Cambridge IGCSE Accounting 0452 — 2018 May/June Paper 2 · Variant 2

* 7 5 7 9 0 8 0 5 8 2 * This document consists of 21 printed pages and 3 blank pages. DC (ST) 144911/2 © UCLES 2018 [Turn over Cambridge International Examinations Cambridge International General Certificate of Secondary Education ACCOUNTING 0452/22 Paper 2 May/June 2018 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 0452/22/M/J/18 © UCLES 2018 1 J Smith is a wholesaler. He provided the following incomplete document on 28 February 2018. J Smith Wholesale Supplier 112 Long Road Westown W Jones High Street Eastford 28 February 2018 Date Reference Debit $ Credit $ Balance $ 2018 Feb 1 11 19 28 Balance due Goods Returns Payment Discount 450 115 686 14 700 ? ? ? ? REQUIRED (a) (i) State the name of the document. …[1] (ii) Calculate the balance on the document at the end of February 2018. … …[1] (iii) Calculate the percentage of the discount on 28 February. … … …[1] (iv) Name the type of discount on 28 February. …[1]

3 0452/22/M/J/18 © UCLES 2018 [Turn over (b) Complete the following table by placing a tick (3) in the correct column to indicate how J Smith would record the issue of this document in his accounting records. debit entry in ledger account of W Jones credit entry in ledger account of W Jones no entry would be made [1] (c) Complete the following table relating to the transaction of 11 February. document issued name of person issuing document entries made by W Jones account debited account credited … … … … [4] (d) Name the book of prime (original) entry in which each trader would record the transaction of 19 February. book of prime (original) entry used by J Smith … book of prime (original) entry used by W Jones … [2] The financial year of J Smith ends on 30 April. During the year ended 30 April 2018 he recorded a bad debt and a bad debt recovered. REQUIRED (e) State the meaning of each of the following terms. (i) Bad debt … … …[1] (ii) Bad debt recovered … … …[1]

4 0452/22/M/J/18 © UCLES 2018 (f) Suggest two ways in which J Smith could reduce the risk of bad debts. 1 … … 2 … …[2] J Smith maintains a provision for doubtful debts at the same percentage of the trade receivables at the end of each year. REQUIRED (g) Explain how maintaining a provision for doubtful debts is an application of the principle of prudence. … … … …[2] (h) Explain how maintaining a provision for doubtful debts is an application of the principle of accruals (matching). … … … …[2] J Smith provided the following information. $ 30 April 2017 Trade receivables 18 400 Provision for doubtful debts 460 30 April 2018 Trade receivables 17 600 REQUIRED (i) Calculate the rate of the provision for doubtful debts as a percentage. … …[1]

5 0452/22/M/J/18 © UCLES 2018 [Turn over (j) Prepare the provision for doubtful debts account for the year ended 30 April 2018. Balance the account and bring down the balance on 1 May 2018. J Smith Provision for doubtful debts account Date … … … … … … Details … … … … … … $ … … … … … … Date … … … … … … Details … … … … … … $ … … … … … … [5] [Total: 25]

6 0452/22/M/J/18 © UCLES 2018 2 Sophia is a food wholesaler. Her receipts and payments during the financial year ended 31 March 2018 included both capital and revenue items. REQUIRED (a) State the meaning of each of the following terms and give an example of each. Capital expenditure Meaning … … … Example … Capital receipt Meaning … … … Example … Revenue expenditure Meaning … … … Example … Revenue receipt Meaning … … … Example …[8]

7 0452/22/M/J/18 © UCLES 2018 [Turn over After calculating her profit for the year ended 31 March 2018, Sophia discovered some errors had been made in her accounting records. Error 1 Rent received from a tenant had been credited to the premises account. Error 2 Legal costs on the purchase of a new warehouse had been debited to the general expenses account. Error 3 Roof repairs to the existing warehouse had been debited to the premises account. Error 4 Capital introduced had been included in the cash sales. REQUIRED (b) Complete the following table by placing a tick (3) in the correct column to indicate the effect of each of the errors. The first one has been completed as an example. error effect on profit for the year effect on closing capital overstated understated overstated understated no effect error 1 3 3 error 2 error 3 error 4 [6]

8 0452/22/M/J/18 © UCLES 2018 Sophia maintains a full set of books of prime (original) entry including a three column cash book. REQUIRED (c) Explain why Sophia’s cash book is both a book of prime (original) entry and also part of the ledger. … … … …[2] The bank columns of Sophia’s cash book for the month of April 2018 were as follows. Cash book (bank columns only) Date 2018 April 1 8 28 30 Details Balance b/d Goodfoods CD Limited Sales $ 950 140 280 311 Date 2018 April 2 15 21 29 Details Petty cash Expenses Lowlands Farm FF Limited Cheque number 000198 000199 000200 000201 $ 106 25 44 90 Sophia’s business bank statement for April 2018 was as follows. Bank Statement for the month of April 2018 2018 Debit Credit Balance $ $ $ April 1 Balance 850 Cr 5 000198 106 744 Cr 9 Credit 140 884 Cr 12 Standing order (insurance) 50 834 Cr 18 000199 25 809 Cr 20 Dishonoured cheque (Goodfoods) 140 669 Cr 27 000200 44 625 Cr 30 Charges 15 610 Cr Direct debit (rates) 400 210 Cr The following errors were discovered. 1 Sophia had brought down the cash book balance on 1 April 2018 incorrectly. It should have been $850. 2 The bank had incorrectly entered a standing order for insurance in Sophia’s business bank account instead of her personal bank account.

9 0452/22/M/J/18 © UCLES 2018 [Turn over REQUIRED (d) Select the items required to update Sophia’s cash book on 30 April 2018 and write these items in the table. Indicate how each item would be entered in the cash book. The first one has been completed as an example. item entry required in cash book debit $ credit $ cash book error … … … … … … … … … … 100 … … … … … [3] Sophia prepared a bank reconciliation statement on 30 April 2018. She started with the credit balance shown on the bank statement at that date. REQUIRED (e) Select the items which would be entered in Sophia’s bank reconciliation statement on 30 April 2018 and write these items in the table. Place a tick (3) in the correct column to indicate how each item would be recorded in the bank reconciliation statement. item entry in bank reconciliation statement added to bank statement balance deducted from bank statement balance … … … … … … … … … … … … … … … [4] [Total: 23]

10 0452/22/M/J/18 © UCLES 2018 3 Jamil started a business on 1 January 2014. He considered using the straight line (equal instalment) method to depreciate all his non-current assets. REQUIRED (a) Name one other method Jamil could use to depreciate his non-current assets. …[1] (b) Suggest two reasons why the straight line (equal instalment) method would not be a suitable method of depreciation to apply to the hand tools used in Jamil’s factory. 1 … … 2 … …[2] Jamil decided to depreciate his office machinery at 20% per annum using the straight line (equal instalment) method calculated on a month-by-month basis from the date of purchase to the date of disposal. He provided the following information. 2014 January 1 Purchased office machine A, $15 000, paying by cheque. 2016 October 1 Purchased office machine B, $18 000, paying by cheque. 2017 July 1 Purchased office machine C, $20 000, on credit from XY Limited. XY Limited agreed to accept office machine A in part exchange at a valuation of $6000. REQUIRED (c) Calculate the depreciation on office machinery for the year ended 31 December 2016. Show your calculations and insert your answers in the spaces provided. Calculation of depreciation for the year ended 31 December 2016 depreciation on office machine A depreciation on office machine B total calculation answer $ … calculation answer $ … $ … [2]

11 0452/22/M/J/18 © UCLES 2018 [Turn over (d) Calculate the depreciation on office machinery for the year ended 31 December 2017. Show your calculations and insert your answers in the spaces provided. Calculation of depreciation for the year ended 31 December 2017 depreciation on office machine A depreciation on office machine B depreciation on office machine C total calculation answer $ … calculation answer $ … calculation answer $ … $ … [3] (e) Prepare the following accounts in the ledger of Jamil for each of the two years ended 31 December 2016 and 31 December 2017. Balance the accounts and bring down the balances on 1 January 2017 and 1 January 2018. Jamil Office machinery account Date 2016 Jan 1 … … … … … … … … … … … Details Balance A b/d … … … … … … … … … … … $ 15 000 … … … … … … … … … … … Date … … … … … … … … … … … … Details … … … … … … … … … … … … $ … … … … … … … … … … … …

12 0452/22/M/J/18 © UCLES 2018 Provision for depreciation of office machinery account Date … … … … … … … … … … … … Details … … … … … … … … … … … … $ … … … … … … … … … … … … Date 2016 Jan 1 … … … … … … … … … … … Details Balance A b/d … … … … … … … … … … … $ 6 000 … … … … … … … … … … … [11] (f) Calculate the profit or loss on the disposal of office machine A. … … … … …[4] [Total: 23]

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14 0452/22/M/J/18 © UCLES 2018 4 The financial year of AB Limited ends on 31 March. The income statement for the year ended 31 March 2018 showed a profit for the year of $35 000. REQUIRED (a) Complete the following statement of changes in equity for the year ended 31 March 2018, which has been partially prepared by the accountant. AB Limited Statement of Changes in Equity for the year ended 31 March 2018 Ordinary share capital $ General reserve $ Retained earnings $ Total $ On 1 April 2017 Profit for the year Final dividend paid (for year ended 31 March 2017) Interim dividend paid (for year ended 31 March 2018) Transfer to general reserve 200 000 … … … … 14 000 … … … 2 000 6 000 … … … … 220 000 35 000 (10 000) (4 000) … At 31 March 2018 … … … … [6] The following additional information was available on 31 March 2018. $ 4% Debentures (repayable 1 April 2022) 30 000 Premises at cost 195 000 Machinery at cost 98 000 Office equipment at cost 39 500 Provision for depreciation of machinery 35 280 Provision for depreciation of office equipment 15 800 Trade receivables 9 900 Trade payables 10 020 Other receivables 568 Other payables 950 Petty cash 200 Bank 2 040 credit Inventory 12 120 Provision for doubtful debts 198 Bank loan (repayable 1 January 2019) 20 000

15 0452/22/M/J/18 © UCLES 2018 [Turn over REQUIRED (b) Prepare the statement of financial position at 31 March 2018. AB Limited Statement of Financial Position at 31 March 2018 … … … … … … … … … … … … … … … … … … … … … … … $ … … … … … … … … … … … … … … … … … … … … … … … $ … … … … … … … … … … … … … … … … … … … … … … … $ … … … … … … … … … … … … … … … … … … … … … … …

16 0452/22/M/J/18 © UCLES 2018 … … … … … … … $ … … … … … … … $ … … … … … … … $ … … … … … … … [14] The directors of AB Limited want to raise $100 000 in order to expand the business. After the first two years this should increase the annual profit before interest by $25 000. It is proposed to raise the funds by either issuing more debentures or more ordinary shares. REQUIRED (c) Suggest two disadvantages to the existing ordinary shareholders if the funds are raised by the issue of debentures. 1 … … … 2 … … …[2] (d) Suggest two disadvantages to the existing ordinary shareholders if the funds are raised by the issue of additional ordinary shares. 1 … … … 2 … … …[2] [Total: 24]

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18 0452/22/M/J/18 © UCLES 2018 5 Aretta opened a clothes store on 1 April 2018. She invested $12 800 as capital. Her father gave her a loan of $7200, repayable on 1 October 2018. Interest of 5% per annum was to be paid on the loan at the end of each month. The credit side of Aretta’s cash book for April 2018 was as follows. $ April 1 Shop fixtures and fittings 9 500 Credit suppliers 15 000 Rent of premises for 6 months 2 400 Insurance for 12 months 3 600 April 30 Operating expenses 980 Wages 1 900 Drawings 1 500 Additional information 1 All purchases were made on credit terms and all sales were made for cash. 2 Aretta’s gross profit margin was 25%. 3 No record was made of cash sales. 4 Aretta decided to depreciate the shop fixtures and fittings at 12% per annum using the straight line (equal instalment) method. 5 On 30 April 2018 inventory was valued at $4080 and $810 was owed to credit suppliers.

19 0452/22/M/J/18 © UCLES 2018 [Turn over REQUIRED (a) Prepare Aretta’s income statement for the month ended 30 April 2018 to show the revenue, gross profit and profit for the month. Aretta Income Statement for the month ended 30 April 2018 … … … … … … … … … … … … … … … … $ … … … … … … … … … … … … … … … … $ … … … … … … … … … … … … … … … … [12]

20 0452/22/M/J/18 © UCLES 2018 On 30 April 2018 Aretta was concerned that her quick (acid test) ratio was very low. She considered six proposals to improve the ratio. REQUIRED (b) State the formula for the calculation of the quick (acid test) ratio. … …[1] (c) Complete the following table by placing a tick (3) in the correct column to indicate the effect of each proposal on Aretta’s quick (acid test) ratio. The first one has been completed as an example. proposal effect on quick ratio increase decrease no effect 1 purchase a motor vehicle on credit 3 2 pay credit suppliers early to receive cash discount 3 obtain a bank overdraft and repay the loan immediately 4 arrange for the loan to be extended to 2 years 5 sell on credit terms rather than on cash terms 6 reduce inventory by selling half at cost price [5] (d) State which proposal would affect the quick (acid test) ratio but not affect the current ratio. Explain the reason for your answer. Proposal number … Reason … … … …[3]

21 0452/22/M/J/18 © UCLES 2018 Aretta decided to compare her business performance with that of another clothes store in the same town. REQUIRED (e) Explain two factors Aretta should consider when comparing her business performance with that of the other business. 1 … … … … … 2 … … … … …[4] [Total: 25]

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IGCSE™ is a registered trademark. This document consists of 11 printed pages. © UCLES 2018 [Turn over Cambridge Assessment International Education Cambridge International General Certificate of Secondary Education ACCOUNTING 0452/22 Paper 2 May/June 2018 MARK SCHEME Maximum Mark: 120 Published 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 International will not enter into discussions about these mark schemes. Cambridge International is publishing the mark schemes for the May/June 2018 series for most Cambridge IGCSE™, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components.

0452/22 Cambridge IGCSE – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 2 of 11 Generic Marking Principles These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the specific content of the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these marking principles. GENERIC MARKING PRINCIPLE 1: Marks must be awarded in line with: • the specific content of the mark scheme or the generic level descriptors for the question • the specific skills defined in the mark scheme or in the generic level descriptors for the question • the standard of response required by a candidate as exemplified by the standardisation scripts. GENERIC MARKING PRINCIPLE 2: Marks awarded are always whole marks (not half marks, or other fractions). GENERIC MARKING PRINCIPLE 3: Marks must be awarded positively: • marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the scope of the syllabus and mark scheme, referring to your Team Leader as appropriate • marks are awarded when candidates clearly demonstrate what they know and can do • marks are not deducted for errors • marks are not deducted for omissions • answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the question as indicated by the mark scheme. The meaning, however, should be unambiguous. GENERIC MARKING PRINCIPLE 4: Rules must be applied consistently e.g. in situations where candidates have not followed instructions or in the application of generic level descriptors. GENERIC MARKING PRINCIPLE 5: Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may be limited according to the quality of the candidate responses seen). GENERIC MARKING PRINCIPLE 6: Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or grade descriptors in mind.

0452/22 Cambridge IGCSE – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 3 of 11 Question Answer Marks 1(a)(i) Statement of account 1 1(a)(ii) $335 1 1(a)(iii) 14 100 2% (686 14) × = + 1 1(a)(iv) Cash discount 1 1(b) debit entry in ledger account of W Jones credit entry in ledger account of W Jones no entry would be made 9(1) 1 1(c) document issued name of person issuing document entries made by W Jones account debited account credited Invoice (1) J Smith (1) Purchases (1) J Smith (1) 4 1(d) book of prime (original) entry used by J Smith sales returns journal (1) book of prime (original) entry used by W Jones purchases returns journal (1) 2 1(e)(i) A bad debt is an amount owing to a business which will not be paid by the credit customer 1 1(e)(ii) A bad debt recovered is when a credit customer pays some, or all of a debt previously written off as a bad debt 1 1(f) Reduce credit sales/sell on a cash basis Obtain references from new credit customers Fix a credit limit for each customer Introduce/improve credit control Issue invoices and monthly statements promptly Refuse further supplies until outstanding balance is paid Give cash discount/discount for prompt payment Charge interest on overdue account Any 2 points (1) each Accept other valid points 2 1(g) The profit for the year is not overstated (1) The trade receivables (current assets) are not overstated (1) Accept other valid points 2 1(h) The sales for which a business is unlikely to be paid (1) are regarded as an expense of the year in which those sales are made (1) 2 1(i) 12 460 100 2 % 18 400 1 × = 1

0452/22 Cambridge IGCSE – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 4 of 11 Question Answer Marks 1(j) J Smith Provision for doubtful debts account Date Details $ Date Details $ 2018 2017 Apl 30 Income statement (1)OF 20 May 1 Balance b/d (1) 460 Balance c/d (1) 440 460 460 2018 May 1 Balance b/d (1)OF 440 + (1) dates 5 Question Answer Marks 2(a) Capital expenditure Money spend on acquiring, improving and installing non-current assets (1) Example Purchase of any non-current asset, legal costs for purchase of premises, cost of installation of non-current asset, cost of carriage on delivery of non-current asset, etc. Any suitable example (1) Capital receipt Amounts received which do not form part of the day-to-day trading activities (1) Example Receipt of loan, additional capital, proceeds of sale of non-current asset at book value, etc. Any suitable example (1) Revenue expenditure Money spent on the running of a business on a day-to-day basis (1) Example Any expense such as wages, rent, insurance, etc. Any suitable example (1) Revenue receipt Amounts received in the day-to-day trading activities and other items of income (1) Example Sales, commission received, interest received, rent received, etc. Any suitable example (1) 8

0452/22 Cambridge IGCSE – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 5 of 11 Question Answer Marks 2(b) error effect on profit for the year effect on closing capital overstated understated overstated understated no effect error 1 9 9 error 2 9(1) 9(1) error 3 9(1) 9(1) error 4 9(1) 9(1) 6 2(c) It is a book of prime (original) entry because it is written up from business documents (1) It is part of the double entry system as it acts as ledger accounts for cash and bank (1) 2 2(d) item entry required in cash book debit $ credit $ cash book error 100 dishonoured cheque 140 (1) charges 15 (1) rates (direct debit) 400 (1) 3 2(e) item entry in bank reconciliation statement added to bank statement balance deducted from bank statement balance CD Limited 9(1) sales 9(1) FF Limited 9(1) Bank error (standing order) 9(1) 4

0452/22 Cambridge IGCSE – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 6 of 11 Question Answer Marks 3(a) Reducing (diminishing) balance method Revaluation method Any one (1) 1 3(b) Principle of materiality – not practical/too many items/too difficult/too costly to depreciate each item separately Do not depreciate by an equal amount each year May be certain amount of loss of tools each year Or other suitable reason Any 2 reasons (1) each 2 3(c) Calculation of depreciation for the year ended 31 December 2016 depreciation on office machine A depreciation on office machine B total calculation calculation 20% × 15 000 20% × 18 000 × 3/12 answer $3 000 (1) answer $900 (1) $3 900 2 3(d) Calculation of depreciation for the year ended 31 December 2017 depreciation on office machine A depreciation on office machine B depreciation on office machine C total calculation 20% × 15 000 × 6/12 calculation 20% × 18 000 calculation 20% × 20 000 × 6/12 answer $1 500(1) answer $3 600 (1) answer $2 000(1) $7 100 3

0452/22 Cambridge IGCSE – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 7 of 11 Question Answer Marks 3(e) Jamil Office machinery account Date Details $ Date Details $ 2016 2016 Jan 1 Balance A b/d 15 000 Dec 31 Balance c/d 33 000 Oct 1 Bank B (1) 18 000 33 000 33 000 2017 2017 Jan 1 Balance b/d (1)OF 33 000 July 1 Disposal A (1) 15 000 Dec 31 Balance c/d 38 000 July 1 XY Limited C (1) 20 000 53 000 53 000 2018 Jan 1 Balance b/d (1)OF 38 000 Provision for depreciation of office machinery account Date Details $ Date Details $ 2016 2016 Dec 31 Balance c/d 9 900 Jan 1 Balance A b/d 6 000 Dec 31 Income statement (1)OF 3 900 9 900 9 900 2017 2017 July 1 Disposal A (1) OF 10 500 Jan 1 Balance b/d (1)OF 9 900 Dec 31 Balance c/d 6 500 Dec 31 Income statement (1)OF 7 100 17 000 17 000 2018 Jan 1 Balance b/d (1)OF 6 500 + (1) dates 11 3(f) $ Cost 15 000 (1) Depreciation to date (6000 + 3000 + 1500) 10 500 (1) OF Book value 4 500 Proceeds of sale 6 000 Profit (1) OF on disposal 1 500 (1) OF 4

0452/22 Cambridge IGCSE – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 8 of 11 Question Answer Marks 4(a) AB Limited Statement of Changes in Equity for the year ended 31 March 2018 Ordinary share capital $ General reserve $ Retained earnings $ Total $ On 1 April 2017 200 000 14 000 6 000 220 000 Profit for the year 35 000 (1) 35 000 Final dividend paid (for year ended 31 March 2017) … … (10 000) (1) (10 000) Interim dividend paid (for year ended 31 March 2018) … … (4 000) (1) (4 000) Transfer to general reserve … 2 000 (2 000) (1) … At 31 March 2018 200 000 16 000 25 000 (1) 241 000 (1) 6

0452/22 Cambridge IGCSE – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 9 of 11 Question Answer Marks 4(b) AB Limited Statement of Financial Position at 31 March 2018 $ $ $ Non-current assets Cost Depreciation to date Book value Premises 195 000 195 000 Machinery 98 000 35 280 62 720 (1) Office equipment 39 500 15 800 23 700 (1) 332 500 51 080 281 420 (1)OF Current assets Inventory 12 120 Trade receivables 9 900 Less Provision for doubtful debts 198 9 702 (1) Other receivables 568 (1) Petty cash 200 (1) 22 590 Total assets 304 010 Capital and liabilities Capital and reserves Ordinary shares 200 000 (1) General reserve 16 000 (1) Retained earnings 25 000 (1)OF 241 000 (1)OF Non-current liabilities 4% Debentures (repayable 1 April 2022) 30 000 (1) Current liabilities Trade payables 10 020 Other payables 950 Bank 2 040 (1) Bank loan (repayable 1 January 2019) 20 000 (1) 33 010 (1)OF Total equity and liabilities 304 010 14 4(c) Interest on debentures must be paid irrespective of whether there is a profit (but profit is expected to increase after two years) Prior claim on the assets of the company in a winding up Funds have to be available when repayment is due Prior claim on the profits of the company/less profit available for ordinary share dividend (this may only be a disadvantage in the first two years) Or other relevant point Any 2 points (1) each 2

0452/22 Cambridge IGCSE – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 10 of 11 Question Answer Marks 4(d) Dilution of ownership of company New shares rank equally with existing ordinary shares with regard to dividend(even though profit expected to increase after two years dividend may reduce) New shares rank equally with existing ordinary shares with regard to repayment in a winding up Or other relevant point Any 2 points (1) each 2 Question Answer Marks 5(a) Aretta Income Statement for the month ended 30 April 2018 $ $ Revenue 15 640 }(2)CF }(1)OF Cost of sales Purchases (15 000 (1) + 810 (1)) 15 810 Less Closing inventory 4 080 11 730 (1)OF Gross profit 3 910 (1)OF Rent (2400 × 1/6) 400 (1) Insurance (3600 × 1/12) 300 (1) Operating expenses 980 } Wages 1 900 }(1) Loan interest (5% × 7200 × 1/12) 30 (1) Depreciation shop fixtures and fittings (12% x 9500 × 1/12) 95 (1) 3 705 Profit for the month 205 (1)OF 12 5(b) Current assets – inventory : current liabilities 1 5(c) proposal effect on quick ratio increase decrease no effect 1 purchase a motor vehicle on credit 9 2 pay credit suppliers early to receive cash discount 9(1) 3 obtain a bank overdraft and repay the loan immediately 9(1) 4 arrange for the loan to be extended to 2 years 9(1) 5 sell on credit terms rather than on cash terms 9(1) 6 reduce inventory by selling half at cost price 9(1) 5

0452/22 Cambridge IGCSE – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 11 of 11 Question Answer Marks 5(d) Proposal number 6 (1) Current Ratio Total of current assets remains unchanged (1) OR inventory decreases and cash/bank increases by same amount (1) Quick (acid test) Ratio Total of current assets excluding inventory increases (1) OR Inventory is excluded from the calculation but cash/bank increases (1) 3 5(e) Should compare with a business of approximately the same size/same capital Should compare with a business of the same type (sole trader) The length of time the business has been operating The financial year may end at different times of the trading cycle The financial statements may be for one year which will not show trends The financial statements may be for a year which is not a typical year The businesses may operate different accounting policies The businesses may have different types of expenses The statements do not show non-monetary factors It may not be possible to obtain all the information needed to make comparisons Or other suitable points excluding type of business (given in the question) Any 2 points (1) basic statement and (1) for development 4