Cambridge IGCSE Accounting 0452 — 2014 Oct/Nov Paper 1 · Variant 3

This document consists of 18 printed pages and 2 blank pages. IB14 11_0452_13/6RP © UCLES 2014 [Turn over *7262529580* Cambridge International Examinations Cambridge International General Certificate of Secondary Education ACCOUNTING 0452/13 Paper 1 October/November 2014 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 an HB pencil for any diagrams or graphs. Do not use staples, paper clips, 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 2014 0452/13/O/N/14 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) A business prepares monthly control accounts. Where would a contra entry appear? sales ledger control account purchases ledger control account debit credit debit credit A

B

C
D
[1] (b) Which item is a capital receipt for a foodstore? A discount received from supplier for prompt payment B interest received on bank deposit account C receipt from sale of shelving at book value D receipts from sales of food products [1] (c) Zafar owed Ali $500. Zafar was only able to pay Ali $200. Ali wrote the balance off as a bad debt. Which entries record this in Ali's ledger? account to be debited $ account to be credited $ A bad debts 500 bank Zafar 300 200 B bank Zafar 200 300 bad debts 500 C bad debts bank 300 200 Zafar 500 D Zafar 500 bad debts bank 300 200 [1]

3 © UCLES 2014 0452/13/O/N/14 [Turn over (d) Pat and Mike are in partnership. Pat is credited with an annual salary of $20 000. The balance of the partnership’s profit for the year is shared equally between the partners. The profit for the year was $100 000. What is the total amount credited to Pat’s current account for the year? A $40 000 B $50 000 C $60 000 D $70 000 [1] (e) On 1 January 2013 a club had an accumulated fund of $12 300. For the year ended 31 December 2013 the club’s income was $10 000 and its expenditure $11 800. What was the balance on the accumulated fund on 31 December 2013? A $500 B $2300 C $10 500 D $14 100 [1] (f) A manufacturer provided the following information for his financial year. $ prime cost 330 000 factory overheads 190 000 cost of production 524 000 opening work in progress 11 000 What was the value of the closing work in progress? A $4000 B $7000 C $15 000 D $18 000 [1]

4 © UCLES 2014 0452/13/O/N/14 (g) What is used in the calculation of the trade payables payment period? A average inventory B credit purchases C credit sales D total purchases [1] (h) Four businesses are of a similar size and sell similar products. Which business is most efficient at keeping its overhead expenses to a minimum? Gross profit / sales % Net profit / sales % A 40 23 B 45 30 C 55 37 D 65 46 [1] (i) Which external user would be interested in the financial statements of a business? A creditor B employee C manager D owner [1] (j) Which is not a feature of reliability of information in financial statements? A The information must be able to be compared to other businesses. B The information must be capable of being independently verified. C The information must be free from bias. D The information must be free from significant errors. [1] [Total: 10]

5 © UCLES 2014 0452/13/O/N/14 [Turn over 2 (a) Give the name of each document described below. 1 a document sent to a customer with details of goods supplied on credit 2 a document informing a supplier of overcharges or shortages 3 a summary of a customer’s transactions for a month [3] (b) (i) State on which side of the cash book discount allowed appears. (ii) Name which type of discount this is. (iii) Explain why this discount is given. [3]

6 © UCLES 2014 0452/13/O/N/14 Vikram maintains a cash book with columns for bank and cash. The following transactions take place. 1 Vikram sells goods, $300, on credit to Hal 2 Hal pays the debt in full in cash 3 Vikram pays $250 of the cash into the bank 4 Vikram writes a cheque for $400 for his own use 5 $600 is received from Mabel, a debtor, by credit transfer REQUIRED (c) Complete the table below showing how these transactions are recorded in Vikram’s books. The first has been completed as an example. Debit entry Credit entry $ $ 1 Hal account 300 Sales account 300 2 3 4 5 [8] (d) State which transaction in (c) is known as a contra. [1]

7 © UCLES 2014 0452/13/O/N/14 [Turn over A cash book (bank column) had a debit balance of $620 on 1 September 2014. The bank statement at that date showed a credit balance of $660. The differences were identified as follows. 1 A cheque for $100 had not been presented at the bank. 2 Bank charges of $10 were not included in the cash book. 3 The bank had made an error by making a payment of $50 to a supplier twice. REQUIRED (e) Calculate the value of bank which should appear in the statement of financial position on 1 September 2014. [4] (f) Name the section of the statement of financial position in which the bank balance would appear. [1] (g) Name one other item which might appear in this section. [1] [Total: 21]

8 © UCLES 2014 0452/13/O/N/14 3 (a) Explain the difference between a prepayment and an accrual. [2] An insurance account showed a prepayment of $180 on 1 July 2013. A payment, $2340, for insurance was made on 2 August 2013. There was a prepayment of $195 showing on the account on 30 June 2014. REQUIRED (b) Prepare the insurance account for the year ended 30 June 2014. Bring down the balance on 1 July 2014. Insurance account Date Details $ Date Details $ … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... [5]

9 © UCLES 2014 0452/13/O/N/14 [Turn over (c) (i) Name the section of the income statement in which insurance appears. [1] (ii) Name the principle being applied when a prepayment is calculated. [1] (d) (i) Slavko is a hairdresser. State whether his business is a trading or a service business. [1] (ii) Name two items which would appear in the income statement of a trading business which would not appear in the income statement of a service business. 1 2 [2] (e) (i) Inventory should not be valued at normal selling price. Name the accounting concept which prohibits this. [1] (ii) State how inventory ought to be valued. [2] Marek sells table lamps which he buys for $8 each. On 31 July 2014 he had 10 broken lamps which could only be sold for scrap, at $2 each. The cost of sending them to the scrap merchant was $7 in total. REQUIRED (f) Calculate the value at which these 10 lamps should be included in the inventory on 31 July 2014. [3]

10 © UCLES 2014 0452/13/O/N/14 (g) (i) Explain one limitation a potential investor should be aware of when studying the financial statements of a business. [2] (ii) Complete the table below, indicating with a tick (
) where each item would appear in the financial statements. The first has been completed as an example. Income statement Statement of financial position Debit Credit Assets Liabilities Bank overdraft
Depreciation charge for the year Prepaid rent Discount received Commission received [4] [Total: 24]

11 © UCLES 2014 0452/13/O/N/14 [Turn over 4 Arrietty’s draft income statement showed a profit for the year of $26 800. The following errors were then discovered. 1 Inventory, $160, at a customer’s premises at the year end on a sale or return basis, had been forgotten and not included in the financial statements. 2 The sales account had been undercast by $1000. 3 Goods, $250, taken by Arrietty for her own use, had not been recorded in the books of account. 4 A cheque from a debtor, Alice, had been credited to the account of Alicia. 5 A payment for vehicle repairs, $300, had been credited to the vehicle repair account. REQUIRED (a) Complete the table below using a tick (
) to indicate if each error would affect the balancing of the trial balance. The first has been completed as an example. Error Affects balancing of trial balance Does not affect balancing of trial balance 1
2 3 4 5 [4] (b) Complete the statement below to show the effect of each of these errors on the profit for the year. If an error has no effect, write No Effect. Show the corrected profit for the year. Statement of corrected profit $ Draft profit for the year 26 800 Error 1 2 3 4 5 Corrected profit for the year [7] (c) Name the type of error made in Error 4. [1] [Total: 12]

12 © UCLES 2014 0452/13/O/N/14 5 Ajith has a financial year end of 31 December. He provided the following information at 1 January 2013. $ Fixtures and fittings at cost 31 200 Accumulated depreciation 9 702 Ajith depreciates his fixtures and fittings at the rate of 20% per annum on the reducing (diminishing) balance basis. He provides a full year’s depreciation in the year of purchase and none in the year of disposal. On 1 June 2013 he sold some fixtures and fittings which had cost $1200 when bought on 15 May 2011. He received a cheque for $600 in settlement. On 1 August 2013 he bought new fixtures and fittings, $2500, paying in cash. REQUIRED (a) Calculate the accumulated depreciation provided on the fixtures and fittings sold on 1 June 2013. [3]

13 © UCLES 2014 0452/13/O/N/14 [Turn over (b) Prepare the following ledger accounts for the year ended 31 December 2013. Where necessary balance the account and bring down the balance on 1 January 2014. Fixtures and fittings account Provision for depreciation account Disposal account [15]

14 © UCLES 2014 0452/13/O/N/14 (c) Prepare the following extracts from Ajith’s financial statements using your answer to (b). Ajith Extract from Income Statement for the year ended 31 December 2013 Ajith Extract from Statement of Financial Position at 31 December 2013 [4] [Total: 22]

15 © UCLES 2014 0452/13/O/N/14 [Turn over 6 (a) Explain why a sole trader might convert his business into a limited company. [1] (b) Name one type of share capital other than ordinary share capital. [1] Two companies provided the following information. ABC Limited XYZ Limited $ $ At 1 January 2013 Retained profit 29 300 14 100 For the year ended 31 December 2013 Profit from operations (profit before interest) 15 000 15 000 Dividend paid per share 0.03 0.05 At 31 December 2013 10% debentures (issued in 2009) 15 000 8% debentures (issued in 2008) 100 000 Ordinary shares of $0.50 each 130 000 Ordinary shares of $1.00 each 62 000 Non-current assets 100 000 100 000 Net current assets 80 000 80 000 During the year ended 31 December 2013 the directors of ABC Limited decided to create a general reserve of $5000. REQUIRED (c) Explain why a company might wish to create a general reserve. [2]

16 © UCLES 2014 0452/13/O/N/14 (d) Calculate the profit after interest for the year ended 31 December 2013 for each of the companies. ABC Limited XYZ Limited [4]

17 © UCLES 2014 0452/13/O/N/14 [Turn over (e) Prepare the appropriation account for the year ended 31 December 2013 for each of the companies. ABC Limited Appropriation Account for the year ended 31 December 2013 XYZ Limited Appropriation Account for the year ended 31 December 2013 [11] (f) Explain why these two companies, having the same capital employed, can have different retained profits for the year. [2] Questions 6(g) and (h) are on the next page.

18 © UCLES 2014 0452/13/O/N/14 (g) Prepare the summarised statement of financial position of ABC Limited at 31 December 2013. ABC Limited Statement of Financial Position at 31 December 2013 [6] (h) Antoinette bought $20 000 of shares in each company when they were formed. Suggest two reasons why she is happier with her investment in ABC Limited than her investment in XYZ Limited. 1 2 [4] [Total: 31]

19 © UCLES 2014 0452/13/O/N/14 BLANK PAGE

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. 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 2014 0452/13/O/N/14 BLANK PAGE

® IGCSE is the registered trademark of Cambridge International Examinations. CAMBRIDGE INTERNATIONAL EXAMINATIONS Cambridge International General Certificate of Secondary Education MARK SCHEME for the October/November 2014 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 2014 series for most Cambridge IGCSE®, Cambridge International A and AS Level components and some Cambridge O Level components.

Page 2 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 13 © Cambridge International Examinations 2014 1 (a) B (b) C (c) C (d) C (e) C (f) B (g) B (h) B (i) A (j) A (1) mark each [Total: 10]

Page 3 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 13 © Cambridge International Examinations 2014 2 (a) 1 Invoice (1) 2 Debit note (1) 3 Statement of account (1) [3] (b) (i) Debit (1) (ii) Cash discount (1) (iii) For prompt payment (1) [3] (c) Debit entry Credit entry $ $ 1 Hal account 300 Sales account 300 2 Cash account 300 (1) Hal account 300 (1) 3 Bank account 250 (1) Cash account 250 (1) 4 Drawings account 400 (1) Bank account 400 (1) 5 Bank account 600 (1) Mabel account 600 (1) [8] (d) Transaction 3 (1) [1] (e) 620 (1) – 10 (1) = 610 (2) OR 660 (1) – 100 (1) + 50 (1) = 610 (1) [4] (f) Current assets (1) [1] (g) Inventory Trade receivables Other receivables Cash Answer to be consistent with answer to (f) Any 1 item (1) [1] [Total: 21]

Page 4 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 13 © Cambridge International Examinations 2014 3 (a) A prepayment is an amount paid in advance for a service which has not yet been received (1) An accrual is an amount owed for a service which has been received but not yet paid for (1) [2] (b) Insurance Account $ $ 2013 2014 July 1 Balance b/d 180 (1) June 30 Income Aug 2 Bank/Cash 2 340 (1) Statement 2 325 (1)OF Balance c/d 195 2 520 2 520 2014 July 1 Balance b/d 195 (1)CF + (1) dates [5] (c) (i) Profit and loss/expenses (1) [1] (ii) Accruals/matching (1) [1] (d) (i) Service business (1) [1] (ii) Sales/revenue/sales returns Inventory (opening and closing) Purchases/purchases returns Carriage Cost of sales Goods for own use Gross profit Any 2 items (1) each [2] (e) (i) Prudence (1) [1] (ii) At the lower (1) of cost and net realisable value (1) [2] (f) $ Scrap value 10 × $2 20 (1) Less selling expenses 7 (1) Net realisable value 13 (1)CF [3]

Page 5 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 13 © Cambridge International Examinations 2014 (g) (i) It is a record of what has happened in the past. There is a gap between the year end and the preparation of the statements. Items are recorded at cost so may not be realistic/difficult to judge effect of inflation. May not know what policies the business is using so problems of comparison. Only information which can be expressed in monetary terms in recorded – other important factors are not recorded. Different definitions can make comparisons difficult. Or other reasonable comment Any 1 comment (2) [2] (ii) [4] [Total: 24] Income statement Statement of financial position Debit Credit Assets Liabilities Bank overdraft
Depreciation charge for the year
(1) Prepaid rent
(1) Discount received
(1) Commission received
(1)

Page 6 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 13 © Cambridge International Examinations 2014 4 (a) Error Affects balancing of trial balance Does not affect balancing of trial balance 1
2
(1) 3
(1) 4
(1) 5
(1) [4] (b) Statement of corrected profit $ . Draft profit for the year 26 800. Error 1 160. (1) Error 2 1 000. (1) Error 3 250. (1) Error 4 No effect. (1) Error 5 (600) (2) Corrected profit for the year 27 610. (1)OF [7] (c) Error of commission (1) [1] [Total: 12]

Page 7 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 13 © Cambridge International Examinations 2014 5 (a) $ $ Cost 1 200 Depreciation year 1 240 240 (1) 960 Depreciation year 2 192 192 (1) Total depreciation 432 (1) [3] (b) Fixtures and fittings account $ $ 2013 2013 Jan 1 Balance b/d 31 200 (1) June 1 Disposal 1 200 (1) Aug 1 Bank/cash 2 500 (1) Dec 31 Balance c/d 32 500 33 700 33 700 2014 Jan 1 Balance b/d 32 500 (1)OF Provision for depreciation Account $ $ 2013 2013 June 1 Disposal 432 (1)OF Jan 1 Balance b/d 9 702 (1) Dec 31 Balance c/d 13 916 Dec 31 Income Statement 4 646 *** 14 348 14 348 2014 Jan 1 Balance b/d 13 916 (1)OF ***Calculation of depreciation for the year $ $ Cost of asset – Opening balance 31 200 Less disposal 1 200 (1) 30 000 Plus addition 2 500 (1) 32 500 Depreciation – Opening balance 9 702 Less disposal 432 OF 9 270 (1)OF 23 230 20% × 23 230 OF = 4646 (1)OF Disposal account $ $ 2013 2013 June 1 Fixtures and Fittings 1 200 (1) June 1 Prov for Depreciation 432 (1)OF Bank/Cash 600 (1) Dec 31 Income Statement 168 (1)OF 1 200 1 200 [15]

Page 8 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 13 © Cambridge International Examinations 2014 (c) Ajith Extract from Income Statement for the year ended 31 December 2013 $ Expenses Loss on disposal of fixtures and fittings 168 (1)OF Depreciation – fixtures and fittings 4 646 (1)OF Ajith Extract from Statement of Financial Position at 31 December 2013 $ Non-current assets Fixtures and fittings at cost 32 500 (1)OF Depreciation to date 13 916 (1)OF 18 584 [4] [Total: 22]

Page 9 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 13 © Cambridge International Examinations 2014 6 (a) To obtain limited liability To obtain extra capital Any 1 reason (1) [1] (b) Preference share capital [1] (c) For reinvestment in the business To plough back profits To set aside profit for dividends in the future If there is not enough actual cash available to pay a dividend Any 2 reasons (1) each [2] (d) ABC Limited $ Profit for the year before interest 15 000 Less debenture interest 1 500 (1) Profit for the year 13 500 (1) XYZ Limited $ Profit for the year before interest 15 000 Less debenture interest 8 000 (1) Profit for the year after interest 7 000 (1) [4] (e) ABC Limited Appropriation Account for the year ended 31 December 2013 $ $ Profit for the year 13 500 (1)OF Less Ordinary share dividend (260 000 shares × $0.03) 7 800 (2) Transfer to general reserve 5 000 (1) 12 800 Profit retained in the year 700 Retained profit b/f 29 300 (1) Retained profit c/f 30 000 (1)OF XYZ Limited Appropriation Account for the year ended 31 December 2013 $ $ Profit for the year 7 000 (1)OF Less Ordinary share dividend (62 000 shares × $0.05) 3 100 (2) Profit retained in the year 3 900 Retained profit b/f 14 100 (1) Retained profit c/f 18 000 (1)OF [11]

Page 10 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 13 © Cambridge International Examinations 2014 (f) ABC has more equity XYZ Limited has more long term loans/debentures/debt ABC’s dividend paid is less expensive than XYZ’s loan interest paid ABC paid a higher total dividend than XYZ XYZ paid a higher total loan interest than ABC ABC made a transfer to general reserve Any 2 comments (1) each [2] (g) ABC Limited Statement of Financial Position at 31 December 2013 $ Non-current assets 100 000 (1) Net current assets 80 000 (1) 180 000 Non-current liabilities 10% Debentures 15 000 (1) 165 000 Capital and reserves Ordinary share of $0.50 each 130 000 (1) General reserve 5 000 (1) Retained profit 30 000 (1)OF 165 000 [6] (h) Shares in ABC had a return of 6% (1) but shares in XYZ had a return of 5% (1) ABC had a lower amount of loan capital (1) so less risky (1) [4] [Total: 31]