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UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS

General Certificate of Education Ordinary Level

* 0 1 7 7 3 1 4 7 5 0 *

7110/22

PRINCIPLES OF ACCOUNTS
Paper 2

May/June 2011
2 hours

Candidates answer on the Question Paper.

No Additional Materials are required.
READ THESE INSTRUCTIONS FIRST
Write your Centre number, candidate number and name on all the work you hand in.
Write in dark blue or black pen.
You may use a soft pencil for any diagrams or graphs.
Do not use staples, paper clips, highlighters, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.
Answer all questions.
You may use a calculator.
Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.
At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.
For Examiners Use
1
2
3
4
5
Total

This document consists of 13 printed pages, 6 lined pages and 1 blank page.
DC (SM) 37069/2
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2
1

Mohan is a trader. On 24 April 2011 he had a bank overdraft of $150.

The following transactions took place during the week ended 30 April 2011.
April 25
April 26

April 27
April 28
April 30

Withdrew $200, by cheque, for personal use.

Paid by cheque the balances on the accounts owed to:
Kerai, $400, less 3% cash discount
Susan, $750, less 4% cash discount.
Cash sales, $630, paid into the bank.
Received a cheque from Loula for the balance of her account, $2000, less
4% cash discount.
Cashed cheque to pay wages, $430.

REQUIRED
(a) Prepare the bank columns of Mohans cash book for the week ended 30 April 2011.
Show the balance brought down on 1 May 2011.
Mohan
Cash Book (Bank columns only)
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On 1 May 2011 Mohan received the following bank statement:
Bank Statement
Dr
$
April 24 Balance
April 25 Cheque
April 28 Cheque
April 29 Cheque
April 29 Credit Transfer (Dividend)
April 29 Credit
UCLES 2011

Cr
$

200
388
720

7110/22/M/J/11

24
630

Balance
$
150 Dr
350 Dr
738 Dr
1 458 Dr
1 434 Dr
804 Dr

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3
REQUIRED
(b) Starting with the closing balance from (a) update the bank columns in the cash book.
Bring down the amended balance.

For
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Use

Mohan
Cash Book (Bank columns only)
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(c) Prepare the bank reconciliation statement at 1 May 2011.
Mohan
Bank Reconciliation Statement at 1 May 2011
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(d) Place a tick () in the appropriate box to show whether each of the following is an
account, a book of prime entry or both an account and a book of prime entry.
The first item has been completed as an example.
ledger account
Inventory

book of
prime entry

a ledger account and

a book of prime entry

Purchases journal
Cash book
Provision for depreciation
[3]

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[Total: 20]
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4
2

Amayi owns a manufacturing business. Her financial year ends on 30 April.

She has the following depreciation policy:
Machinery is depreciated at the rate of 25% per annum using the diminishing (reducing)
balance method.
Office furniture is depreciated at the rate of 10% per annum using the straight-line
method.
Loose tools are depreciated using the revaluation method.
A full years depreciation is charged on assets in the year of purchase but no depreciation
is charged in the year of sale.
REQUIRED
(a) Give two reasons why depreciation should be charged.
1 .......................................................................................................................................
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2 .......................................................................................................................................
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(b) Suggest one reason why the diminishing (reducing) balance method might be the most
appropriate method for Amayi to depreciate her machinery.
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The following information is available for the year ended 30 April 2011.
1

Balances 1 May 2010

$
Non-current assets at cost
Machinery
Office furniture

80 000
15 000

Provisions for depreciation

Machinery
Office furniture

60 000
5 000

On 31 July 2010, additional machinery, $18 000, was purchased.

On 20 February 2011, office furniture, which had cost $1 000 on 1 May 2008, was
sold for $550 cash.

On 1 May 2010, loose tools, cost price $1600, were valued at $1050.
Additional loose tools were purchased during the year for $630.
On 30 April 2011 loose tools were valued at $1400.

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REQUIRED
(c) Calculate the depreciation to be charged on each of the following for the year ended
30 April 2011.
(i)

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Machinery
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(ii)

Office furniture
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(iii)

Loose tools
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(d) Calculate the profit or loss on the office furniture sold on 20 February 2011.
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(e) Calculate the net book value on 30 April 2011 of

(i)

Machinery
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(ii)

Office furniture
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(f)

Identify by ticking the appropriate box, () whether each payment is capital expenditure
or revenue expenditure.
Capital expenditure

Revenue expenditure

Purchase of spares for machinery

Installation of additional machinery
Repairs to office furniture
Purchase of loose tools
[4]
[Total: 21]

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7
3

Tanvir does not keep a full set of double entry accounts.

For
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The following information is available for the year ended 30 April 2011.

Summarised Bank account

Receipts from customers

Sale of non-current asset

Balance c/d

$
60 500
750

10 250
71 500

Balance b/d
Payments to suppliers
Wages
Lighting and heating
Drawings
Purchase of non-current asset
General expenses

$
100
34 900
15 000
2 500
5 000
8 000
6 000
71 500

Additional information:

Inventory
Trade receivables
Trade payables
Non-current assets (book value)
Lighting and heating
6% Bank loan repayable 30 April 2016
Capital

1 May 2010
$
5 250
9 750
10 500
40 000
600 Prepaid
20 000
25 000

30 April 2011
$
11 000
8 400
9 300
42 000
250 Accrued
20 000
?

The non-current asset sold during the year had a book value of $1 000.

REQUIRED
(a) Calculate for the year ended 30 April 2011:
(i)

Sales
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(ii)

Purchases
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(b) Prepare the income statement for the year ended 30 April 2011.
Tanvir
Income Statement for the year ended 30 April 2011
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(c) Prepare the statement of financial position (balance sheet) at 30 April 2011.

For
Examiners
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Tanvir
Statement of Financial Position (Balance Sheet) at 30 April 2011
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[Total: 20]

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4

Mary is in business buying and selling goods on credit. The following information was
available at 30 April 2011.
$
Inventory 1 May 2010
5 500
Inventory 30 April 2011
7 500
Capital 30 April 2011
75 000
Operating expenses for the year
23 500
Purchases for the year
72 000
Mark up

50%

REQUIRED
(a) Calculate for the year ended 30 April 2011:
(i)

Revenue (sales)
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(ii)

Rate of inventory turnover (correct to one decimal place)

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(iii)

Profit for the year (net profit)

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(iv)

Percentage net profit /revenue (correct to one decimal place)

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(v)

Percentage net profit / capital (correct to one decimal place).

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(b) Explain why businesses with a high rate of inventory turnover often have a low
percentage net profit to revenue.
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(c) Mary is considering ways in which she might increase her rate of inventory turnover.
For each of the options below, place a () to indicate whether the option would increase
or decrease the rate of inventory turnover.
Increase rate of
inventory turnover

Decrease rate of
inventory turnover

(i) Hold a Sale and reduce

prices by 20%.
(ii) Increase the inventory by
$20 000.
(iii)

Raise selling prices by 10%.

[3]

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[Total: 19]
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Answer Question 5 on the following pages.

Fu, Li and Yang are partners in a retail business. The partnership agreement states that they
share profits and losses in the ratio 2:2:1.
Interest on capital is allowed at the rate of 4% per annum and interest is charged on drawings
at the rate of 5% per annum on the balances at 30 April 2011.
The following balances were extracted from the books on 30 April 2011.
$
Capital accounts
Fu
Li
Yang
Current accounts
Fu
Li
Yang
Drawings
Fu
Li
Yang
Premises
Motor vehicles (cost)
Fixtures and fittings (cost)
Provisions for depreciation
Motor vehicles
Fixtures and fittings
Trade payables
Trade receivables
Provision for doubtful debts
Bank
Purchases
Revenue (sales)
Returns outward
Inventory at 1 May 2010
Salaries and wages
Heat and light
General expenses
Discount received
Marketing expenses
Rent

UCLES 2011

40 000
35 000
25 000
2 500 Cr
1 500 Cr
1 000 Dr
10 000
10 000
12 000
44 750
16 000
30 000
3 200
17 500
54 700
45 000
1 500
7 560 Dr
111 200
209 500
4 750
30 650
42 100
3 890
16 750
5 300
12 050
7 500

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Additional information at 30 April 2011:
1

Inventory was valued at $28 100.

General expenses, $4 200, were prepaid.

Rent, $2 500, was accrued.

Depreciation is to be charged as follows:

For
Examiners
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Motor vehicles at the rate of 20% per annum using the diminishing (reducing)
balance method
Fixtures and fittings at the rate of 10% per annum on cost, using the straight
line method.
5

The provision for doubtful debts is to be maintained at 5% of trade receivables.

On 30 April 2011 the partners agreed to allow Yang to reduce his capital balance by
$10 000. The sum was transferred to his current account on that date. The transfer
took place after calculating the interest on capital for the year.

REQUIRED
(a) Prepare the income statement and appropriation account of Fu, Li and Yang for the year
ended 30 April 2011.
[24]
(b) Prepare the statement of financial position (balance sheet) of Fu, Li and Yang at
30 April 2011.
The current accounts details may be included within the statement of financial position
(balance sheet) or in ledger account format.
[16]
[Total: 40]

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Answer Question 5 on the following pages.
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BLANK PAGE

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.
University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of
Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

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