Name

Date
HIGHEST MARK IN CLASS
TIME ALLOWED 3 hours
Percentage
Grade

Question number Full marks Marks obtained

1. 52
2. 52
3. 52
4. 32
5. 32
6. 32
7. 32
Total marks 200

Grade A B C D E
Lowest percentage for award of grade 80 75 65 55 50

Information for candidates:

• The total marks for this paper is 200.
• The paper has seven questions.
• Answer aany
ny two in section A and any three in Section B.
• Write your answers neatly and in good English.
• Please do not talk with each other.
• Understanding the questions is part of the exam.
• Remember the pledge of not talking to each other.
• Minimise the use the mobile phones.

TEACHERS COMMENTS:

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 SECTION A
ANSWER ANY TWO

1. The happy wanderers club is a non-profit organisation providing leisure pursuits. The
previous director was axed and was replaced with a young, energetic and ambitious financial
director who brought in radical changes in the club. Fees are also charged for each outing.
Below is the summary of the cash book maintained by the treasurer.

£ £
Balance b/d 300 Wages: bar staff 200
Subscription 13800 Rent and rates 400
Outings and excursion 490 Insurance 80
Bar and snack takings 1030 Lighting and heating 110
Loan from member 25000 Equipment and fittings 140
Interest from investment 25 Investment account 10000
Creditors: bar and snacks 500
Telephone, postage & stationery 85
Magazines and periodicals 76
Movie theatre for members 20000
Redecoration of premises 2000
Loan repayment 6500
Balance at 31 December 1992 554
40645 40645

The following balances are available:

1st January 1992 31st December 1992
£ £
5% investment - 10000
Loan from member - 20000
Bar stock 30 60
Creditors: bar 40 110
Redecoration of premises 4000
Pre-payments: rent and rates 100 -
Insurance - 20
Accruals: rent and rates - 75
Insurance 15 -
Telephone, postage and stationery - 15
Lighting and heating - 15
Wages- bar staff 20 25
Subscription owing 400 500
Subscriptions advance - 100

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 Additional information:
i. Certain members owed a total of £15 for outing and excursions at 31 December
1992.
ii. Equipment and fittings had a book value at 1 January 1992 of £1200 with £800
depreciation having been provided to that date. All fixed assets owned to the date
are depreciated at a rate of 10% per annum on cost.
iii. The £140 spent on purchases and repairs of equipment and fittings included £40 for
repairs. It is the clubs policy to charge full years depreciation in the year of purchase.
iv. To upgrade the facilities of happy wanderers club the directors introduced cinema
facilities for its member. The loan for the movie theatre was taken from a member
on 1 April 1992.
v. Seeing the surplus of cash in the bank account the financial director opened an
investment account which will yield 5% interest p.a. the payment into the
investment account took place on 1 October 1992.
vi. No interest on loan is outstanding.
vii. To boost the profitability happy wanderers club introduced a 10 membership
scheme at a cost £900. Ten members accepted offer. (The amount doesn’t include
the subscription advance.)
viii. The accumulated fund for the year was £1155

Required:

a. Prepare the income and expenditure account for the year ended 31 December
1992. (18)
b. Prepare the balance sheet as at 31 December 1992. (12)
c. Explain why the application of the accrual concept will be important in
determining how the redecoration of the premises and the extension to the
premises will be treated in the income and expenditure account. (8)
d. Explain why the accounting concepts if accruals and materiality may be in
conflict when preparing accounts. (6)
e. Evaluate the decision of the club to offer the ten year membership subscriptions
at a reduced rate. (8)

An expense can be prepaid in the beginning of the year and be outstanding by the end
of the year and vice-
vice-versa too.

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2. Hammad printers are a small business producing in batches to customer’s orders. The
business has two production departments: printing and packing. There is one service
department administration.
The following information is available:
i. Standard materials of paper and card are held in stock. Special materials are
purchased to customers orders. The business operates a FIFO system of stock
control.
ii. Production workers are paid £7.50 per hour for 40 hours per week and 46 weeks
per year. It is estimated that each production worker spends 30 hours per week on
work that can be charged to the customer and 10 hour on non productive work
such as checking stocks and cleaning machinery.
iii. Administration salaries are £81000.
iv. Annual overheads are estimated to be
Rent and rates £30000
Heat, light and utilities £20000
Equipment depreciation £40000
Production supervision salaries £36000

v. Other information:
Printing Packing administration
Floor area (sq m) 500 400 100
Production workers 6 3 -
Machinery value 120 60 20

vi. It is estimated that the services of administration are utilised 60% printing 40%
packing.
Required:
a. Calculate the overheads to be allocated and apportioned to each of the three
departments. (8)
b. Reapportion the total administration cost to the two production departments.
(2)
c. Calculate an overhead recovery rate for each of the two production
departments based upon direct labour hours (5)
d. After the end of the year the following information was available:
Printing Packing
Actual overheads £140000 £75000
Actual labour hours 8000 3500

i. Calculate the under or over absorption of overheads for the departments

and the business as a whole. (8)
ii. Evaluate the problems of under or over recovery of overheads to a
business. (8)

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 e. The excellence school has requested a quotation for an order of 10000
booklets.
The following information is available.
Materials
Required:
• 200 packs of A4 paper.
• Specialist card for covers purchased at a cost of £560.
Stock of A4 paper:
Stock brought forward 300 packs @ £1.70 per ream
100 packs @£2.00 per ream
7 December Issued 200 packs
12 December Received 100 packs @£2.20 per ream
15 December Issued 200 packs
20 December Received 300 packs @£ 2.30 per ream

Direct labour
Printing 50 hours
Packing 40 hours

Pricing policy
• Saima has a Profit margin of 25%.

i. Prepare the quotation for the Excellence school. (15)

ii. The actual costs of the order was:

Direct labour
Printing 40 hours
Packing 43hours
Raw materials: no change
Unanticipated cost £150

Required:
Calculate the actual profit margin. (6)

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3. Kimberly products produces and sells a single high quality product. The production and
sales of the product were 10000 units in the year ended 30 April 2005.
The information related to the year ended 30 April 2005:
i. Summary, manufacturing, trading and profit/loss account
£ £
Sales (10000 units) 1000000
Less, manufacturing costs:
Raw materials 400000
Direct labour 200000
Overheads including depreciation 200000
(800000)
Gross profit 200000
Marketing costs 15000
Administration costs 105000
(120000)
Net profit 80000

ii. Direct labour was paid on a day work basis. In the year 20 workers had been paid
an hourly rate of £5 for 40 hours per week and 50 weeks per year.
iii. Other balances at that date included:
Current liabilities £200000
Fixed assets £1500000
Current assets £300000
iv. The owner considers that the profitability of the business was low for the year and
must be improved. Demand for the product is high and the owner introduced new
proposals on 1 May 2005 to increase the production and sales to 20000 units. The
new proposals were:
• Paying a bonus to all direct labour.
• Purchasing a new machine to reduce the time required for completion
of each unit.
• Purchasing larger premises.
The following information relates to the year ended 30 April 2006.
i. Production and sales were 20000 units.
ii. In the year 30 workers were paid at an hourly rate of £5 for 40 hours per week
and 50 weeks per year. An additional payment was made equal to 60% of the
time saved increased production. The standard time for producing a unit was 4
hours.
iii. On 1 May 2005, a new machine was purchased at a cost of £900000. The old
machine was given in part exchange at an agreed valuation of £110000. The old
machine had been purchased on 1 May 2002 at a cost of £36000.
iv. Depreciation on machinery is calculated at the rate of 20% on cost using the
straight line method, on assets owned at the end of the financial year.

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 v. Other balances at 30 April 2006 included:
£
Sales 2000000
Raw materials 740000
Manufacturing overheads (including depreciation) 400000
Marketing costs 125000
Administration costs 175000
Current liabilities 100000
Fixed assets 3500000
Current assets 600000

Required:
a. Prepare for the year ended 30 April 2006, the:
i. Summary manufacturing, trading, profit and loss account.
ii. Machinery, provision for depreciation account
iii. Machinery disposal (24)
b. Calculate for Kimberly products for the year ended 30 April 2005 and for the
year ended 30 April 2006 the:
i. Gross profit as a percentage of sales
ii. Net profit as a percentage of sales
iii. Return on capital employed (12)
c. Explain two disadvantages of Kimberly products remunerating its employees
using the bonus schemes. (8)
d. Evaluate, from the actions taken by the success of Kimberly products in
improving the:
i. Profitability of the business and
ii. Quality of the product. (8)

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 SECTION B
ANSWER ANY THREE QUESTIONS

4. Farha is in business trading in goods on credit. Coldstream Traders, a debtor, have received
the following statement from Farha.
Coldstream traders
£ £
Balance b/d 2500 Bank 2450
Discount allowed 50
Office expenses 600
Sales 4300
____ Balance c/d 5000
7450 7450

The following errors were discovered in the books of Farha.

i. A payment of Coldstream Traders of £2450 with £50 discount allowed had been
correctly entered in the cash book, but incorrectly recorded in the Coldstream
Traders account.
ii. A cash payment for office expenses by Farha had been entered in the sales account
of Farha. This transaction been recorded as £4300 in the account of Coldstream
Traders.
iii. The sale of £450 worth of goods to Coldstream Traders had been entered in error
into the account of R Crossland.
iv. A further sale of goods to Coldstream Traders of £1750 had not been recorded in the
books of Farha.
Required:
a. Prepare the following for Farha:
i. Journal entries correcting the errors. (8)
ii. Corrected ledger account of Cold Stream Traders (8)
b. Distinguish between errors of commission and errors of principle (4)
c. From the ledger account Coldstream Traders, identify one example of an error
of commission and one example of an error of principal (4)
d. Evaluate the role of trial balance in ensuring the accuracy of the books of
accounts. (4)
e. Trial balance is regarded as a checking device identify and the contribution of
any other checking device. (4)

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5. The following information relates to a partnership. The partners are considering
expansion.

e. Explain the provisions of the partnership Act 1890. (8)

f. Evaluate the usefulness of the partnership deed when trading as a
partnership (8)

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6. Cathy is concerned at the level bad debts with in her business. She has found that bad debts
have risen steadily for the last three years. All bad debts are written off against the provision
for bad debts account.
The following information is available:
i. Provision for doubtful debts account balance 1 January 2004 £2250.
ii. Bad debts written off in the year ended 31 December 2004 £670.
iii. On 31 December 2004 the length of time the debts had been outstanding was as
follows:
Total 1 month 2-3 months 4-6 months 7-12 Over 12
months months
£ £ £ £ £ £
38500 14200 13600 5100 2900 2700

iv. The policy of Cathy on bad and doubtful debts is to:

• Write off all bad debts when notified
• Write of all amounts outstanding for over 12 months at year end.
• Make a provision at year end of 3% for debts up to 3 months and 6% for
debts of 4 to 12 months.
v. The policy of Cathy on providing credit to customers is that:
• Trade credit references’ for new customers are only sought if the initial
order is over £2500.
• No bank references’ are obtained.
• All attempts to recover debts are by letter.
• Statements are sent to customers monthly, but letters demanding payment
are only made for amounts outstanding for 4 months or more.
• Letters threatening legal action to recover debts are sent to customers
outstanding for 7 months or more.
• No legal action to recover the debt is taken.

Required:
a. The provision for bad and doubtful debts account for the year ended
31 December 2004. (10)
b. Discuss two accounting concepts that are applied when making
provisions for bad and doubtful debts. (6)
c. Critically evaluate the policy of Cathy on providing credit to his
customers, making reference to any three points in his policy. (6)
d. How can Cathy make her debtors pay quicker? (5)
e. Discuss disadvantages of the methods suggested. (5)

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7. The following information is available from the accounts of king retail for year ended 31
March 2007.

i. The percentage of debtors used to maintain the provision for doubtful debts was
raised from 4% to 5% of outstanding debtors on 31 March 2007.
Debtors 31 March 2006 £28000
Debtors 31 March 2007 £19000

ii. Rent receivable of £500 per quarter was owing to king’s retail on 1 April 2006.
Payments were received as follows:
3 April 2006 receipts by cheque £500
5 July 2006 receipts by cheque £500
4 October 2006 receipts by cheque £500
3 January 2006 receipts by cheque £500

On 1 January 2007, king’s retail raised the rent to £700.

The payment received on 4 October 2006 had been correctly entered in the bank
account but had been entered in the rent receivable account at £50. This error was
corrected.

iii. The telephone account records the payments of two companies- western telephones
totalling £2060 for actual usage. It was estimated that the following sums were owing
to western telephones on:
1 April 2006 £160
31 March 2006 £320

Mobile phone payments to Blue phones are by bank instruction of £500 per quarter. It
was estimated that the following sums were prepaid to Blue Phones on:
1 April 2006 £480
31 March 2007 £250

Required:
a. Prepare the following ledger accounts for the year ended 31 March 2007. Each
account should include the transfer to the profit and loss account for the year, and
the balances to be carried down.

i. Provision for doubtful debts account

ii. Rent receivable account
iii. Telephone account. (18)
b. Explain why a business might maintain a provision for bad debts account. (4)
c. Evaluate the usefulness of accounting standards in the preparation of final
accounts of business. (4)
d. Distinguish between the accruals and realisation concepts in accounting. (6)

GOOD LUCK!!!!

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