The double entry system of book-keeping — Paper 2 · IGCSE Accounting (9-1) 0985

1 Dev owns a business selling furniture. The following transactions took place during August 2020. Transaction Date Details $ 1 August 9 Sold goods on credit to Petra 675 2 14 Petra returned damaged goods to Dev 120 3 23 Banked cash sales 412 4 29 Petra settled her outstanding balance at 1 August by credit transfer after taking a cash discount of 5% On 1 August 2020, the balance on credit customer Petra’s sales ledger account was $940 debit. REQUIRED (a) Complete the table to name each business document and book of prime entry for the following transactions in Dev’s accounting records. Transaction Business document Book of prime entry 2 3 4 [6] (b) Prepare the account of Petra for August 2020 as it would appear in Dev’s sales ledger. Balance the account and bring down the balance on 1 September 2020. Dev Petra account Date Date 2020 Details $ 2020 Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [6] (c) Identify the section of Dev’s statement of financial position at 31 August 2020 in which the balance on Petra’s account would appear. … [1] Dev allows his credit customers a cash discount of 5% for prompt payment. He is considering reducing this to 2%. REQUIRED (d) State one advantage and one disadvantage to Dev of this proposal. … … … … [2] Dev is considering turning his business into a limited company. REQUIRED (e) Advise Dev whether or not he should form a limited company. Justify your answer with two advantages and two disadvantages of forming a limited company. … … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 1(a) Transaction Business document Book of prime entry 2 Credit note (1) Sales returns journal (1) 3 Paying-in slip (1) Cash book (1) 4 Bank statement (1) Cash book (1) 6 1(b) Dev Petra account 2020 $ 2020 $ Aug 1 Balance b/d 940 Aug 14 Sales returns 120 (1) 9 Sales 675 (1) 29 Bank 893 (1) Discount allowed 47 (1) 31 Balance c/d 555 1 615 1 615 2020 Sept 1 Balance b/d 555 (1)OF + (1) dates 6 1(c) Current assets (1) OF 1 1(d) Advantage Increase profit for the year (1) Increase cash inflow (1) Accept other valid responses Max (1) Disadvantage May lose customers/sales may fall (1) Customers may take longer to pay (1) Accept other valid responses Max (1) 2 Question Answer Marks 1(e) Advantages Dev will have limited liability for the debts of the company (1) The limited company will have a separate legal identity to Dev (1) Dev will have access to different forms of finance/increase in capital employed (1) Accept other valid responses Max (2) Disadvantages The limited company will have greater regulation than Dev as a sole trader (1) The accounting requirements of the limited company will be more complex than for Dev as a sole trader (1) The financial statements of the limited company may be viewed by the public unlike those of Dev as a sole trader (1) Accept other valid responses Max (2) Recommendation (1) 5

This question in 0985/22 Oct/Nov 2020

1 Leo maintains a petty cash book using the imprest system. The imprest amount, which is $200, is restored on the first day of each month. All payments of less than $100 are made from petty cash. All cash receipts of less than $100 are paid into petty cash. On 1 April 2021 Leo had $48 in his petty cash box. Leo provided the following information for April 2021. April 1 Restored petty cash imprest from the business bank account 5 Paid for office cleaning, $21 7 Paid for train ticket, $13 13 Paid $72 to Hunter, a trade payable 18 Paid taxi fare, $14 25 Received cash, $11, from Conrad, a trade receivable REQUIRED (a) Prepare Leo’s petty cash book for the month of April 2021, on page 3. Balance the petty cash book and bring down the balance on 1 May 2021. [10] $ Ledger accounts … … … … … … … … … … … … $ Office expenses … … … … … … … … … … … … $ Travel … … … … … … … … … … … … $ Totalpaid … … … … … … … … … … … … Book Leo Cash Petty Details … … … … … … … … … … … … Date 2021 … … … … … … … … … … … … (b) (i) Name the ledger to which each of the following would be posted. The total of the column for travel expenses … The payment to Hunter … [2] (ii) Name the accounting principle which is being applied when figures from the petty cash book are posted to the appropriate ledgers. … [1] Leo received a statement of account from Hunter. REQUIRED (c) State two purposes of issuing this statement to Leo. 1 … … 2 … … [2] Leo is considering making all payments over $50 to trade payables by credit transfer. REQUIRED (d) Advise Leo whether he should go ahead with this change. Justify your answer by providing two advantages and two disadvantages. … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 1(a) Leo Petty Cash Book Total received Date Details Total paid Travel Office expenses Ledger accounts $ 2021 $ $ $ $ 48 Apr 1 Balance b/d (1) 152 Bank (1) 5 Office cleaning (1) 21 21 7 Train ticket (1) 13 13 13 Hunter (1) 72 72 11 18 Taxi fare (1) 14 14 25 Conrad (1) 120 27 21 72 91 211 30 Balance c/d 211 91 May 1 Balance b/d (1)OF + (1) dates + (1) OF totalling analysis columns Question Answer Marks 1(b)(i) Travel – general ledger (1) Hunter – purchases ledger (1) 2 1(b)(ii) Duality (1) 1 1(c) To remind Leo to pay the balance (1) To allow Leo to check his records (1) To provide a summary of the transactions for the month/period (1) Accept other valid points Max (2) 2 1(d) Advantages Do not need to keep as much cash on the premises (1) Less risk of theft or fraud (1) Do not have to have face to face meeting to pay/save time (1) Or other relevant advantages Max (2) Disadvantages No source document immediately available (1) Still have to pay amounts below $50 by other methods (1) May be easier / more suitable to use cheques (1) May Increase bank charges (1) Or other relevant disadvantages Max (2) Recommendation (1) 5

This question in 0985/22 May/June 2021

1 Nakul is a trader. He buys and sells goods on credit. He buys most of his supplies from one supplier, Nadia, who allows Nakul a trade discount of 20%. The following transactions took place in January 2022. Jan 2 Paid $441 by cheque to Nadia, in full settlement of $450 owed to her at 1 January 2022. 12 Bought goods on credit from Nadia, list price $350 14 Returned faulty goods to Nadia, list price $80 18 Bought goods on credit from Nadia, list price $400 23 Sold goods on credit, $800 29 Bought goods on credit, $60, from Sophie 30 Returned goods to Sophie, $9 REQUIRED (a) Prepare the purchases journal for January 2022. Total the journal and indicate the ledger account to which the total would be posted. Nakul Purchases journal Date Details $ $ … … … … … … … … … … … … … … … … … … … … … … … … [4] (b) Prepare the purchases returns journal for January 2022. Total the journal and indicate the ledger account to which the total would be posted. Nakul Purchases returns journal Date Details $ $ … … … … … … … … … … … … … … … … … … … … [3] (c) Prepare the account for Nadia, for January 2022, as it would appear in the books of Nakul. Balance the account and bring down the balance on 1 February 2022. Nakul Nadia account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [6] (d) Complete the table by placing a tick (3) to show where each item is shown on the statement of financial position. Current liabilities Non-current liabilities Trade payables Bank overdraft [2] Nakul has a bank overdraft and would like to reduce it. He is considering paying his suppliers later than he currently does in order to help him reduce his bank overdraft. REQUIRED (e) Advise Nakul whether or not he should take longer to pay his suppliers. Justify your answer by providing two advantages and two disadvantages. … … … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 1(a) Nakul Purchases journal Date Details $ 2022 Jan 12 18 29 31 Nadia (350 – 70) Nadia (400 – 80) Sophie Transfer to purchases account 280 320 60 660 (1) (1) (1) (1)OF 4 1(b) Nakul Purchases returns journal Date Details $ 2022 Jan 14 30 31 Nadia (80 – 16) Sophie Transfer to purchases returns account 64 9 73 (1) (1) (1)OF 3 1(c) Nakul Nadia account Date 2022 Jan 2 14 31 Details Bank (1) Discount (1) Purchases returns (1) Balance c/d $ 441 9 64 536 1050 Date 2022 Jan 1 12 18 Feb 1 Details Balance b/d (1) Purchases } (1) Purchases } Balance b/d (1)OF $ 450 280 320 ____ 1050 536 6 Question Answer Marks 1(d) Current liabilities Non-current liabilities Trade payables (1) Bank overdraft (1) 2 1(e) Advantages Would delay the outflow of cash/will reduce bank overdraft (1) May reduce bank overdraft charges/interest (1) Overdraft charges may be higher than cash discount offered by suppliers (1) May currently be paying Nadia/suppliers quicker than is necessary (1) Max (2) Disadvantages May lose the cash discount allowed by Nadia/suppliers (1) Nadia/suppliers may charge interest on late payment (1) Nadia/suppliers may stop supplying or reduce the amount they supply/may damage relationship with suppliers (1) There may be better methods of improving cash flow (e.g. selling on cash terms) (1) Max (2) Accept other valid points (1) for recommendation 5

This question in 0985/21 May/June 2022

1 Peter is a trader. The following transactions took place in April 2022. April 2 Cash sales, $410, were paid directly into the bank account 3 Paid $798 to Rahat, by cheque, in full settlement of a debt of $840 8 Paid $42 cash for a motor vehicle repair 15 Purchased goods, list price $320, on credit subject to a trade discount of 10%, from Rahat 18 Cash sales, $460 20 Paid $392 to Samir by telephone transfer, having deducted 2% cash discount from the amount due 25 A cheque for commission receivable, $115, was paid into the bank account 29 Paid $285 to Rafael by cash, in full settlement of a debt of $300 REQUIRED (a) Prepare Peter’s cash book on the page opposite. Balance the cash book and bring down the balances on 1 May 2022. [11] $ Bank … … … … … … … … … … … … … … … … $ Cash … … … … … … … … … … … … … … … … $ Discountreceived … … … … … … … … … … … … … … … … Details … … … … … … … … … … … … Date 2022 … … … … … … … … … … … … Book Peter Cash $ 920 Bank … … … … … … … … … … … … … … … … … … … … … … $ 135 Cash … … … … … … … … … … … … … … … … … … … … … … $ Discountallowed … … … … … … … … … … … … … … … … … … … … … … Details b/d Balance … … … … … … … … … … … Peter has received a bank statement for April. He is using it to prepare a bank reconciliation statement and to update his cash book. REQUIRED (b) Place a tick (✓) to show how each item in the table below would be used to prepare the bank reconciliation statement or to update the cash book. Prepare bank reconciliation Update cash book statement Added Deducted Items to be adjusted to bank from bank Debited to Credited to statement statement cash book cash book balance balance Bank charges Direct debit for rent Cheque paid to a supplier but not yet cashed Cheque for commission received dishonoured Dividend received [5] REQUIRED (c) Prepare the account for Rahat as it would appear in the ledger of Peter. Balance the account and bring down the balance on 1 May 2022. Peter Rahat account Date Details $ Date Details $ 2022 2022 … … … Apr 1 Balance b/d 840 … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [4] [Total: 20]

20 marks

Mark scheme: 1(a) Peter Cash Book Date Details Disc Alld Cash Bank Date Details Disc Rec Cash Bank 2022 $ $ $ 2022 $ $ $ Apr 1 Balance b/d 135 920 Apr 3 Rahat (1) 42 798 2 Sales (1) 410 8 Motor expenses (1) 42 18 Sales (1) 460 20 Samir (1) 8 392 25 Commission 29 Rafael (1) 15 285 received (1) 115 30 Balance c/d 268 255 595 1445 65 595 1445 May 1 Balance b/d 268 255 (1)OF (1)OF (1)OF +(1) dates Question Answer Marks 1(b) Prepare reconciliation statement Update cash book Items to be adjusted Added to bank statement balance Deducted from bank statement balance Debited to cash book Credited to cash book Bank charges (1) Direct debit for rent  (1) Cheque paid to a supplier but not yet cashed (1) Cheque for commission received dishonoured  (1) Dividend received (1) 5 1(c) Peter Rahat account Date Details $ Date Details $ 2022 2022 Apr 3 Bank (1) 798 Apr 1 Balance b/d 840 3 Discount (1) 42 15 Purchases (1) 288 30 Balance c/d 288 1 128 1 128 May 1 Balance b/d (1)OF 288 4

This question in 0985/22 May/June 2022

4 PG a trader sells electrical components. She has provided the following information for the year ended 31 July 2022. $ Sales journal for the year ended 31 July 2022 360 000 Sales returns journal for the year ended 31 July 2022 13 300 Trade receivables at 1 August 2021 28 500 Provision for doubtful debts at 1 August 2021 1 140 Cash book extract of totals for the year ended 31 July 2022 Discount Cash Bank Bank Allowed $ $ $ $ Trade receivables 6 500 335 100 Trade receivables 4 000 (dishonoured cheques) Sales 17 000 Additional information 1 $900 of trade receivables were written off as irrecoverable debts on 31 July 2022. There were no other irrecoverable debts during the year. 2 The provision for doubtful debts is to be set at 4% of trade receivables at 31 July 2022. REQUIRED (a) Prepare the following ledger accounts for the year ended 31 July 2022. Where appropriate show the balance brought down on 1 August 2022. PG Sales account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … Sales returns account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … Trade receivables account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … Irrecoverable debts account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … Provision for doubtful debts account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [13] (b) Prepare a relevant extract from PG’s statement of financial position at 31 July 2022. PG Extract from statement of financial position at 31 July 2022 … … … … … [2] (c) List three ways in which PG could reduce the possibility of irrecoverable debts. … … … [3] (d) State two factors PG should consider when setting the provision for doubtful debts. … … … [2] [Total: 20]

20 marks

Mark scheme: 4(a) PG 13 Sales account Date Details $ Date Details $ 2022 2022 Jul 31 Income statement 377 000 (1) OF Jul 31 Trade receivables 360 000 (1) ___ ___ Cash 17 000 (1) 377 000 377 000 Sales returns account Date Details $ Date Details $ 2022 2022 Jul 31 Trade receivables 13 300 (1) Jul 31 Income statement 13 300 13 300 13 300 Trade receivables account Date Details $ Date Details $ 2021 2022 Aug 1 Balance b/d 28 500 Jul 31 Sales returns 13 300* 2022 Bank 335 100* Jul 31 Sales 360 000 (1) Discount allowed 6 500* Bank 4 000 (1) Irrecoverable debts 900* ___ ___ Balance c/d 36 700 392 500 392 500 Aug 1 Balance b/d 36 700 (1) OF *1 mark for 2 correct items and 2 marks for 4 correct items 4(a) Irrecoverable debts account Date Details $ Date Details $ 2022 2022 Jul 31 Trade receivables 900 Jul 31 Income statement 900 (1) 900 900 Provision for doubtful debts account Date Details $ Date Details $ 2022 2021 Jul 31 Balance c/d 1 468 Aug 1 Balance b/d 1 140 (1) 2022 ____ Jul 31 Income statement 328 (1) 1 468 1 468 Aug 1 Balance b/d 1 468 (1) OF 4(b) PG 2 Extract from statement of financial position at 31 July 2022 Current assets** $ Trade receivables 36 700 (1) OF less provision for doubtful debts 1 468 OF 35 232 OF **(1) **For heading + OF total 4(c) Obtain (credit) references (1) 3 Set credit limit (1) Sell for cash only / reduce credit sales (1) Issue invoices / statements of account promptly (1) Follow up with phone calls / emails etc (1) Improve or introduce credit control / hire a credit controller (1) Charge interest on late payment (1) Refuse further supplies until outstanding balance is paid (1) Increase level of cash discount (1) Last resort take legal action (1) Accept other valid points Max 3 4(d) Experience of late / non-payment (1) 2 Specific knowledge of customers credit record / credit rating (1) Length of time debts outstanding / ageing schedule / trade receivables turnover (1) State of the local economy (1) Accept other valid points Max 2

This question in 0985/22 Oct/Nov 2022

1 Shvan maintains a petty cash book using the imprest system. The imprest amount, which is $200, is restored every Wednesday. All payments of less than $75 are made from petty cash. All cash receipts of less than $75 are paid into petty cash. On 1 March 2023 Shvan had $61 in his petty cash box. He provided the following information for the first week in March 2023. March 1 Restored petty cash imprest from the business bank account 2 Paid $55 to Giles, a trade payable 3 Paid taxi fare, $21 6 Paid $18 for notepads and pens 6 Received cash, $25, from Mitchell, a trade receivable 7 Paid $30 for office cleaning REQUIRED (a) Prepare Shvan’s petty cash book for the first week of March 2023, on the page opposite. Balance the petty cash book at 7 March 2023 and bring down the balance at 8 March 2023. [10] $ Ledger accounts … … … … … … … … … … … … $ Travel … … … … … … … … … … … … $ Office expenses … … … … … … … … … … … … $ Totalpaid Book … … … … … … … … … … … … ShvanCash Petty Details … … … … … … … … … … … … Date … … … … … … … … … … … … $ Total received … … … … … … … … … … … … Shvan makes payments to Giles from his bank account as well as by cash. He provided the following information. March 1 Owed Giles, $165, from February 13 Paid Giles the amount outstanding on his account, by cheque 22 Purchased goods on credit from Giles, list price $150, subject to a trade discount of 4% (b) Prepare the account for Giles as it would appear in the books of Shvan. Balance the account at 31 March 2023 and bring down the balance at 1 April 2023. Shvan Giles account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [4] Shvan is considering whether to stop keeping cash at his business premises. He would require all customers to transfer payment directly into his bank account and he would make all business payments from his bank account. REQUIRED (c) (i) State one way Shvan could pay his suppliers, from his bank account, other than by cheque. … … [1] (ii) Advise Shvan whether he should stop using cash. Justify your answer by providing two advantages and two disadvantages of stopping using cash. … … … … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 1(a) Shvan Petty Cash Book Total received $ Date Details Total paid $ Office expenses $ Travel $ Ledger accounts $ 2023 61 Mar 1 Balance b/d (1) 139 Bank (1) 2 Giles (1) 55 55 3 Taxi fare (1) 21 21 6 Notepads and pens (1) 18 18 25 6 Mitchell (1) 7 Office cleaning (1) 30 30 (1)OF 124 48 21 55 101 225 7 Balance c/d 225 101 Mar 8 Balance b/d (1)OF + (1) dates 10 Question Answer Marks 1(b) Shvan Giles account Date Details $ Date Details $ 2023 2023 Mar 2 Petty cash (1) 55 Mar 1 Balance b/d 165 13 Bank (1) 110 22 Purchases (1) 144 31 Balance c/d 144 309 309 Apr 1 Balance b/d (1)OF 144 4 1(c)(i) Direct debit (1) Internet transfer (1) Telephone transfer (1) Credit transfer (1) Debit/credit card (1) Max (1) 1 Question Answer Marks 1(c)(ii) Advantages of stopping using cash Safer – no cash on premises/no transporting cash to/from bank (1) May reduce fraud (1) A petty cash book would not be required (1) Time saving - no cash-handling or journeys to/from bank/ need to be physically present to exchange cash (1) Bank transactions can be quicker (1) Accept other valid points Max (2) Disadvantages of stopping using cash Some customers/suppliers/service providers may prefer to use cash (1) May take longer to receive funds via the banking system/ OR using cash may be quicker (1) It may be useful to keep some cash on the premises for emergency use/small expenses (1) May incur extra bank charges (1) Bank reconciliation may take longer/is more complex (1) Accept other valid points Max (2) (1) for recommendation 5

This question in 0985/21 May/June 2023

1 Omer is a trader. The following transactions took place in April 2023. April 3 Paid $1000 into the bank from his own personal money 7 Paid $360 to a supplier, Alexander, by telephone transfer 10 Cash sales, $695, were paid directly into the bank account 12 Purchased goods, $340, on credit from Alexander 15 Paid $68 cash for petrol 16 Paid rent, $400, by standing order 23 Received a cheque, $384, from a credit customer, Esme, in full settlement of an invoice for $400 27 Paid $323 by cheque to Alexander, having deducted $17 cash discount 28 Purchased goods, $235, on credit from Alexander REQUIRED (a) Complete Omer’s cash book on the page opposite. Balance the cash book and bring down the balances on 1 May 2023. [11] $ 477 Bank … … … … … … … … … … … … … … … … $ Cash … … … … … … … … … … … … … … … … … … $ Discountreceived … … … … … … … … … … … … … … … … … … Details b/d Balance … … … … … … … … … … … … Date 2023 1Apr … … … … … … … … … … … … Book Omer Cash $ Bank … … … … … … … … … … … … … … … … … … … … … … … … $ 120 Cash … … … … … … … … … … … … … … … … … … … … … … … … $ Discountallowed … … … … … … … … … … … … … … … … … … … … … … … … Details b/d Balance … … … … … … … … … … … … (b) Prepare the account for Alexander for April 2023. Balance the account and bring down the balance at 1 May 2023. Omer Alexander account Date Details $ Date Details $ 2023 … … … Apr 1 Balance b/d 360 … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [4] Omer buys all his supplies from Alexander who does not allow Omer any trade discount. Omer is now considering also purchasing supplies from Tahir who would offer him 3% trade discount but no cash discount. REQUIRED (c) Advise Omer whether he should choose: Option 1 – purchase supplies from Alexander only, or Option 2 – purchase supplies from both Alexander and Tahir Justify your answer by providing three advantages and one disadvantage of the option you have chosen. … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 1(a) Omer Cash Book Date Details Disc. Cash Bank Date Details Disc. Cash Bank 2023 $ $ $ 2023 $ $ $ Apr 1 Balance b/d 120 Apr 1 Balance b/d 477 3 Capital (1) 1 000 7 Alexander (1) 360 10 Sales (1) 695 15 Motor expenses (1) 68 23 Esme (1) 16 384 16 Rent payable (1) 400 27 Alexander (1) 17 323 30 Balance c/d 52 519 16* 120 2079 17 (1)* 120 2079 May 1 Balance b/d 52 519 (1)OF (1)OF *both discount totals +(1) dates Question Answer Marks 1(b) Omer Alexander account Date Details $ Date Details $ 2023 2023 Apr 7 Bank (1) 360 Apr 1 Balance b/d 360 27 Bank } 323 12 Purchases } 340 Discount received } (1) 17 28 Purchases } (1) 235 30 Balance c/d 235 935 935 May 1 Balance b/d (1)OF 235 4 1(c) Option 1 – buy from Alexander only Advantages A offers cash discount but T does not (1) A offers 5% cash discount (1) A’s cash discount is a higher % than T’s trade discount (1) Maintain good relationship with A (1) Familiar with A’s quality/reliability (1) (Max 3) Disadvantages T offers trade discount but A does not (1) May lose cash discount by not paying on time (1) Depending on one supplier only (1) A has no incentive to offer more competitive terms (1) (Max 1) Accept other valid points 5 Question Answer Marks Option 2 – buy from both Alexander and Tahir Advantages T offers trade discount but A does not (1) Trade discount is deducted from invoice and does not depend on when payment is made (1) Cost of buying goods from T is reduced (1) Not dependent on one supplier (1) A may offer more competitive terms to compete with other supplier (1) (Max 3) Disadvantages A offers cash discount but T does not(1) T’s trade discount is a lower % than A’s cash discount (1) May damage relationship with A (1) Not familiar with T’s quality/reliability (1) (Max 1) Accept other valid points Recommendation (1)

This question in 0985/22 May/June 2023

1 Seok buys and sells goods on credit. He has three credit customers and allows one of them, Naomi, trade discount of 10%. All customers pay Seok by bank transfer. The following balances were extracted from Seok’s sales ledger at 1 August 2023. $ Naomi 450 Siena 155 Bwana 386 991 The following transactions took place in August 2023. Aug 3 Sold goods on credit, to Naomi, list price $410 5 Sold goods on credit, $89, to Bwana 10 Naomi returned goods, list price $20 11 Naomi paid $423 in full settlement of the amount she owed at 1 August 19 Sold goods on credit, $180, to Bwana 22 Sold goods on credit, to Naomi, list price $230 27 Bwana returned goods, $19 29 Bwana paid $400 REQUIRED (a) Prepare the sales journal for August 2023. Total the journal and indicate the ledger account where the total would be posted. Seok Sales journal Date Details $ $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … [4] (b) Prepare the sales returns journal for August 2023. Total the journal and indicate the ledger account where the total would be posted. Seok Sales returns journal Date Details $ $ … … … … … … … … … … … … … … … … … … … … [3] (c) Prepare the account for Naomi for August 2023 as it would appear in the books of Seok. Balance the account and bring down the balance at 1 September 2023. Seok Naomi account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [6] On 31 August Seok decided to write off the amount owing by Siena as an irrecoverable debt. REQUIRED (d) Prepare Seok’s sales ledger control account for August 2023. Balance the account and bring down the balance at 1 September 2023. Seok Sales ledger control account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [7] [Total: 20]

20 marks

Mark scheme: Question Answer Marks 1(a) Seok 4 Sales journal Date Details $ 2023 Aug 3 Naomi (410 – 41) 369 (1) 5 Bwana 89} 19 Bwana 180} (1) 22 Naomi (230 – 23) 207 (1) ___ 31 Transfer to sales account 845 (1)OF 1(b) Seok 3 Sales returns journal Date Details $ 2023 Aug 10 Naomi (20 – 2) 18 (1) 27 Bwana 19 (1) 31 Transfer to sales returns account 37 (1)OF 1(c) Seok 6 Naomi account Date Details $ Date Details $ 2023 2023 Aug 1 Balance b/d (1) 450 Aug 10 Sales returns (1) OF 18 3 Sales } 369 11 Bank (1) 423 22 Sales } (1)OF 207 Discount allowed (1) 27 31 Balance c/d 558 ____ 1026 1026 Sept 1 Balance b/d (1)OF 558 1(d) Seok 7 Sales ledger control account Date Details $ Date Details $ 2023 2023 Aug 1 Balance b/d (1) 991 Aug 31 Sales returns (1)OF 37 31 Sales (1)OF 845 Bank (423 + 400) (1) 823 Discount allowed (1) 27 Irrecoverable debts (1) 155 ____ Balance c/d 794 1836 1836 Sept 1 Balance b/d (1)OF 794

This question in 0985/22 Oct/Nov 2023

3 Lionel started trading on 1 July 2022. He paid $15 000 of his own personal money into the business bank account. He did not keep full accounting records but has supplied the following information at 30 June 2023. 1. Cash sales of $90 000 were made and paid into the bank. No other money was received. Lionel marks up his goods by 50%. 2. Payments from the bank: $ Purchase of motor vehicle (van) 8 000 Payments to credit suppliers 55 000 Wages 8 060 General expenses 1 140 Rent and insurance 5 585 Motor expenses 4 992 Cash drawn from bank 14 600 3. Purchases returns amounted to $3000. 4. Inventory at 30 June 2023 was valued at $4175. 5. One third of the motor expenses paid were for Lionel’s private car. 6. A full year’s depreciation at 25% is to be charged on the van using the reducing balance method. 7. Lionel withdrew $1000 each month from the business cash, for personal use. The remaining cash drawn from the bank was used to pay wages. REQUIRED (a) Prepare Lionel’s income statement for the year ended 30 June 2023. Lionel Income Statement for the year ended 30 June 2023 $ $ …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … [9] (b) Prepare Lionel’s capital account for the year ended 30 June 2023. Balance the account and bring down the balance at 1 July 2023. Lionel Capital account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … [5] (c) State one reason why Lionel should keep double-entry bookkeeping records. … [1] Lionel currently makes cash sales only. He would like to start selling on credit and is considering whether to offer a 10% trade discount to regular customers or a 3% discount for payment within 21 days. REQUIRED (d) Advise Lionel whether he should offer the 10% trade discount or the 3% cash discount. Justify your answer. … … … … … … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 3(a) Lionel 9 Income Statement for the year ended 30 June 2023 $ $ Revenue 90 000 (1) Cost of sales Purchases 67 175 (1)OF Less Purchases returns 3 000 64 175 (1)OF Less Closing inventory 4 175 60 000 Gross profit 30 000 (1) Less Expenses Wages (8 060 + 2 600) 10 660 (1) Motor expenses (4 992  2/3) 3 328 (1) General expenses 1 140) Rent and insurance 5 585)(1) Depreciation of motor vehicles/van (25%  8 000) 2 000 (1) 22 713 Profit for the year 7 287 (1)OF 3(b) Lionel 5 Capital account Date Details $ Date Details $ 2023 2022 June 30 Drawings July 1 Bank (1) 15 000 (12 000 (1) + 1 664 (1)) 13 664 2023 Balance c/d 8 623 June 30 Profit for the year (1)OF 7 287 _____ _____ 22 287 22 287 July 1 Balance b/d (1)OF 8 623 3(c) Full details are available about the assets, liabilities, revenues and expenses of the business (1) 1 The preparation of financial statements is relatively straightforward (1) The profit or loss for the year is more likely to be reliable and accurate / the financial statements are more likely to be reliable and accurate (1) More informed decision-making is possible (1) A greater degree of control over business activities can be exercised (1) The possibility of fraud is reduced (1) Comparisons with the results of previous years and with other businesses are possible (1) Detailed records are available for reference purposes (1) Information required by a bank or other lender is readily available (1) 3(d) Allowing Trade discount 5 May encourage customers to purchase regularly / place repeat orders (1) If successful may increase revenue and gross profit OR If unsuccessful may decrease revenue and gross profit (1) Need to record which customers qualify for discount / record discount on invoices (1) One-off customers may feel they are being overcharged (1) Accept other valid points Max (3) Allowing Cash discount Some credit customers will pay more quickly or encourage prompt payment (1) Less money will be received (1) Will reduce profit / net profit for the year (1) 3% may not be enough to encourage early payment (1) May reduce risk of irrecoverable debts (1) Accept other valid points Max (3) Recommendation (1)

This question in 0985/22 Oct/Nov 2023

1 Addo is a trader who only sells on credit. His trade receivables at 1 April 2024 were as follows: $ Nuru 920 Mahia 1145 Ava 1378 Rachel 215 3658 During April 2024, the following transactions took place: April 2 Sold goods to Ava, list price $150, less 6% trade discount 9 Received telephone transfer from Ava, $689 12 Sold goods to Nuru, $165 13 Received cheque, $627, from Mahia, in full settlement of an invoice for $660 19 Received $760 from Nuru by electronic transfer. Nuru had deducted 5% cash discount 20 Nuru returned goods $30 21 Sold goods to Mahia, list price $480, trade discount 5%, cash discount 5% if invoice paid within 30 days 30 Rachel has become bankrupt and Addo decides to write off the amount owing from her, as irrecoverable REQUIRED (a) Prepare the sales journal for April 2024. Total the sales journal and indicate the ledger account to which the total would be posted. Addo Sales journal Date Details $ $ … … … … … … … … … … … … … … … … … … … … [3] (b) Prepare the journal entry to write off the amount owing by Rachel. A narrative is required. Addo Journal Date Details $ $ … … … … … … … … … … … … … … … … … … … … [3] (c) Calculate: (i) the total amount of money which Addo received from trade receivables during April 2024. … … … … [1] (ii) the total amount of cash discount which Addo allowed in April 2024. … … … … [2] (d) Prepare Addo’s sales ledger control account for April 2024. Addo Sales ledger control account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [6] Addo is considering changing his credit terms. He would introduce more credit checks on new customers and would increase cash discount to 7½% for payment within 30 days. REQUIRED (e) Advise Addo whether or not he should make these changes to his credit terms. Justify your answer by providing two advantages and two disadvantages of changing his credit terms. … … … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 1(a) Addo Sales journal Date Details $ 2024 Apr 2 12 21 30 Ava (150 – 9) Nuru Mahia (480 – 24) Transfer to sales account 141 165 456 ___ 762 (1) (1) (1)OF 3 1(b) Addo Journal Date Details Debit $ Credit $ 2024 April 30 Irrecoverable debts (1) Rachel (1) Amount due from Rachel written off as irrecoverable (1) 215 215 3 1(c)(i) Total amount received = $689 +$627 + $760 = $2 076 (1) 1 1(c)(ii) Total cash discount = $40(1) + $33 = $73 (1)OF 2 Question Answer Marks 1(d) Addo Sales ledger control account Date 2024 April 1 30 May 1 Details Balance b/d Sales (1)OF Balance b/d (1)OF $ 3 658 762 ____ 4 420 2 026 Date 2024 April 30 Details Sales returns (1) Bank (1)OF Discount allowed (1)OF Irrecoverable debts (1) Balance c/d $ 30 2 076 73 215 2 026 4 420 6 1(e) Advantages Increased cash discount may encourage new customers/existing customers to buy more/increase sales (1) More customers may pay early because of extra discount/improve liquidity (1) Irrecoverable debts may be reduced (1) Increased credit check indicates ability to pay (1) Accept other valid points Max (2) Disadvantages More credit checks would take more time/cost more money (1) Less money coming in from sales (1) No guarantee that customers will pay early (1) Less profit on each sale/profit for the year will be reduced/expenses increased if give cash discount (1) No guarantee that there will not be any irrecoverable debts (1) Accept other valid points Max (2) Recommendation (1) 5

This question in 0985/21 May/June 2024

5 Stella started in business as a retailer on 1 April 2023. She sells one type of good only. She has not kept a full set of accounting records but has provided the following information. 1 Half of Stella’s purchases were on cash terms and half on credit terms. During the year ended 31 March 2024, Stella paid $34 250 to credit suppliers. On 31 March 2024, she owed $2960 to credit suppliers. 2 Unlike her competitors, Stella made all of her sales for cash. Stella’s mark-up was 32%. 3 The following amounts were paid for expenses during the year to 31 March 2024. $ Rent and insurance 6750 Wages 8300 Other expenses 1815 4 At 31 March 2024, $300 was unpaid for wages and $500 was paid in advance for rent. 5 Insurance is $2400 per annum. On 1 April 2023, Stella paid $3000 for insurance for the following 15 months. 6 Other expenses included $120 paid for vases and flowers. One third of these were for Stella’s own home. Stella treats business costs of under $150 as revenue expenditure. 7 Inventory was valued at $6420 at 31 March 2024. REQUIRED (a) Calculate total purchases for the year ended 31 March 2024. … … … … [3] (b) Prepare Stella’s income statement for the year ended 31 March 2024. Stella Income Statement for the year ended 31 March 2024 $ $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [8] Stella’s sales revenue was the same each month for the year to 31 March 2024. She is now considering selling on credit terms as well as for cash. REQUIRED (c) Advise Stella whether or not to start selling on credit terms. Justify your answer by providing points for and against starting selling on credit. … … … … … … … … … … … [5] (d) State: (i) the accounting principle which Stella is following when she treats payments for small items which may last longer than one year, as revenue expenditure. … … [1] (ii) one advantage of following the principle in 5(d)(i). … … [1] (e) State two advantages of maintaining a full set of double entry accounting records. … … … … [2] [Total: 20]

20 marks

Mark scheme: 5(a) $ Payments to credit suppliers 34 250 (1) Add closing credit suppliers 2 960 (1) Credit purchases 37 210 Cash purchases 37 210 OF Total purchases 74 420 (1)OF OR $ Bank 34 250 (1) Balance c/d 2 960 (1) 37 210 $ Purchases 37 210 _____ 37 210 Credit purchases 37 210 Cash purchases 37 210 OF Total purchases 74 420 (1)OF 3 5(b) Stella Income statement for the year ended 31 March 2024 $ $ Sales 89 760 (1)OF (132%) Less Cost of sales Purchases 74 420 OF Less Closing inventory 6 420 68 000 (1)OF (100%) Gross profit 21 760 (1)OF (32%) Less Rent and insurance (6 750 – 600(1) – 500(1)) 5 650 Wages (8 300 + 300) 8 600 (1) Other expenses (1 815 – (120/3)) 1 775 (1) 16 025 Profit for the year 5 735 (1)OF 8 Question Answer Marks 5(c) For: Should increase sales/attract more customers (1) Should lead to higher profit/higher profit margin (1) Competitors may allow credit sales/may help Stella to compete (1) Increase monthly sales to generate growth (1) Accept other valid points Max (3) Against: Money would come into the business more slowly (1) Liquidity may be reduced (1) Irrecoverable debts can occur (1) Increased bookkeeping/a sales ledger would be required (1) Credit control may be required (1) Accept other valid points Max (3) Max (4) Recommendation (1) 5 5(d)(i) Materiality (1) 1 5(d)(ii) Time and cost of recording small items outweigh the benefits of treating them as non-current assets (1) Depreciation does not need to be calculated and charged low value non-current assets (1) Max (1) 1 Question Answer Marks 5(e) Full details of the assets, liabilities, revenues and expenses are available (1) The preparation of financial statements is more straightforward (1) The calculation of profit or loss for the year is likely to be more accurate (1) More informed decision-making is possible (1) A greater degree of control over the business activities can be exercised (1) The possibility of fraud is reduced (1) Comparisons with the results of previous years and with other businesses are possible (1) Detailed records are available for reference (1) Information required by a bank or other lender is readily available (1) Accept other valid points Max (2) 2

This question in 0985/21 May/June 2024

1 Kalima is a trader. At the start of September 2024, Kalima had a cash balance of $240, a bank balance of $890 credit and a credit customer, Elizah, owed Kalima $520. The following transactions took place during the month: September 2 Paid stationery in cash, $82 3 Cash sales, $478 A cheque for $30 received at the end of August from Badr, a credit customer, was dishonoured 5 Paid wages by credit transfer, $1390 7 Bought goods from Gulnar on credit, $200 10 Kalima withdrew $150 from the business bank account for personal use 14 Received a cheque from Elizah in full settlement of the amount owed less 2.5% cash discount 16 Paid $120 cash into the business bank account 21 Paid Gulnar the full amount due by credit transfer less a cash discount of 2% 23 Sold goods to Elizah on credit, $1450 29 A credit note totalling $325 was issued to Elizah for goods returned REQUIRED: (a) Prepare Kalima’s cash book on the page opposite, for September 2024. Balance the account and bring down the balances on 1 October 2024. … … … … … … … … … (b) What does the credit balance in the bank on 1 September 2024 represent? … … [1] (c) Prepare the account of Elizah as it would appear in Kalima’s books. Balance the account and bring down any balances on 1 October 2024. Kalima Elizah Account Date Details Amount Date Details Amount 2024 $ 2024 $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [5] (d) Name the section heading in Kalima’s statement of financial position where the balance on Elizah’s account would appear. … … [1] [Total: 20]

20 marks

Mark scheme: Question Answer Marks 1(a) 13 Kalima Cash book Date Details Discoun Cash Bank Date Details Discount Cash Bank t Receive allowed d 2024 $ $ $ 2024 $ $ $ Sept 1 Balance b/d 240 Sept 1 Balance b/d 890 3 Sales 478 (1) 2 Stationery 82 (1) 14 Elizah 13 507 (1) 3 Badr 30 (1) 16 Cash 120 (1) 5 Wages 1 390 (1) 10 Drawings 150 (1) 16 Bank 120 (1) 21 Gulnar 4 196 (1) 30 Balance c/d 2 029 30 Balance c/d 516 13 718 2 656 4 718 2 656 (1)OF* Oct 1 Balance b/d 516 (1)OF Oct 1 Balance b/d 2 029 (1)OF (1) for dates *For totalling dr and cr columns 1(b) Bank overdraft 1 1(c) Kalima 5 Elizah Account Date Details Amount Date Details Amount 2024 $ 2024 $ Sept 1 Balance b/d 520 Sept 14 Bank 507 (1)OF 23 Sales 1 450 (1) Discount allowed 13 (1)OF 29 Sales returns 325 (1) 30 Balance c/d 1 125 1 970 1 970 Oct 1 Balance b/d 1 125 (1)OF 1(d) Current Assets 1

This question in 0985/22 Oct/Nov 2024

1 Anika started in business on 1 March 2024, but she did not start to keep full book-keeping records until 1 March 2025. Anika’s assets and liabilities at 1 March 2025 were: $ Premises 90 000 Motor vehicle 14 500 Inventory 3 625 Trade receivables: Kofi 3 000 Davia 2 140 Petty cash 86 Bank overdraft 1 080 Trade payables: Ado 1 925 Sam 210 REQUIRED (a) Prepare the opening journal entry at 1 March 2025. A narrative is required. Anika Journal Date Details $ $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [4] Question 1 continues on page 4. Anika decided to maintain a petty cash book using the imprest system. The imprest amount is $150. On 1 March 2025, Anika drew the amount required for petty cash from the bank account. During March 2025, Anika made the following payments from petty cash. March 6 Paid for petrol, $30 10 Paid for computer paper, $12 17 Paid Sam, $48, on account 21 Paid for postage, $6 28 Paid for car cleaning, $8 REQUIRED (b) Prepare Anika’s petty cash book on page 5 for the month of March 2025. Balance the petty cash book, bring down the balance on 1 April 2025 and restore the imprest. [11] $ Ledger accounts … … … … … … … … … … … … $ Office expenses … … … … … … … … … … … … $ Motor expenses … … … … … … … … … … … … $ Total paid … … … … … … … … … … … … Book Anika Cash Petty Details … … … … … … … … … … … … Date 2025 … … … … … … … … … … … … On 21 March 2025, Anika purchased goods on credit from Sam, list price $120, subject to a trade discount of 5%. On 25 March 2025, Anika returned half of these goods. REQUIRED (c) Prepare the account for Sam in the books of Anika for March 2025. Balance the account and bring down the balance at 1 April 2025. Anika Sam account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: Question Answer Marks 1(a) Anika 4 Journal Date Details Debit Credit $ $ 2025 March 1 Premises 90 000} Motor vehicles 14 500} Inventory 3 625} Trade receivables – Kofi 3 000} (1) Davia 2 140} Petty cash 86} Bank 1 080} Trade payables – Ado 1 925} (1) Sam 210} Capital 110 136 (1) ______ ______ Assets, liabilities and capital at this date (1) 113 351 113 351 1(b) Anika 11 Petty Cash Book Total Date Details Total Motor Office Ledger received paid expenses expenses accounts $ 2025 $ $ $ $ 86 Mar 1 Balance b/d (1) 64 Bank (1) 6 Petrol (1) 30 30 10 Computer paper (1) 12 12 17 Sam (1) 48 48 21 Postage (1) 6 6 28 Car cleaning (1) 8 8 104 38 18 48 46 31 Balance c/d 150 150 46 Apr 1 Balance b/d (1)OF 104 Bank (1)OF (1) dates (1) OF totalling analysis columns 1(c) Anika 5 Sam account Date Details $ Date Details $ 2025 2025 Mar 17 Petty cash (1) 48 Mar 1 Balance b/d (1) 210 25 Purchases returns (1)OF 57 21 Purchases (1) 114 31 Balance c/d 219 324 324 Apr 1 Balance b/d (1)OF 219

This question in 0985/21 May/June 2025

3 Ahmed has a vehicle breakdown recovery business. He owns a recovery vehicle and has provided the following information about the vehicle: • Purchase date: 1 October 2021 • Purchase price: $80 000 paid by bank transfer • Estimated residual value: $30 000 • Estimated working life: 5 years Ahmed provides a full year’s depreciation in the year of purchase but charges no depreciation in the year of disposal. He depreciates his vehicles using the reducing balance method at 20% per annum. His recovery vehicle is now 4 years old and is no longer reliable. Ahmed considered replacing his recovery vehicle on 31 August 2025. Ahmed’s financial year ends on 30 April. REQUIRED (a) Calculate the depreciation charge for each year of the recovery vehicle’s working life, assuming Ahmed replaces the recovery vehicle on 31 August 2025. Show your workings. $ … … … … … … … … … … … … … … … … … … … … … … … … … … [4] (b) State one advantage and one disadvantage of the reducing balance method of depreciation. Advantage … … … Disadvantage … … … [2] On 1 February 2025, a local dealer offered to buy the recovery vehicle from Ahmed for $35 000 cash. REQUIRED (c) Calculate the profit or loss on disposal if Ahmed had sold his recovery vehicle to the local dealer on 1 February 2025. Show your workings, and state whether it would have been a ‘profit’ or ‘loss’. … … … … … … … … … … … [3] (d) (i) Prepare Ahmed’s motor vehicles account for the year ended 30 April 2025 if Ahmed had sold his recovery vehicle to the local dealer on 1 February 2025. Ahmed Motor vehicles account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [2] (ii) Prepare Ahmed’s disposal of motor vehicles account for the year ended 30 April 2025 if Ahmed had sold his recovery vehicle to the local dealer on 1 February 2025. Ahmed Disposal of motor vehicles account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [4] Ahmed sold his recovery vehicle. Since the sale, he has been hiring a recovery vehicle capable of recovering larger vehicles and is now considering buying a similar vehicle. He would finance the purchase of this new vehicle using the money received from selling his old recovery vehicle, and the balance will come from a bank loan repayable in 5 years. Delivery of the new vehicle is estimated to be in 6 months. REQUIRED (e) Advise Ahmed whether he should buy this new recovery vehicle. Justify your answer by providing advantages and disadvantages of buying the new recovery vehicle. … … … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 3(a) $ 4 Cost 80 000 Depreciation for the year ended 30 April 2022 16 000 (1) Net Book Value 64 000 Depreciation for the year ended 30 April 2023 12 800 (1) Net Book Value 51 200 Depreciation for the year ended 30 April 2024 10 240 (1)OF Net Book Value 40 960 Depreciation for the year ended 30 April 2025 8 192 (1)OF Net Book Value 32 768 3(b) Advantages (Max 1) 2 Matches cost with revenue (1) Appropriate when greater benefits are gained from the non-current assets in the early years (1) May provide a more accurate depreciation / net book value for the asset / non-current asset (1) Disadvantages (Max 1) Depreciation has to be recalculated each year / more complicated to calculate (1) The charge against profits is greater in the early years of the non-current asset’s life (1) Accept other valid responses 3(c) $ 3 Cost 80 000 Depreciation for the year ended 30 April 2022 16 000 Depreciation for the year ended 30 April 2023 12 800 Depreciation for the year ended 30 April 2024 10 240 (39 040) Net Book Value at 01 May 2024 40 960 (1OF) Sale proceeds 35 000 (1) Loss on disposal 5 960 (1OF) 3(d)(i) Ahmed 2 Motor vehicles account Date Details $ Date Details $ 2021 2025 Oct 1 Bank 80 000 (1) Feb 1 Disposal 80 000 (1) 3(d)(ii) 4 Ahmed Disposal of motor vehicles account Date Details $ Date Details $ 2025 2025 Feb 1 Motor 80 000 (1) Feb 1 Provision for 39 040 (1)OF Vehicles depreciation Cash 35 000 (1) April 30 Income 5 960 (1)OF statement 80 000 80 000 3(e) Advantages (Max 3) 5 Saving on hire costs (1) Improve revenue / profit (1) Less risk because he has already trialled it / hired for short period (1) Increases non-current assets (1) Disadvantages (Max 3) A larger recovery vehicle which will cost more than a smaller vehicle (1) Hire costs will have to be paid for six months (1) Interest charges on loan (1) Bank may not agree the loan / may require some form of security / loans have to be repaid (1) Proceeds from sale may have been used elsewhere (1) Accept other valid responses. Recommendation (1)

This question in 0985/22 Oct/Nov 2025