other payables 900 Provision for depreciation – equipment 600 Provision for depreciation – motor vehicle 1000 Trade payables 2700 Trade receivables 3000 REQUIRED (a) Prepare Prince’s balance sheet at 30 September 2012 on the following page.

9 © UCLES 2012 0452/13/O/N/12 [Turn over For Examiner's Use Prince Balance Sheet at 30 September 2012 [9]

10 © UCLES 2012 0452/13/O/N/12 For Examiner's Use Prince is interested in how easily he can turn the current assets of his business into cash and whether his business will be able to pay the current liabilities as they fall due. REQUIRED (b) (i) State the formula for the calculation of the current ratio. [1] (ii) Calculate Prince’s current ratio at 30 September 2012. Show your workings and give your answer to two decimal places. [2] (iii) State and explain whether Prince will be satisfied with his current ratio. Will he be satisfied? Reason [3] (c) (i) State the formula for the calculation of the quick (acid test) ratio. [1] (ii) Calculate Prince’s quick (acid test) ratio at 30 September 2012. Show your workings and give your answer to two decimal places. [2]

11 © UCLES 2012 0452/13/O/N/12 [Turn over For Examiner's Use (iii) State and explain whether Prince will be satisfied with his quick (acid test) ratio. Will he be satisfied? Reason [3] (d) Suggest one way in which Prince could encourage his customers to pay their accounts more quickly. [2] (e) Suggest one way in which Prince could improve his working capital. [2] [Total: 25]

12 © UCLES 2012 0452/13/O/N/12 For Examiner's Use 4 Mlongo buys and sells mirrors. The following information is available for the year ended 31 October 2012. $ Carriage inwards 50 Carriage outwards 100 Inventory at 1 November 2011 1300 Operating expenses 680 Purchases 4650 Rent 780 Revenue 8000 Returns inwards 215 Rent includes $260 paid in advance. Additional operating expenses of $120 are to be accrued. REQUIRED (a) State what is meant by the term “inventory”. [1] Mlongo sells three different types of mirror and provided the following information about his inventory at 31 October 2012. Mirror type Units in stock Cost per unit Selling price per unit $ $ Full-length mirror 15 55 85 Wall mirror 50 15 21 Table mirror 36 25 20 REQUIRED (b) Calculate the value of Mlongo’s inventory at 31 October 2012. Show your workings. [4]

13 © UCLES 2012 0452/13/O/N/12 [Turn over For Examiner's Use (c) From the information on page 12 and your answer to (b), prepare Mlongo’s income statement for the year ended 31 October 2012. Mlongo Income Statement for the year ended 31 October 2012 [9]

14 © UCLES 2012 0452/13/O/N/12 For Examiner's Use Mlongo knows that the rate of inventory turnover is important to a business. REQUIRED (d) (i) State the formula for the calculation of the rate of inventory turnover. [1] (ii) Calculate Mlongo’s rate of inventory turnover for the year ended 31 October 2012. Show your workings and give your answer to one decimal place. [2] (e) Mlongo plans to reduce his closing inventory at 31 October 2013. State the effect of this on his rate of inventory turnover. Give a reason for your answer. [2] (f) State one type of business which will have a low rate of inventory turnover. [1] [Total: 20]

15 © UCLES 2012 0452/13/O/N/12 [Turn over For Examiner's Use 5 Joolia has a restaurant and receives a bill for water used each month. At 1 July Joolia had an unpaid bill for water of $58.50. During the three months ended 30 September 2012 she made the following payments by cheque to the water company. $ 10 July 58.50 12 August 75.00 14 September 45.80 On 4 October Joolia received a bill for $62.30 for water used to 30 September. REQUIRED (a) Explain what is meant by the accounting principle of accruals (matching). [2] (b) Prepare the water account in Joolia’s nominal (general) ledger for the three months ended 30 September 2012. Show the amount transferred to Joolia’s income statement for the period. Balance the account and bring down the balance on 1 October 2012. Joolia Water account [5]

16 © UCLES 2012 0452/13/O/N/12 For Examiner's Use (c) Joolia omitted to include an accrued expense for staff wages at the end of her accounting period. State the effect of this omission on her profit for the period. [1] Joolia buys supplies of food from HiClass Foods Ltd. Their account in her ledger for September 2012 was as follows. Joolia HiClass Foods Ltd 2012 $ 2012 $ Sept 7 Bank 273 Sept 1 Balance b/d 280 Discount 7 12 Purchases 475 15 Purchase returns 35 30 Balance c/d 440 755 755 REQUIRED (d) State the section of Joolia’s ledger in which the above account would appear. [1] (e) Explain each entry in the above account. State where the double entry for each transaction would have been made. The first one has been completed as an example. 1 September Balance b/d Explanation This is the balance owed by Joolia to HiClass Foods Ltd. Double entry Debit HiClass Foods Ltd (August account).

17 © UCLES 2012 0452/13/O/N/12 [Turn over For Examiner's Use 7 September Bank Explanation Double entry [2] 7 September Discount Explanation Double entry [2] 12 September Purchases Explanation Double entry [2] 15 September Purchase returns Explanation Double entry [2] 30 September Balance c/d Explanation Double entry [2] [Total: 19]

18 © UCLES 2012 0452/13/O/N/12 For Examiner's Use 6 Black Limited has issued 100 000 ordinary shares of $1.50 each and 120 000 6% preference shares of $1 each. All the shares are fully paid. REQUIRED (a) Calculate the total issued share capital of Black Limited. [3] (b) (i) Explain the meaning of the term called-up capital. [2] (ii) Explain the meaning of the term paid-up capital. [2] (c) State two differences between ordinary shares and preference shares. 1 2 [4] (d) State two differences between ordinary shares and debentures. 1 2 [4]

19 © UCLES 2012 0452/13/O/N/12 [Turn over For Examiner's Use Schmidt is a partner in Schmidt and Kohl, but is also a shareholder in Black Limited. He holds 10 000 ordinary shares and 12 000 preference shares. Black Limited pays the dividend on the preference shares in two equal instalments on 30 April and 31 October. Black Limited declared a dividend on the ordinary shares of 12% payable on 31 October 2012 and the preference share dividend was also paid on that date. REQUIRED (e) Explain why companies pay dividends on shares. [2] (f) Calculate the total dividend paid to Schmidt on 31 October 2012. [5] (g) State one advantage of being an ordinary shareholder in a limited company compared with being a partner. [2] [Total: 24]

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 0452/13/O/N/12 BLANK PAGE

CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education MARK SCHEME for the October/November 2012 series 0452 ACCOUNTING 0452/13 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 should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the October/November 2012 series for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level components and some Ordinary Level components.

Page 2 Mark Scheme Syllabus Paper IGCSE – October/November 2012 0452 13 © Cambridge International Examinations 2012 1 Key (a) D [1] (b) C [1] (c) B [1] (d) B [1] (e) A [1] (f) A [1] (g) C [1] (h) C [1] (i) B [1] (j) A [1] [Total: 10] 2 (a) Cash book, petty cash book, sales journal, sales returns journal, purchases journal, purchases returns journal, (day books), journal [any two, 1 mark each] [2] (b) Income Expense Debenture interest
(1) Factory overheads
(1) Commissions earned
(1) [3] (c) To see the liquidity position of the business (1) and if his account will be paid (1). [2] (d) Error (of addition, account on incorrect side, transposition, balance missing), single sided entry, entry made twice. [any two,2 marks each] [4]

Page 3 Mark Scheme Syllabus Paper IGCSE – October/November 2012 0452 13 © Cambridge International Examinations 2012 (e) Increase Reduce Have no effect Bank charges
(1) Credit Transfer
(1) Dishonoured cheque
(1) [3] (f) Goodwill, brands, (other acceptable item) [any one] [1] (g) (i) Error of original entry [1] (ii) Dr $ Cr $ Malik (1) 180 }(1) Purchases (1) 180 } [3] (h) Lindie – provision for doubtful debts Provision at 1 November 2011 3% × 28 000 = 840 (1) Provision at 31 October 2012 3% × 32 000 = 960 (1) Increase = 120 (1) [or 3% × (32 000 – 28 000) = 120] (3) [3] [Total: 22]

Page 4 Mark Scheme Syllabus Paper IGCSE – October/November 2012 0452 13 © Cambridge International Examinations 2012 3 (a) Prince Balance Sheet at 30 September 2012 Cost Provision for Net book Depreciation value Non-current assets $ $ $ Equipment 3 500 600 2 900 ) Motor vehicle 4 500 1 000 3 500 ) (1) 8 00 1 600 6 400 Current assets Inventory 3 300 (1) Trade receivables 3 000 (1) Bank 500 (1) 6 800 Current Liabilities Trade payables 2 700 (1) Other payables 900 (1) 3 600 Net current assets 3 200 (1) 9 600 Non-current liabilities Bank loan repayable 2018 2 800 (1) Total assets 6 800 Financed by: Capital 6 800 (1) [9] (b) (i) Current ratio = current assets / current liabilities [1] (ii) (3300 + 3000 + 500) / (2700 + 900) (1) for workings = 1.89 : 1 (1)OF [2] (iii) No (1); Answer is less than 2:1 which is the usual benchmark (1), unable to pay all liabilities (1) [3] (c) (i) Quick ratio = (current assets – inventory) / current liabilities [1] (ii) (3000 + 500) / 3600 (1) for workings = 0.97 : 1 (1)OF [2] (iii) No (1); Answer is less than 1:1 which is the usual benchmark (1) , unable to pay all liabilities (1) [3] (d) Send statement, other reminders, offer cash discount, charge interest on late accounts, refuse further supplies until paid (and similar comments). [Any one, 2 marks] [2] (e) Delaying payment of trade payables, increasing cash/credit sales, reducing credit period for trade receivables, sell fixed assets, introduce extra capital, take out long term loan, reduce drawings, introduce more capital, sell shares. [Any one, 2 marks] [2] [Total: 25]

Page 5 Mark Scheme Syllabus Paper IGCSE – October/November 2012 0452 13 © Cambridge International Examinations 2012 4 (a) Inventory means the goods held for resale by a business at any time. [1] (b) Mirror type Units in stock Cost or net realisable Total value value per unit $ $ Wall mirror 15 55 825 (1) Table mirror 50 15 750 (1) Hand mirror 36 20 720 (2) 2295 [4] (c) Mlongo Income statement for the year ended 31 October 2012 $ $ Revenue (sales) 8 000 (1) Returns inwards 215 (1) 7 785 Cost of sales Inventory at 1 November 2011 1 300 (1) Purchases 4 650 (1) Carriage Inwards 50 (1) 6 000 Inventory at 31 October 2012 2 295 (1)OF 3 705 Gross profit 4 080 Expenses Carriage outwards 100 (1) Other operating expenses (680 + 120) 800 (1) Rent (780 – 260) 520 (1) 1 420 Profit for the year 2 660 [9] (d) (i) Rate of inventory turnover = cost of sales / average inventory [1] (ii) Rate of inventory turnover 2.1 (1) times (1) [2] (e) Rate of inventory turnover will increase (1) as inventory is being replaced quicker (1) [2] (f) Luxury goods, large scale manufacture (ships, airplanes) [Any one] [1] [Total: 20]

Page 6 Mark Scheme Syllabus Paper IGCSE – October/November 2012 0452 13 © Cambridge International Examinations 2012 5 (a) The costs and expenses of an accounting period must be matched against the revenue (of the same period). [2] (b) Joolia Water account 2012 2012 10 July Bank 58.50) 1 July Balance b/d 58.50 (1) 12 August Bank 75.00) 14 Sept Bank 45.80) (1) 30 Sept Income statement 183.10 (1) 30 Sept Balance c/d 62.30 241.60 241.60 1 October Balance b/d 62.30 (1) + (1) for all dates correct [5] (c) Profit will be too high as accrued wages have not been included in expenses for the period. [1] (d) Purchases (Ledger) [1] (e) 7 September Bank Explanation: Amount paid to HiClass Foods Ltd for purchases (on credit/amounts due) (1) Double Entry: Credit Bank Account (1) 7 September Discount Explanation: Amount claimed as discount for prompt payment (1) Double Entry: Credit Discount Received Account (1) 12 September Purchases Explanation: Amount bought on credit from HiClass Foods Ltd (1) Double Entry: Debit Purchases Account (1) 15 September Purchase Returns Explanation: Goods returned to HiClass Foods Ltd as unsuitable/not required (1) Double Entry: Credit Purchase Returns Account / Returns Outwards (1) 30 September Balance c/d Explanation: Amount owing to HiClass Foods Ltd at end of month (1) Double Entry: Credit HiClass Foods Ltd ( October account ) (1) [10] [Total 19]

Page 7 Mark Scheme Syllabus Paper IGCSE – October/November 2012 0452 13 © Cambridge International Examinations 2012 6 (a) Ordinary share capital: 100 000 shares @ $1.50 = 150 000 (1) Preference share capital: 120 000 shares @ $1.00 = 120 000 (1) Total share capital 270 000 (1) [3] (b) (i) The total amount the company has requested from shareholders. [2] (ii) That part of the called up capital for which cash has been received. [2] (c) • Ordinary share dividends vary according to amount of profit made (1) Preference Shares are usually a fixed rate (1) • If business is wound up Preference shareholders are repaid before Ordinary shares (2). • Ordinary shares carry voting rights (1), Preference shares usually have no (or less) voting rights (1) [Any two, two marks each) [4] (d) • Ordinary shares are capital (1), Debentures are a long term loans (1) • Debentures are paid interest (1), Ordinary shares receive dividends (1) • If company is wound up debentures are repaid before Ordinary shares (2)  Debenture holders carry no voting rights (1), Ordinary shares carry voting rights (1) [Any two, 2 marks each] [4] (e) To distribute profit to the shareholders, reward shareholders for investment, to encourage investment. [Any one, 2 marks] [2] (f) Ordinary shares $1 800 (2) Preference shares $360 (3) (Allow 2 marks for $720) [5] (g) Limited liability if business becomes bankrupt Partners have to work in the business where shareholders may only invest (Any other suitable comment 2 marks ) [2] [Total 24]