Accounting concepts — Paper 2 · IGCSE Accounting (9-1) 0985

1 Bilal is a trader. He buys goods on credit and for cash. He sells goods on a cash basis only. The following transactions took place in April 2020. April 4 Bought goods on credit from Milly, list price $320, subject to a trade discount of 20% 5 Bought goods on credit from EHL Limited, $500 6 Bought stationery, $145, paying by cheque 8 Cash sales, $280, were paid immediately into Bilal’s bank account 10 Paid $128 cash to Milly 12 Cash sales, $110 13 Bought goods on credit, $250, from Todd who offers 4% cash discount for payments made within 14 days 17 Bought office equipment, $500, paying by bank transfer 21 Paid by cheque for the goods purchased from Todd on 13 April after deducting the cash discount 24 Paid $485 to EHL Limited by telephone transfer, having deducted 3% cash discount 28 Sold old office equipment for $50 cash REQUIRED (a) Prepare the purchases journal for April 2020. Total the journal and indicate the ledger account to which the total would be posted. Bilal Purchases journal Date Details $ $ ……..… … ……………………………………………… … …………... ……… … ……… … ……………………………………………… … …………... ………….. ……..… … ……………………………………………… … …………... ………….. ……… … ……………………………………………… … …………... ……… … ……… … ……………………………………………… … …………... ……… … ……… … ……………………………………………… … ………….. …………... [4] (b) Complete Bilal’s cash book on the page opposite. Balance the cash book and bring down the balances on 1 May 2020. [12] $ Bank … … … … … … … … … … … … … … … … $ Cash … … … … … … … … … … … … … … … $ Discountreceived … … … … … … … … … … … … … … Details … … … … … … … … … … … … … … … Date 2020 … … … … … … … … … … … … … … … … Book Bilal Cash $ Bank 1960 … … … … … … … … … … … … … … $ 160 Cash … … … … … … … … … … … … … … $ Discountallowed … … … … … … … … … … … … … … … b/d Details Balance … … … … … … … … … … … … … … (c) Name one accounting principle applied by Bilal in each of the following situations. accounting principle The double entry for the posting of the purchases journal entries is completed by posting the individual amounts to the purchases ledger. The purchase of goods on 5 April did not include goods costing $55 which Bilal bought for his own use. The stationery purchased on 6 April had been recycled. This is expected to improve the reputation of the business. Reputation is not recorded in the accounting statements. The value of office equipment shown in the financial statements was based on its purchase price. [4] [Total: 20] PLEASE TURN OVER

20 marks

Mark scheme: 1(a) Bilal Purchases journal Date Details $ 2020 April 4 Milly (320 – 64) 256 (1) 5 EHL Limited 500 (1) 13 Todd 250 (1) 30 Transfer to purchases account 1 006 (1)OF 4 1(b) Bilal Cash Book Disc. Alld $ Cash $ Bank $ Disc. Recd $ Cash $ Bank $ 2020 2020 Apr 1 Balance b/d 160 1 960 Apr 6 Stationery (1) 145 8 Sales (1) 280 10 Milly (1) 128 12 Sales (1) 110 17 Office equip. (1) 500 28 Disposal (1) 50 21 Todd (1) 10 240 24 EHL Limited (1) 15 485 30 Balance c/d 192 870 320 2 240 25(1) 320 2 240 2020 May 1 Balance b/d 192 870 (1)OF (1)OF Dates (1) 12 Question Answer Marks 1(c) accounting principle The double entry for the posting of the purchases journal entries is completed by posting the individual amounts to the purchases ledger. duality (1) The purchase of goods on 5 April did not include goods costing $55 which Bilal bought for his own use. business entity (1) The stationery purchased on 6 April had been recycled. This is expected to improve the reputation of the business. Reputation is not recorded in the accounting statements. money measurement (1) The value of office equipment shown in the financial statements was based on its purchase price. historic cost (1) 4

This question in 0985/22 May/June 2020

30 days. REQUIRED (c) Advise the directors whether they should introduce the cash discount policy or the interest charge policy. Justify your answer by providing one advantage and one disadvantage of each policy. … … … … … … … … … … … … [5] The information in the accounting statements is affected by the company’s accounting policies. REQUIRED (d) Explain to the directors of JKY Limited the importance of the following objectives in selecting the company’s accounting policies. (i) comparability … … … … [2] (ii) relevance … … … … [2] [Total: 20]

9 marks

This question in 0985/22 May/June 2020

3 TC Limited is a manufacturing company. The company’s year end is 31 January. On 31 January 2021, the company’s ledger account balances included the following. $ Inventory at 1 February 2020 Raw materials 7 500 Work in progress 11 220 Finished goods 925 Purchases Raw materials 91 400 Finished goods 6 850 Wages Factory operatives 52 000 Factory supervisor 23 100 Rent and rates 19 620 Insurance 4 600 General factory expenses 4 200 Carriage inwards on raw materials 6 280 Factory equipment at cost 90 000 Provision for depreciation of factory equipment 30 960 Additional information 1 Inventory at 31 January 2021 Raw materials 8 000 Work in progress 11 900 Finished goods 1 075 2 The factory equipment is to be depreciated at 20% per annum using the reducing balance method. 3 In December 2020, $3600 was paid for rent for the period 1 December 2020 to 28 February 2021. 4 At 31 January 2021 rates of $550 were unpaid. 5 Rent and rates are to be apportioned equally between the factory and the office. 6 Insurance is to be apportioned 75% to the factory and 25% to the office. REQUIRED (a) Prepare the rent and rates account for TC Limited for the year ended 31 January 2021. Balance the account and bring down the balances on 1 February 2021. TC Limited Rent and rates account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [5] (b) Prepare the manufacturing account for TC Limited fo TC Limited Manufacturing Account for the year … … … … … … … … … … … … … … … … … … … … … … … … The directors of TC Limited are considering the purchase of various low-value items of office equipment. REQUIRED (c) Advise the directors whether or not they should charge depreciation on these items. Justify your answer by providing two advantages and two disadvantages. … … … … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 3(a) TC Limited Rent and rates account Date 2021 Jan 31 Feb 1 Details Total to date (1) Balance c/d (rates) Balance b/d (rent) (1) $ 19 620 550 20 170 1 200 Date 2021 Jan 31 Feb 1 Details Manufacturing account (1)OF Income statement (1)OF Balance c/d (rent) Balance b/d (rates) (1) $ 9 485 9 485 1 200 20 170 550 5 Ignore dates Question Answer Marks 3(b) TC Limited Manufacturing Account for the year ended 31 January 2021 $ $ Cost of material consumed Opening inventory of raw material 7 500 Purchases of raw material 91 400 Carriage inwards 6 280 97 680 105 180 Less Closing inventory of raw material 8 000 97 180 (1) Direct wages 52 000 (1) Prime cost 149 180 (1) OF Factory overheads Wages of factory supervisor 23 100 (1) Rent and rates 9 485 (1)OF Insurance (75% × 4 600) 3 450 (1) General expenses 4 200 Depreciation of factory equipment (90 000 – 30 960) × 20% 11 808 (1) 52 043 201 223 (1)OF Add opening work-in-progress 11 220 * 212 443 Less closing work-in-progress 11 900 * Cost of production 200 543 (1) OF * (1) for both opening and closing work-in-progress 10 Question Answer Marks 3(c) Advantages To apply the principle of consistency OR the other non-current assets are depreciated so these should also be depreciated (1) To apply the principle of matching OR to spread the cost over expected useful life (1) Are non-current assets so should be depreciated/they lose value over their useful life so should be depreciated (1) Accept other valid points (Max 2) Disadvantages The cost of the items may not be material (1) The amount of depreciation would be insignificant (1) The items may not last more than one year (1) Accept other valid points (Max 2) Recommendation (1) 5

This question in 0985/21 May/June 2021

2 Tej is a trader who sells goods on credit. His year end is 28 February. Tej provided the following information. $ At 1 March 2020 Trade receivables 6250 Other receivables (rent prepaid) 300 For the year ended 28 February 2021 Rent charge for the year 3900 Cheque payments for rent 30 June 2020 1950 30 November 2020 2100 At 28 February 2021 Trade receivables 7000 The provision for doubtful debts was 4% of trade receivables at 1 March 2020 and 6% of trade receivables at 28 February 2021. REQUIRED (a) Prepare the rent payable account for the year ended 28 February 2021. Balance the account and bring down the balance on 1 March 2021. Tej Rent payable account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [6] (b) Prepare the provision for doubtful debts account for the year ended 28 February 2021. Balance the account and bring down the balance on 1 March 2021. Tej Provision for doubtful debts account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [4] (c) Name the accounting principle applied when the income statement is adjusted for rent prepaid. … [1] (d) (i) Explain how the realisation principle is applied to the recording of Tej’s credit sales. … … … … [2] (ii) Explain how the prudence principle is applied to the maintenance of Tej’s provision for doubtful debts. … … … … [2] Tej sells to a small number of customers. He has good working relationships with them and they sometimes recommend him to potential customers. Tej is concerned that his customers are taking a long time to pay him. He is considering charging interest on overdue accounts. REQUIRED (e) Advise Tej whether or not he should charge interest on overdue accounts. Justify your answer. … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 2(a) Tej Rent payable account Date 2020 Mar 1 Jun 30 Nov 30 2021 Mar 1 Details Balance b/d (1) Bank (1) Bank (1) Balance b/d (1)OF $ 300 1950 2100 4350 450 Date 2021 Feb 28 Details Income Statement (1) Balance c/d $ 3 900 450 4 350 + (1) dates 6 2(b) Tej Provision for doubtful debts account Date 2021 Feb 28 Details Balance c/d (7 000 × 6%) (1) $ 420 420 Date 2020 Mar 1 2021 Feb 28 Mar 1 Details Balance b/d (6 250 × 4%) (1) Income statement (1)OF Balance b/d (1)OF $ 250 170 420 420 4 Question Answer Marks 2(c) Matching (1) 1 Accept ‘Accruals’ 2(d)(i) Revenue is regarded as being earned (1) when title to the goods is passed (1) The profit on sales is not recognised until it is earned (1) Profit is recognised when earned not when payment is received (1) Profit is earned when the sale is completed/legal title passes (1) No profit is recognised when goods are ordered (1) Accept other valid points. Max (2) 2 2(d)(ii) To ensure that profits/trade receivables are not overstated (1) To ensure that trade receivables are shown at a realistic amount in the statement of financial position (1) Profits and assets are reduced when the provision for doubtful debts is increased/profits and assets are increased when the provision is reduced (1) Accept other valid points Max (2) 2 Question Answer Marks 2(e) Advantages Will encourage customers to pay earlier (1) May increase liquidity/cash flow (1) May reduce administration time/costs (1) Or other relevant advantages Max (2) Disadvantages Good relationships with customers will be damaged (1) May lose customers/sales may reduce (1) May incur extra costs to attract customers/advertising/marketing (1) Or other relevant disadvantages Max (2) Recommendation (1) 5

This question in 0985/22 May/June 2021

3 On 31 July 2021 the following information was provided by KA Limited, a manufacturer of garden tools. $ Inventory 1 August 2020 Raw materials 5 820 Work in progress 1 750 Finished goods 12 360 Purchases Raw materials 34 200 Finished goods 3 900 Carriage on purchases Raw materials 410 Finished goods 80 Direct wages 67 200 Indirect factory wages 24 000 Factory machinery at cost 47 000 Provision for depreciation of factory machinery 11 000 Factory general overheads 16 400 Rates 5 300 Inventory 31 July 2021 Raw materials 6 030 Work in progress 2 780 Finished goods 10 340 Revenue 223 000 Additional information 1 On 31 July 2021 rates, $500, were prepaid. Rates are to be apportioned 75% factory, 25% office. 2 On 31 July 2021 factory general overheads, $230, were accrued. 3 Factory machinery is to be depreciated at 20% per annum using the reducing balance method. REQUIRED (a) Prepare the manufacturing account of KA Limited for the year ended 31 July 2021. KA Limited Manufacturing Account for the year end ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … ………………………………………………………… … (b) Prepare the income statement (trading section) of KA Limited for the year ended 31 July 2021. KA Limited Income Statement (Trading section) for the year ended 31 July 2021 $ $ ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … ………………………………………………………… … …………… … …………… … [4] DH Limited, a customer of KA Limited, has been declared bankrupt. A debt of $350 was owing to KA Limited. This is to be written off. REQUIRED (c) Prepare the journal entry to record the irrecoverable debt. A narrative is not required. KA Limited Journal Details Debit Credit $ $ … … … … … … … … … [2] KA Limited maintains a provision for doubtful debts. REQUIRED (d) Explain how maintaining a provision for doubtful debts is an application of each of the following accounting principles. (i) Matching … … … … [2] (ii) Prudence … … … … [2] [Total: 20]

20 marks

Mark scheme: 3(a) KA Limited Manufacturing Account for the year ended 31 July 2021 $ $ Cost of material consumed Opening inventory raw material 5 820 Purchases raw material 34 200 Carriage inwards 410 (1) 40 430 Closing inventory raw material 6 030 34 400 (1) Direct wages 67 200 (1) Prime cost 101 600 (1) OF Factory overheads Indirect factory wages 24 000 Factory general overheads (16 400 + 230) 16 630 (1) Rates (5300 – 500) × 75% 3 600 (1) Depreciation of factory machinery (36 000 × 20%) 7 200 (1) 51 430 153 030 (1) OF Add opening work in progress 1 750 * 154 780 Less closing work in progress 2 780 (1)* for both WIP Cost of production 152 000 (1) OF 10 Question Answer Marks 3(b) KA Limited Income Statement (Trading section) for the year ended 31 July 2021 $ $ Revenue 223 000 Less Cost of sales Opening inventory finished goods 12 360 * Cost of production 152 000 (1) OF Purchases of finished goods 3 900 } Carriage inwards 80 } (1) 168 340 Less Closing inventory finished goods 10 340 (1) * both 158 000 Gross profit 65 000 (1) OF 4 3(c) KA Limited Journal Details Debit $ Credit $ Irrecoverable debts 350 (1) DH Limited 350 (1) 2 3(d)(i) The amount of sales for which the business is unlikely to be paid (1) is regarded as an expense of the year in which those sales are made (1) 2 3(d)(ii) The profit for the year is not overstated (1) and the amount of trade receivables is shown at a realistic level in the statement of financial position (1) 2

This question in 0985/22 Oct/Nov 2021

4 Nala is a trader who buys and sells stationery. She provided the following information about her inventory at 28 February 2022. Item Number of Cost per unit Carriage Selling Selling units inwards per expenses price per unit per unit unit $ $ $ $ Packs of paper 240 4.50 – – 8.00 Packs of envelopes 225 5.50 1.00 1.50 10.00 Notepads 150 4.00 2.00 – 5.00 Boxes of pencils 96 3.50 – – 6.00 REQUIRED (a) (i) Calculate the value of Nala’s inventory at 28 February 2022. … … … … … … … … … … [6] (ii) State the accounting principle used to value inventory. … [1] (b) (i) Complete the table by placing a tick (✓) to show how Nala should treat each item of her expenditure. Capital Revenue expenditure expenditure Computer printer paper Computer equipment Installation of computer equipment Motor vehicle Insurance of motor vehicle Delivery of motor vehicle (b) (ii) Explain how the materiality principle is applied to the treatment of non-current assets. … … … … … [2] Nala has treated the receipt of a bank loan as a revenue receipt. REQUIRED (c) Complete the table by placing a tick (✓) to show the effect of the error on capital and on liabilities. overstated understated Effect on capital Effect on liabilities [2] Nala has charged depreciation on her shop fittings at 25% per annum using the reducing balance method. This year she is considering changing this to 10% per annum using the straight-line method, as this would improve her profit for the year. REQUIRED (d) Advise Nala whether or not she should change her depreciation method. Justify your answer. … … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 4(a)(i) Cost NRV Valuation packs of paper 4.50 8.00 4.50  240 = 1080 (1) packs of envelopes 5.50 + 1.00 = 6.50 10.00 – 1.50 = 8.50 6.50  225 = 1462.50 (1) notepads 4.00 + 2.00 = 6.00 5.00 5.00  150 = 750 (1) boxes of pencils 3.50 6.00 3.50  96 = 336 (1) Total 3628.50 (2) or (1)OF 6 4(a)(ii) Prudence (1) 1 Question Answer Marks 4(b)(i) Capital expenditure Revenue expenditure Computer printer paper  } Computer equipment  } (1) Installation of computer equipment  (1) Motor vehicle  } Insurance of motor vehicle  } (1) Delivery of motor vehicle  (1) 4 4(b)(ii) Recording low value non-current assets can be costly and time consuming (1) The cost could be greater than the benefit gained from treating as a non-current asset (1) Items not significantly affecting profit or the non-current assets need not be recorded as a non-current asset (1) What is material for a small business may not be material for a larger business (1) Max (2) 2 4(c) overstated understated Effect on capital  (1) Effect on liabilities  (1) 2 Question Answer Marks 4(d) Advantages of the straight line method Easier to calculate than the reducing balance method (1) The straight-line method may be more representative of the annual loss in value (1) Non-current assets may be shown at a more realistic value (1) The annual depreciation charge would be reduced (1) Higher profits may encourage investors / lenders (1) Max (3) Disadvantages Method of charging depreciation should be applied consistently (1) Increasing profit is not a sufficient reason to change the method (1) Profit may be overstated in the year of change (1) The book value of non-current assets may not be accurate / may be overstated (1) Comparison with previous years not meaningful (1) Max (3) Accept other valid points Recommendation (1) Need at least one advantage and one disadvantage in order to get recommendation mark Note: Maximum 3 marks for either option 5

This question in 0985/22 May/June 2022

2 Ramla has calculated her draft profit figure for the year ended 28 February 2023. Adjustments in Ramla’s ledger accounts have still to be made for the following items. 1 An amount of $99 owed to Ramla by Mai is to be written off as irrecoverable. 2 Fixtures and fittings, $875, were purchased on credit from Padma. 3 A loan repayment, $500, had been incorrectly recorded as loan interest. 4 Rent paid, $350, had been recorded as $530. 5 Drawings, $120, had been debited to the wages account. REQUIRED (a) Prepare the journal entries required for items 1–5. Narratives are not required. Ramla Journal Item Details Debit Credit number $ $ … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… … … …… … … …… … …… [10] (b) Complete the following table by entering the amount of each adjustment required to calculate Ramla’s adjusted profit. If an item has no effect on profit, enter zero (0) in the ‘no effect on profit’ box. Item Increase in Decrease in No effect on Profit profit profit profit $ $ $ Draft profit 11 650 1 2 3 4 5 Adjusted profit [6] (c) Explain (i) how the journal for item 1 complies with the prudence principle. … … … … [2] (ii) how the journal for item 5 complies with the business entity principle. … … … … [2] [Total: 20]

20 marks

Mark scheme: 2(a) Ramla Journal Item number Details Debit $ Credit $ 1 Irrecoverable debts Mai 99 (1) 99 (1) 2 Fixtures and fittings Padma 875 (1) 875 (1) 3 Loan Loan interest 500 (1) 500 (1) 4 Bank / cash Rent 180 (1) 180 (1) 5 Drawings Wages 120 (1) 120 (1) 10 Question Answer Marks 2(b) Item Increase in profit $ Decrease in profit $ No effect on profit Profit $ Draft profit 11 650 1 99 (1) 2 0 (1) 3 500 (1) 4 180 (1) 5 120 (1) Adjusted profit 800 99 0 12 351 (1)OF 6 2(c)(i) The prudence principle states that profits and assets are not overstated / losses and liabilities are not understated (1) Irrecoverable debts should be written off to ensure that profits / assets are not overstated / not understate loss (1) 2 2(c)(ii) The business entity principle states that the business is regarded as being completely separate from the owner of the business (1) OR The business entity principle states that transactions should be recorded from the point of view of the business (1) Drawings should be recorded correctly to ensure that profits are not understated / capital overstated (1) 2

This question in 0985/22 May/June 2023

2 Sara owns a clothing factory. She sells the clothing to a small number of local shops. She allows 30 days credit. At 30 September 2023, Sara’s ledger account balances included the following. $ Inventory at 1 October 2022 Raw materials 4 875 Work in progress 8 125 Finished goods 12 890 Purchases of raw materials 56 400 Wages Machine operators 43 300 Factory supervisor 25 000 Delivery vehicle driver 14 250 Rates and insurance 29 600 General factory expenses 9 650 Factory machinery – at cost 80 000 Factory machinery – provision for depreciation 35 000 Trade receivables 27 000 Cash at bank 1 050 Additional information 1. Inventory at 30 September 2023 Raw material 5 110 Work in progress 7 365 Finished goods 13 725 2. At 30 September 2023 general factory expenses of $335 were unpaid. 3. Insurance of $8000 had been paid for the year July 2023 to June 2024. 4. Rates and insurance are to be apportioned equally between the factory and the office. 5. Factory machinery is depreciated at 25% per annum using the reducing balance method. REQUIRED (a) Prepare Sara’s manufacturing account for the year end Sara Manufacturing Account for the year ended 30 …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … …………………………………………………………… … (b) Prepare the current assets section of Sara’s statement of financial position at 30 September 2023. Sara Statement of financial position (current assets section) at 30 September 2023 $ $ …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … …………………………………………………………… … …………… … …………… … [3] Sara’s factory supervisor is very efficient at running the factory. REQUIRED (c) State which accounting principle Sara is complying with by not recording any value for this efficiency in her financial statements. … [1] Sara has now been asked to supply a local drama school with theatrical costumes. The drama school would place an order with Sara each month and would require 60 days credit. REQUIRED (d) Advise Sara whether she should start supplying the drama school with costumes. Justify your answer by providing advantages and disadvantages of supplying the costumes. … … … … … … … … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 2(a) Sara 11 Manufacturing Account for the year ended 30 September 2023 $ $ Cost of material consumed Opening inventory of raw material 4 875 Purchases of raw material 56 400 61 275 Less Closing inventory of raw material 5 110 56 165 (1) Direct wages 43 300 (1) Prime cost 99 465 (1)OF Factory overheads Wages of factory supervisor 25 000 (1) Rates and insurance (29 600 – 6 000) /2 11 800 (2) (1)OF General factory expenses (9 650 + 335) 9 985 (1) Depreciation of factory machinery (80 000 – 35 000=) 45 000 x 25% 11 250 (1) 58 035 157 500 (1)OF Add opening work-in-progress 8 125* 165 625 Less closing work-in-progress 7 365 *(1) for both W in P Cost of production 158 260 (1)OF 2(b) Sara 3 Statement of financial position (Current assets section) at 30 September 2023 Current Assets $ Inventory – Raw materials 5 110 } – Work-in-progress 7 365 } (1) – Finished goods 13 725 } 26 200 Trade receivables 27 000} Other receivables 6 000} Cash at bank 1 050}(1) 60 250(1)OF 2(c) Money measurement (1) 1 2(d) Advantages of supplying drama school 5 Will increase sales / revenue (1) May increase profit (1) The extra work will provide security/continuity of workload (1) If successful, potential to supply other schools, theatre groups, etc. (1) Accept other valid points Max 3 Disadvantages of supplying drama school There would be extra administration or may incur additional costs / wages / costs of production (1) More manufacturing and/or storage capacity may be required (1) May not have capacity to supply both existing customers and drama group (1) Allowing 60 days credit will adversely affect liquidity (1) Accept other valid points Max 3 Recommendation (1)

This question in 0985/22 Oct/Nov 2023

4 Rachel is a trader. The totals of Rachel’s trial balance prepared on 30 September 2023 did not agree and the difference was placed in a suspense account. Rachel later discovered the errors shown in the following table. REQUIRED (a) Complete the following table to show the entries required to correct each error. The first one has been completed as an example. Entries required to correct the error Error Debit Credit Account $ Account $ A payment for rent, $350, had been Rent 350 Wages 350 debited to the wages account. payable The sales journal for September had … … … … been overcast by $90. … … … … Sales returns, $110, had been … … … … recorded as purchases returns. … … … … … … … … … … … … A payment for office expenses, $18, … … … … had been recorded in the office expenses account as $81. … … … … A petty cash book payment, $29, to … … … … Cole, a supplier, had been recorded in the column for motor expenses. … … … … [9] (b) Prepare the suspense account. Include the balancing figure as the original difference on the trial balance. Rachel Suspense account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [5] Rachel’s draft profit before the errors were discovered was $18 243. REQUIRED (c) Calculate Rachel’s profit for the year ended 30 September 2023 after the errors in the table have been corrected. … … … … … … … … … … [5] (d) State why financial statements may still be reliable even if errors are present. … … [1] [Total: 20]

20 marks

Mark scheme: 4(a) 9 Entries required to correct the error Debit Credit Error Account $ Account $ A payment for rent, $350, had been Rent payable 350 Wages 350 debited to the wages account. The sales journal for September had been overcast by $90. Sales 90 (1) Suspense 90 (1) Sales returns, $110, had been recorded as purchases returns. Purchases returns 110 (1) Suspense 220 (1) A payment for office expenses, $18, had Sales returns 110 (1) been recorded in the office expenses account as $81. Suspense 63 (1) Office expenses 63 (1) A petty cash book payment, $29, to Cole, a supplier, had been recorded in the column for motor expenses. Cole 29 (1) Motor expenses 29 (1) 4(b) Rachel 5 Suspense account Date Details $ Date Details $ 2023 2023 Sep 30 Difference on trial Sept 30 Sales (1) 90 balance (1)OF 247 Purchases returns (1) 110 Office expenses (1) 63 Sales returns (1) 110 310 310 4(c) $ $ 5 Draft profit 18 243 Add: Office expenses 63 (1) Motor expenses 29 (1) 92 18 335 Less: Sales 90 (1) Purchases returns 110 } Sales returns 110 }(1) (310) Corrected profit 18 025 (1)OF 4(d) Financial statements can still be reliable if errors are present provided those errors are not material or significant (1) 1

This question in 0985/22 Oct/Nov 2023

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

4 Tadeen and Yadid are lawyers who have been in partnership for many years. The partners provided the following trial balance at 30 April 2024. Tadeen and Yadid Trial balance at 30 April 2024 $ $ Revenue 236 350 Salaries 79 800 Rates and insurance 17 320 Advertising 16 730 Office expenses 6 150 Interest on loan from Tadeen 1 200 Premises at cost 180 000 Fittings and equipment at cost 70 000 Provision for depreciation of fittings and equipment 31 500 Receivables 24 200 Cash at bank 19 335 Cash in hand 1 375 Loan from Tadeen 20 000 Capital accounts Tadeen 125 000 Yadid 85 000 Current accounts Tadeen 3 300 Yadid 4 240 Drawings Tadeen 34 300 Yadid 46 500 501 150 501 150 Additional information 1 Rates and insurance include an amount of $1920 for the year 1 March 2024 to 28 February 2025. 2 At 30 April 2024, $1800 for salaries was due but unpaid. 3 Irrecoverable receivables of $670 are to be written off. 4 Depreciation on fittings and equipment is to be charged at 15% per annum using the straight‑line method. 5 The partnership agreement provides for interest on partner’s loan of 6% per annum interest on drawings of 5% interest on capital of 3% per annum a salary to Yadid of $10 000 per annum residual profits and losses are to be shared 60% to Tadeen and 40% to Yadid. REQUIRED (a) Prepare the income statement for Tadeen and Yadi Tadeen and Yadid Income Statement for the year ende (b) Prepare the appropriation account for Tadeen and Yadid for the year ended 30 April 2024. Tadeen and Yadid Appropriation account for the year ended 30 April 2024 $ $ ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. [5] (c) State (i) one reason why the partners might consider reducing their drawings … … [1] (ii) which accounting principle reflects the partners’ intention to continue trading indefinitely. … [1] The partners employ one lawyer and office staff. The lawyer, Lakia is paid $25 000 but has decided to leave. Tadeen and Yadid have found a replacement lawyer, Raim. He has worked as a lawyer for 15 years and is well known in the local area. However, Raim wants to be a partner in the business rather than an employee and would expect 40% of the residual profit of the partnership each year. REQUIRED (d) Advise Tadeen and Yadid whether or not they should offer Raim a partnership. Justify your answer by providing points for and against offering Raim a partnership. … … … … . … … … … … … … … [5] [Total: 20]

20 marks

Mark scheme: 4(a) Tadeen and Yadid Income Statement for the year ended 30 April 2024 $ $ Revenue 236 350 Expenses Salaries (79 800 + 1 800) 81 600 (1) Rates and insurance (17 320 – (10/12  1 920)=1 600) 15 720 (2) / (1)OF Advertising 16 730 } Office expenses 6 150 }(1) Depreciation of fittings and equipment (15%  70 000) 10 500 (1) Irrecoverable receivables 670 (1) 131 370 Profit from operations 104 980 Loan interest 1 200 (1) Profit for the year 103 780 (1)OF 8 Question Answer Marks 4(b) Tadeen and Yadid Appropriation account for the year ended 30 April 2024 $ $ Profit for the year 103 780 OF Add interest on drawings Tadeen 1 715 } Yadid 2 325 } (1) 4 040 107 820 Less Interest on capital Tadeen 3 750 } Yadid 2 550 } (1) 6 300 Salary Yadid 10 000 (1) 16 300 91 520 Profit share Tadeen 54 912 (1) OF Yadid 36 608 (1) OF 91 520 5 4(c)(i) To avoid a debit balance on their current account (1) To keep cash in the business / to benefit the business / less profits / making loss (1) To reduce interest charged on drawings (1) Accept other valid points Max (1) 1 4(c)(ii) Going concern (1) 1 Question Answer Marks 4(d) For The business will benefit from the skills and experience of Raim (1) Raim may contribute towards increased revenue and profit / attract more customers (1) Raim would share workload (1) Raim would share the risks/responsibilities/losses (1) They could require Raim to introduce capital (1) They may need to spend less on advertising as Raim is well known in the area (1) Accept other valid points Max (3) Against The profits would need to be shared with Raim (1) Raim’s profit share would be greater than an employee’s salary (1) Raim’s profit share will significantly reduce the profit available for the existing partners (1) They would need to take account of Raim’s views / there may be disagreements (1) They would be liable for the actions of Raim (1) Accept other valid points Max (3) Max (4) Recommendation (1) 5

This question in 0985/22 May/June 2024

5 Grace owns a factory which makes shoes. She buys handbags from a supplier and sells the shoes and handbags. Grace prepares her financial statements to 31 March each year. At 31 March 2025, her ledger account balances included the following: $ Inventory at 1 April 2024 Raw materials 5 345 Work in progress 13 820 Finished goods (shoes) 27 540 Purchases of raw materials 72 870 Carriage inwards of raw materials 1 220 Wages: Factory operatives 29 175 Factory supervisor 24 000 Office staff 26 170 Rent and insurance 12 000 Factory power 14 120 Factory equipment – at cost 180 000 Factory equipment – provision for depreciation 64 800 Additional information 1 Inventory at 31 March 2025: $ Raw materials 7 100 Work in progress 14 390 Finished goods (shoes) 27 985 2 Rent and insurance is to be apportioned 65% to the factory and 35% to the office. 3 At 31 March 2025, Grace owed $1315 for factory power and $2000 for the factory supervisor’s wages. 4 Factory equipment is depreciated at 20% per annum using the reducing balance method. REQUIRED (a) Prepare Grace’s manufacturing account for the year ended 31 March 2025. Grace Manufacturing Account for the year ended 31 March 2025 $ $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [10] Grace buys handbags for $14 each and sells them for $27 each. Grace counted her inventory of handbags on 31 March 2025 and found that: • She had a total of 255 handbags. • 15 handbags needed to be cleaned before sale. Grace needed to pay a total of $21 to have them cleaned. She expected to sell them for $25 each. • 3 handbags had become damaged. Grace could not repair these handbags and decided to sell them for $13 each. REQUIRED (b) Calculate the valuation of Grace’s inventory of handbags at 31 March 2025. … … … … … … … … … [4] (c) State how Grace is applying the historic cost accounting principle when she prepares her financial statements. … … [1]

15 marks

Mark scheme: 5(a) Grace 10 Manufacturing Account for the year ended 31 March 2025 $ $ Cost of material consumed Opening inventory of raw material 5 345 Purchases of raw material 72 870 Carriage inwards of raw material 1 220 79 435 Less Closing inventory of raw material 7 100 72 335 (1) Direct wages 29 175 (1) Prime cost 101 510 (1)OF Factory overheads Wages of factory supervisor (24 000 + 2 000) 26 000 (1) Factory power (14 120 + 1 315) 15 435 (1) Rent and insurance (12 000  65%) 7 800 (1) Depreciation of factory equipment (180 000 – 64 800)  20% 23 040 (1) 72 275 173 785 (1)OF Add opening work-in-progress 13 820 * 187 605 Less closing work-in-progress 14 390 * (1) for both inventories Cost of production 173 215 (1)OF 5(b) $ 4 255 – 3 – 15 = 237  $14 value at cost price 3 318 (1) 3 x $13 value at NRV 39 (1) 15 cost = $14 NRV = 27-1.4 = 25.6 so value at cost 210 (1) Total 3 567 (1)OF 5(c) All assets and expenses are recorded at their actual cost (1) 1 Factory equipment and other costs are recorded at the amount of their actual/original cost. (1) Accept other valid points Max (1) 5(d) Points for producing handbags 5 Not dependent on suppliers for price/may be able to produce them more cheaply (1) Not dependent on suppliers for quality (1) Not dependent on suppliers for reliability (1) Possibility of higher sales/more customers/higher profit (1) Accept other valid points Max (3) Points against producing handbags New equipment may be required (1) May be cheaper to purchase rather than make (1) May produce inferior quality goods/customers may be dissatisfied (1) May not be able to meet demand (1) May need additional factory space/additional storage space (1) Cost of production will increase/ cost of raw material will increase/ will need extra employees/may incur additional factory expenses (1) Accept other valid points Max (3) Overall For and Against: Max (4) Recommendation (1)

This question in 0985/21 May/June 2025

3 Jasmine owns a consulting business. At 1 April 2024, Jasmine’s ledger accounts included the following balances. $ Motor vehicles 16 000 Provision for depreciation of motor vehicles 7 000 Trade receivables 12 220 Provision for doubtful debts 366 Rent (prepaid) 900 Rates (unpaid) 270 During the year ended 31 March 2025, Jasmine’s bank payments included the following amounts. $ Motor vehicles 18 000 Rent and rates 14 960 Additional Information 1 Depreciation is to be provided at 25% per annum using the reducing balance method. A full year’s depreciation is to be charged on vehicles purchased during the year. 2 Trade receivables at 31 March 2025 were $11 800. An amount of $300 is still to be written off as irrecoverable. 3 The provision for doubtful debts is to be maintained at 3% of net trade receivables. 4 At 31 March 2025, prepaid rent was $925 and unpaid rates were $185. REQUIRED (a) Prepare the provision for depreciation of motor vehicles account for the year ended 31 March 2025. Balance the account and bring down the balance at 1 April 2025. Jasmine Provision for depreciation of motor vehicles account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [4] (b) Prepare the provision for doubtful debts account for the year ended 31 March 2025. Balance the account and bring down the balance at 1 April 2025. Jasmine Provision for doubtful debts account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [4] (c) Prepare the rent and rates account for the year ended 31 March 2025. Balance the account and bring down the balances at 1 April 2025. Jasmine Rent and rates account Date Details $ Date Details $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [6] At 31 March 2025, Jasmine had a bank overdraft of $2620. REQUIRED (d) Prepare the current assets section of Jasmine’s statement of financial position at 31 March 2025. … … … … … … … … … [3] (e) State: (i) how the principle of consistency is applied when charging depreciation. … … [1] (ii) one way Jasmine may reduce the possibility of irrecoverable debts. … … [1] (iii) which accounting principle Jasmine is applying by making an adjustment for rent prepaid. … … [1] [Total: 20]

20 marks

Mark scheme: 3(a) Jasmine 4 Provision for depreciation of motor vehicles account Date Details $ Date Details $ 2025 2024 Apr 1 Balance b/d (1) 7 000 2025 Mar 31 Balance c/d 13 750 Mar 31 Income statement * (2)CF or (1)** 6 750 13 750 13 750 2025 Apr 1 Balance b/d (1)OF 13 750 * (16 000 – 7 000 + 18 000 =) 27 000  25% = 6 750 **2250 or 4500 = 1 must be a credit entry with IS label 3(b) Jasmine 4 Provision for doubtful debts account Date Details $ Date Details $ 2025 2024 Mar 31 Income statement (1)OF 21 Apr 1 Balance b/d (1) 366 Balance c/d 345 366 366 2025 Apr 1 Balance b/d* (2)CF or (1) 345 * (11 800 – 300 =) 11 500  3% = 345 3(c) Jasmine 6 Rent and Rates account Date Details $ Date Details $ 2024 2024 Apr 1 Balance b/d (1) 900 Apr 1 Balance b/d (1) 270 2025 2025 Mar 31 Bank (1) 14 960 Mar 31 Income statement (1)OF 14 850 Balance c/d 185 Balance c/d 925 16 045 16 045 Apr 1 Balance b/d (1) 925 Apr 1 Balance b/d (1) 185 3(d) Jasmine 3 Statement of Financial Position as at 31 March 2025 Current Assets $ Trade receivables (11 800 – 300) 11 500 Less Provision for doubtful debts 345 OF 11 155 (1)OF Other receivables 925 (1) 12 080 (1)OF 3(e)(i) Depreciation is charged using the same method each year. (1) 1 3(e)(ii) Obtaining credit references / Establishing credit limits (1) 1 Sending invoices and statements promptly (1) Improve credit control / monitoring/investigating/chasing overdue accounts (1) Refusing to supply customers until outstanding amounts have been paid (1) Taking legal action (1) Max (1) 3(e)(iii) Matching / accruals (1) 1

This question in 0985/22 May/June 2025