Cambridge IGCSE Accounting 0452 — 2014 Oct/Nov Paper 2 · Variant 2

This document consists of 19 printed pages and 1 blank page. IB14 11_0452_22/FP © UCLES 2014 [Turn over *7657911134* Cambridge International Examinations Cambridge International General Certificate of Secondary Education ACCOUNTING 0452/22 Paper 2 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 0452/22/O/N/14 1 Sahira Ali is a trader. Her ledger is divided into a sales ledger, a purchases ledger and a nominal (general) ledger. REQUIRED (a) State two advantages of dividing the ledger into these three sections. 1 2 [2] (b) Name one account which would appear in the nominal (general) ledger. [1] On 1 October 2014 Sahira Ali’s trade payables included the following. $ Waheed Khan 390 Iqbal Wholesalers 650 Sahira Ali’s transactions for October 2014 included the following. October 5 Purchased goods on credit from Iqbal Wholesalers, $280 13 Purchased goods on credit from Waheed Khan, list price $420, less 20% trade discount 16 Returned goods, list price $210, to Waheed Khan 24 Sent a cheque for $380 to Waheed Khan in full settlement of the amount owing on 1 October 31 Iqbal Wholesalers charged $6 on the overdue account

3 © UCLES 2014 0452/22/O/N/14 [Turn over REQUIRED (c) Write up the following accounts in the ledger of Sahira Ali for the month of October 2014. Balance the accounts and bring down the balances on 1 November 2014. Sahira Ali Waheed Khan account Date Details $ Date Details $ … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... Iqbal Wholesalers account Date Details $ Date Details $ … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... … ………………………. ……... [9]

4 © UCLES 2014 0452/22/O/N/14 Sahira Ali‘s purchases for the year ended 31 October 2014 were as follows. $ Cash purchases 300 Credit purchases 21 200 On 31 October 2014 Sahira Ali owed her credit suppliers $3100. REQUIRED (d) State the formula for the calculation of the payment period for trade payables. [1] (e) Calculate the payment period for trade payables. Your answer should be rounded up to the next whole day. [2] (f) Suggest one advantage to Sahira Ali of paying her credit suppliers before the due date. [1] (g) Suggest one disadvantage to Sahira Ali of paying her credit suppliers before the due date. [1] Sahira Ali values her inventory at the lower of cost and net realisable value. REQUIRED (h) Explain why inventory should be valued on this basis. [2]

5 © UCLES 2014 0452/22/O/N/14 [Turn over (i) Explain the meaning of the term ‘net realisable value’. [2] (j) Sahira Ali overvalued her inventory on 31 October 2013. Complete the table below by placing a tick (✓) in the correct column to show the effect of this on each of the following items. Overstated Understated No effect Gross profit for the year ended 31 October 2013 Gross profit for the year ended 31 October 2014 Profit for the year ended 31 October 2013 Profit for the year ended 31 October 2014 Current assets at 31 October 2013 Current assets at 31 October 2014 [6] [Total: 27]

6 © UCLES 2014 0452/22/O/N/14 2 The Mochudi Manufacturing Company was formed on 1 August 2013. The following information is available. $ At 1 August 2013 Cost of factory machinery 102 000 Cost of office fixtures and fittings 56 000 Cost of loose tools 4 400 For the year ended 31 July 2014 Revenue 400 400 Purchases: Raw materials 99 500 Finished goods 19 300 Purchases returns: Raw materials 1 100 Wages and salaries: Factory operatives 94 200 Factory supervisors 41 050 Office staff 33 100 Sales staff 18 900 General expenses: Factory 19 400 Office 17 530 Rates and insurance 5 000 At 31 July 2014 Inventory: Raw materials 8 600 Work in progress 8 200 Finished goods 21 100 Rates and insurance prepaid 400 General office expenses prepaid 280 Wages of factory operatives accrued 3 100 Value of loose tools 3 300 Additional information 1 No additional non-current assets were purchased during the year. 2 The factory machinery is to be depreciated at 15% per annum on cost. 3 The office fixtures and fittings are to be depreciated at 12 2 1 % per annum on cost. 4 The loose tools are to be revalued at the end of each financial year. 5 The rates and insurance are to be apportioned ¾ to the factory and ¼ to the office.

7 © UCLES 2014 0452/22/O/N/14 [Turn over REQUIRED (a) Prepare the manufacturing account of The Mochudi Manufacturing Company for the year ended 31 July 2014. The Mochudi Manufacturing Company Manufacturing Account for the year ended 31 July 2014 [12]

8 © UCLES 2014 0452/22/O/N/14 (b) Prepare the income statement of The Mochudi Manufacturing Company for the year ended 31 July 2014. The Mochudi Manufacturing Company Income Statement for the year ended 31 July 2014 [10]

9 © UCLES 2014 0452/22/O/N/14 [Turn over After the preparation of the manufacturing account and the income statement the following errors and omissions were discovered. 1 The trade receivables amounted to $32 600 on 31 July 2014. This included a debt, $200, which should have been written off. 2 A provision for doubtful debts of 2 2 1 % of the remaining trade receivables should have been created. 3 No entry had been made for purchases returns of finished goods, $940. 4 The inventory of finished goods on 31 July 2014 included goods, $3050, which were damaged and which are expected to be sold for $2000. REQUIRED (c) Complete the table below to show the effect of correcting errors 1 – 4 on the profit for the year ended 31 July 2014. Error Effect on profit for the year Increase $ Decrease $ No effect 1 2 3 4 [4] [Total: 26]

10 © UCLES 2014 0452/22/O/N/14 3 The Leeford Athletics Club was formed some years ago. The club has 100 members. The annual subscription is $120. The club rents a clubhouse. The monthly rent is $300. The following information was available on 1 November 2013. $ Accumulated fund 9 510 Equipment at book value 8 300 4% Bank loan 2 000 Cash at bank 4 590 Insurance prepaid to 30 November 2013 120 Clubhouse rent accrued 300 Subscriptions prepaid 1 200 The amounts received and paid during the year ended 31 October 2014 were as follows. $ Subscriptions for the year ended 31 October 2014 7 920 Purchase of new equipment 4 000 Proceeds of sale of old equipment (book value $2200) 1 500 General expenses 9 310 Loan interest paid 400 Rent of clubhouse 4 500 Net receipts from open day 770 Bank charges 30 All receipts were paid into the bank and all payments were made by cheque. REQUIRED (a) Write up the subscriptions account for the year ended 31 October 2014. Balance the account and bring down the balance on 1 November 2014. Leeford Athletics Club Subscriptions account [5]

11 © UCLES 2014 0452/22/O/N/14 [Turn over (b) State the section of the statement of financial position on 31 October 2014 in which the balance of the subscriptions account would appear. [1] (c) Prepare the receipts and payments account of the Leeford Athletics Club for the year ended 31 October 2014. Leeford Athletics Club Receipts and Payments Account for the year ended 31 October 2014 [10]

12 © UCLES 2014 0452/22/O/N/14 (d) Complete the table below to show the amount charged in the income and expenditure account for the year ended 31 October 2014. Give a reason for your answer in each case. The first one has been completed as an example. Item $ Reason Loan interest 800 The accruals (matching) principle is applied. The amount owing at the year end is added to the amount paid to obtain the expense for the year. Sale of equipment Rent of clubhouse [6] [Total: 22]

13 © UCLES 2014 0452/22/O/N/14 [Turn over 4 The following account appeared in the ledger of Adil Shanker. Rent and rates account $ $ 2013 2013 June 1 Balance – rates b/d 70 June 1 Balance – rent b/d 120 2014 2014 May 31 Bank – rent 1800 May 31 Income statement – rates 770 2570 rent 1440 rates 840 2280 ____ Balance – rent c/d 240 2640 2640 2014 June 1 Balance - rent b/d 240 REQUIRED (a) Explain the following entries in the above rent and rates account. State the section of the statement of financial position on 31 May 2013 where each would have appeared. 1 June 2013 Balance – rates $70 Explanation Section of statement of financial position [3] 1 June 2013 Balance – rent $120 Explanation Section of statement of financial position [3]

14 © UCLES 2014 0452/22/O/N/14 (b) Explain the following entries in the rent and rates account. 31 May 2014 Bank $2570 [2] 31 May 2014 Income statement $2280 [2] (c) Explain how the accruals (matching) principle was applied in the preparation of the rent and rates account. [2] Adil Shanker provided the following information for his financial year ended 31 May 2014. $ Revenue (sales) 47 600 Cost of sales 38 400 REQUIRED (d) Calculate the percentage of gross profit to revenue (sales). The calculation should be correct to two decimal places. [2]

15 © UCLES 2014 0452/22/O/N/14 [Turn over (e) Suggest two reasons why the percentage of gross profit to revenue (sales) is lower than it was in the previous year. 1 2 [2] (f) State two reasons why Adil Shanker’s bank manager would be interested in his financial statements. 1 2 [2] (g) Name two other business people who would be interested in Adil Shanker’s financial statements. 1 2 [2] [Total: 20]

16 © UCLES 2014 0452/22/O/N/14 5 Watson Limited provided the following information. Trial Balance at 30 September 2014 (After the preparation of the Income Statement for the year ended 30 September 2014) $ $ Premises at cost 99 000 Fixtures and fittings at cost 65 000 Motor vehicles at cost 33 000 Provision for depreciation of fixtures and fittings 23 000 Provision for depreciation of motor vehicles 11 000 Ordinary share capital 120 000 General reserve (1 October 2013) 20 000 Retained profits (1 October 2013) 9 000 Profit for the year 38 000 Interim ordinary share dividend 6 000 4% Debentures 10 000 Inventory (30 September 2014) 19 300 Trade payables 16 300 Trade receivables 28 000 Other payables 350 Other receivables 300 Provision for doubtful debts 1 400 Bank 2 050 Cash 500 251 100 251 100 Appropriation Account for the year ended 30 September 2014 $ $ Profit for the year 38 000 Less Ordinary share dividend – paid 6 000 proposed 2 000 8 000 Transfer to general reserve 12 000 20 000 Profit retained in the year 18 000 Retained profit brought forward 9 000 Retained profit carried forward 27 000

17 © UCLES 2014 0452/22/O/N/14 [Turn over REQUIRED (a) Prepare the statement of financial position of Watson Limited at 30 September 2014. Watson Limited Statement of Financial Position at 30 September 2014

18 © UCLES 2014 0452/22/O/N/14 [15] Watson Limited requires funds for expansion and is considering raising the money by issuing more debentures. REQUIRED (b) State two features of debentures. 1 2 [2] (c) Explain how the ordinary shareholders may be affected if Watson Limited issues additional debentures. [2]

19 © UCLES 2014 0452/22/O/N/14 Watson Limited provided the following information for the year ended 30 September 2014. $ Revenue (sales) 304 000 Cost of sales 243 200 Inventory on 1 October 2013 22 500 Inventory on 30 September 2014 19 300 REQUIRED (d) (i) State what is meant by the term ‘rate of inventory turnover’. [1] (ii) State the formula for the calculation of the rate of inventory turnover. [1] (iii) Calculate the rate of inventory turnover for the year ended 30 September 2014. The calculation should be correct to two decimal places. [2] The rate of inventory turnover for the previous two years was: Year ended 30 September 2012 15.55 times Year ended 30 September 2013 14.34 times REQUIRED (e) Comment on the change in the rate of inventory turnover over the three years ended 30 September 2014. [2] [Total: 25]

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 0452/22/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 0452/22 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 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 22 © Cambridge International Examinations 2014 1 (a) Work can be shared amongst several people Easier for reference as the same types of account are kept together Easier to introduce checking procedures Reduces the possibility of fraud Or other suitable advantage Any 2 advantages (1) each [2] (b) Any non-current asset, inventory, capital drawings, loan, sales, purchases, returns, expenses, incomes, provisions etc. Any 1 example (1) [1] (c) Sahira Ali Waheed Khan account $ $ 2014 2014 October 16 Returns 168 (1) Oct 1 Balance b/d 390 24 Bank/cash 380 (1) 13 Purchases 336 (1) Discount 10 (1) 31 Balance c/d 168 726 ___ 726 2014 Nov 1 Balance b/d 168 (1) OF Iqbal Wholesalers account $ $ 2014 2014 Oct 31 Balance c/d 936 Oct 1 Balance b/d 650 5 Purchases 280 ___ 936 31 Interest __6 (1) 936 (1) 2014 Nov 1 Balance b/d 936 (1) OF + (1) dates Three column running balance format acceptable [9] (d) 1 365 purchases Credit payables Trade × [1]

Page 3 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 22 © Cambridge International Examinations 2014 (e) 1 365 200 21 100 3 formula) (whole (1) × = 53.37 = 54 days (1) [2] (f) May be able to take advantage of cash discounts Improve the relationship with suppliers Avoid paying interest Or other suitable comment Any 1 advantage (1) [1] (g) The business is deprived of the use of the money earlier than necessary Or other suitable comment Any 1 disadvantage (1) [1] (h) To avoid overstating the profit for the year To avoid overstating the current assets To apply the principle of prudence Any 2 comments (1) each [2] (i) The estimated receipts from the sale of the inventory (1) less any costs of completing the goods or costs of selling the goods (1) [2]

Page 4 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 22 © Cambridge International Examinations 2014 (j) Overstated Understated No effect Gross profit for the year ended 31 October 2013 ✓ (1) Gross profit for the year ended 31 October 2014 ✓ (1) Profit for the year ended 31 October 2013 ✓ (1) Profit for the year ended 31 October 2014 ✓ (1) Current assets at 31 October 2013 ✓ (1) Current assets at 31 October 2014 ✓ (1) [6] [Total: 27]

Page 5 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 22 © Cambridge International Examinations 2014 2 (a) Mochudi Manufacturing Company Manufacturing Account for the year ended 31 July 2014 $ $ Cost of materials used Purchases of raw materials 99 500 Less Returns 1 100 98 400 (1) Closing inventory of raw materials 8 600 89 800 (1) Direct wages (94 200 + 3100) 97 300 (1) Prime cost 187 100 (1) OF Factory overheads Wages of factory supervisors 41 050 (1) Factory general expenses 19 400 (1) Factory rates and insurance (¾ × (5000 – 400)) 3 450 (1) Depreciation Machinery (15% × 102 000) 15 300 (1) Loose tools (4400 – 3300) 1 100 (1) 80 300 267 400 (1) OF Closing work in progress 8 200 (1) Cost of production 259 200 (1) OF Horizontal format acceptable [12]

Page 6 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 22 © Cambridge International Examinations 2014 (b) $ $ Revenue 400 400 Cost of sales Cost of production 259 200 (1) OF Purchases of finished goods 19 300 (1) 278 500 Closing inventory of finished goods 21 100 257 400 (1) OF Gross profit 143 000 (1 )OF Less Office staff salaries 33 100 (1) Sales staff salaries 18 900 (1) Office general expenses (17 530 – 280) 17 250 (1) Rates and insurance (¼ × (5000 – 400) 1 150 (1) Depreciation office fixtures and fittings (12½% × 56 000) 7 000 (1) 77 400 Profit for the year 65 600 (1) OF Horizontal format acceptable [10] (c) Error Effect on profit for the year Increase $ Decrease $ No effect 1 200 (1) 2 810 (1) 3 940 (1) 4 1050 (1) [4] [Total: 26]

Page 7 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 22 © Cambridge International Examinations 2014 3 (a) Leeford Athletics Club Subscriptions account $ $ 2014 2013 Oct 31 Income & Nov 1 Balance b/d 1 200 (1) Expenditure 12 000 (1) 2014 Oct 31 Bank/cash 7 920 (1) _ __ ___ 12 000 Balance c/d 2 880 12 000 2014 Nov 1 Balance b/d 2 880 (1) OF + (1) dates Three column running balance format acceptable [5] (b) Current assets (1) OF Answer to be based on closing balance in (a) [1] (c) Leeford Athletics Club Subscriptions account $ $ 2013 2014 Nov 1 Balance b/d 4 590 (1) Oct 31 Equipment 4 000 (1) 2014 General Oct 31 Subscriptions 7 920 (1) expenses 9 310 (1) Sale of equipment 1 500 (1) Loan interest 400 (1) Open day receipts 770 (1) Rent 4 500 (1) Balance c/d 3 460 Bank charges 30 (1) 18 240 18 240 2014 Nov 1 Balance b/d 3 460 (1) OF [10] (d) Item $ Reason Sale of equipment 700 (1) Only the loss (1) on the equipment is charged not the capital receipt. (1) Rent of clubhouse 3 600 (1) The accruals (matching) principle is applied.(1) Only the expense for the year is charged to the income and expenditure account (1) [6] [Total: 22]

Page 8 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 22 © Cambridge International Examinations 2014 4 (a) 1 June 2013 Balance – rates $70 Explanation This represents rates prepaid (1). This was paid in the year ended 31 May 2013 but relates to the year ended 31 May 2014. (1) Statement of financial position section Current assets (1) [3] 1 June 2013 Balance – rent $120 Explanation This represents rent accrued (1). This relates to the year ended 31 May 2013 and remained unpaid at the end of the year. (1) Statement of financial position section Current liabilities (1) [3] (b) 31 May 2014 Bank $2570 This represents the total amount paid (1) by cheque (1) for rent and rates during the year ended 31 May 2014. [2] 31 May 20134 Income statement $2280 This is the amount transferred to the income statement (1) which represents the rent and rates for that financial year (1). [2] (c) Only the rent and rates relating to the current year are transferred to the income statement. (1) Adjustments are made for accruals and prepayments (1) [2] (d) } (1) } 600 47 400 38 600 47 − × 1 100 = 19.33% (1) [2] (e) Selling goods at lower prices Purchasing goods at higher prices Changes in the proportions of goods sold Or other acceptable reason Any 2 reasons (1) each [2] (f) Assess prospects of any requested loan/overdraft being repaid when due Assess prospects of any interest on loan/overdraft being paid when due Assess security available to cover any loan/overdraft Any 2 reasons (1) each [2] (g) Lender Investor Credit supplier Customer Owner Manager (if any) Employee/trade union Government body Competitor Take-over bidder Potential partner Or other suitable interested person Any 2 persons (1) each [2] [Total: 20]

Page 9 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 22 © Cambridge International Examinations 2014 5 (a) Watson Limited Statement of Financial Position at 30 September 2014 $ $ $ Cost Depreciation to date Net Book value Non-current Assets Premises 99 000 99 000 Fixtures & fittings 65 000 2 300 42 000 (1) Motor behicles 33 000 11 000 22 000 (1) 197 000 34 000 163 000 (1) Current Assets Inventory 19 300 Trade receivables 28 000 Provision for doubtful debts 1 400 26 600 (1) Other receivables 300 } Cash 500 } (1) 46 700 (1) OF 46 700 (1) OF Current Liabilities Trade payables 16 300 Other payables 350 } Bank 2 050 } (1) Proposed dividend 2 000 (1) 20 700 (1) OF Net Current Assets 26000 189 000 Non-current Liabilities 4% Debentures 10 000 179 000 Capital and Reserves Ordinary share capital 120 000 (1) General reserve (20 000 (1) + 12 000 (1) ) 32 000 Retained profit 27 000 (1) Shareholders’ funds 179 000 (1) OF Accept other suitable formats [15] (b) Debentures are long-term loans Debenture holders are not members of the company Debentures do not carry voting rights Debentures carry a fixed rate of interest Debenture interest is not dependent on the company’s profit Debentures are often secured on the assets of the company Debenture holders are repaid before shareholders in the event of a winding up Debentures are repaid by a set date Any 2 features (1) each [2]

Page 10 Mark Scheme Syllabus Paper Cambridge IGCSE – October/November 2014 0452 22 © Cambridge International Examinations 2014 (c) Reduction in profit available for ordinary shareholders Prior claim on the assets of the company in the event of a winding up Or other acceptable point Any 1 point (2) [2] (d) (i) The number of times a business sells and replaces its inventory in a given period of time. [1] (ii) inventory Average sales of Cost [1] (iii) 2 / 300 19 500 22 200 243 (1) } } + = 11.64 times (1) [2] (e) Rate falling over the three years May indicate reduction in efficiency May indicate that sales are slowing down May indicate the inventory is too high Or other suitable comments Comment to be based in OF answer to (d)(iii) Any 2 comments (1) each [2] [Total: 25]