ZIMBABWE SCHOOL EXAMINATIONS COUNCIL

General Certificate of Education Advanced Level

ACCOUNTING 6001/3
PAPER 3 Problem Solving

NOVEMBER 2020 SESSION 2 Hours 30 minutes

Additional materials
Answer paper

TIME 2 hours 30 minutes

INSTRUCTIONS TO CANDIDATES
Write your name,Centre number and candidate number in the spaces provided on the answer
paper/answer booklet.

Answer all questions.

Write your answers on the separate answer paper provided.
If you sue more than one sheet of paper, fasten the sheets together.

INFORMATION FOR CANDIDATES

The number of marks is given in brackets [ ] at the end of each question or part question.
All accounting statements are to be presented in good style. Workings should be shown.

You may use a calculator.

The businesses in this question paper are intended to be fictitious.

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 1. J Mahon owns a retail shop. She prepared a trial balance on 31 October 2015 which
failed to agree. The balance was entered in a suspense account. The draft accounts
showed a net profit 0f $8 700 and a working capital of $10 950.
Subsequently she discovered the following errors:
1. A purchase of furniture, costing $3 700, had been debited in the purchases account. A
depreciation of 20% on cost of that furniture had not been provided.
2. Credit sales of $500 to a customer had been correctly entered in the customer’s
account but omitted from the sales account.
3. Rent paid, amounting to $420, had been credited to the Rent receivable account.
4. Goods bought from a supplier, costing $7 250, had been recorded in the accounts as
$7 520.
5. Bank charges of $150 appeared in the cash book but had not been posted to the ledger
account.
6. A credit note from Amos, a supplier, for $200 had been correctly entered in the
Returns Outwards account but had been debited to Amos’ account as $240.
7. A debit balance in the sales ledger of $350 had been omitted from the list of balances
included in the trial balance.
(a) (i) journal entries for the correction of the above errors
(narrations are not required), [8]
(ii) a suspense account, clearly showing the original difference on the trial balance.
[6]
(b) A statement showing corrected net profit for the year ended 31 October 2015
[8]
(c) A statement showing corrected working capital [3]

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 2 Kundai operates a business as a general dealer. He provided the following balances of
assets and liabilities:

01-January-2017 31-December-2017
$ $
Premises at cost 28 000 28 000
Machinery at evaluation 17 500 15 950
Motor vehicles at cost 32 000 30 500
Provision for depreciation
on Motor vehicles 8 600 9 200
Trade Payables 3 500 4 250
Trade receivables 7 000 8 200
Rent accrued 480 ……
Loan ……….. 10 000
Inventory 5 400 9 375
Cash in hand 100 100
Electricity owing 105 210

He has also provided a summary of his bank account for the year ended 31 December 2017 as
follows:

$ $
Balance 1 January 9 380 Payment to suppliers 20 800
Receipts from Trade
receivables 16 000 Electricity 630
Rent 3 855
Proceeds from sale of motor 10 200 Loan interest 800
vehicles Insurance 1 700
Cash sales 15 200 Wages and salaries 9 500
Purchase of motor
Loan 10 000 vehicles 10 500

Balance c/d 12 995

60 780 60 780

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Additional Information
1. Total receipts from cash sales are banked weekly after deducting $105 weekly for the
whole year for personal use.
2. The loan was borrowed from the bank on 1 April 2017 at an interest rate of 12% per
annum.
3. Kundai normally puts a mark-up of 25% on his inventory. The closing inventory on 31
December was valued at a selling price.
4. During the year a motor vehicle with a net book value of $7 500 was sold.
5. The amount of rent paid included rent for the three months to 31 March 2018.
6. Goods costing $1 200 had been sent to a customer on a sale or return basis. The customer
had not yet accepted the goods. An invoice was sent to the customer and treated as a sale.
7. During the year Kundai took goods with a selling price of $5 250 for personal use.
(a) Prepare:
(i) An Income statement for the year ended 31 December 2017 [14]
(ii) A statement of financial position as at 31 December 2017 [9]
(b) Give two disadvantages of an incomplete records accounting system [2]

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 3 The following ratios are given for ABC Ltd for two years ending 31 March 2014 and 31
March 2015:

2014 2015
Gross profit percentage 35% 25%
Expenses as percentage of
sales 10% 28%
Rate of Inventory turnover
(times) 8 10
Current ratio 2:01 1:01
Acid test ratio 1,5:1 0,7:1

(a) Comment on the performance of ABC Ltd for the two years using the ratios given
above[9]
The directors of ABC Ltd provided the following financial information for the year ended 31
March 2016.

$
Profit from operations 800 000
Debenture interest (200 000)
Profit after interest 600 000
Ordinary dividend paid (250 000)
Transfer to general reserve (200 000)
Retained earnings 150 000

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An extract of ABC Ltd.’s statement of financial position at 31 March 2016 is shown below:

$
Ordinary shares of $10 each 4 800 000
Capital and revenue reserves including
retained earnings 700 000
10% Debentures 2 000 000

The market price of the ordinary share at 31 March 2016 was $2

(b) Calculate the following ratios from the information given above.
(i) Interest cover
(ii) Dividend cover
(iii) Earnings per shares
(iv) Price earnings ratio,
(v) Dividend yield,
(vi) Gearing ratio (using total capital) [14]
(c) State any two limitations of accounting ratios
[2]

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 4 Shamiso has won $700 000 in a lottery draw. She is deciding to invest the whole amount
in either a transport business or a construction company. The following capital
expenditure details are available for the two projects:

Expected profits
Transport Construction
$ $
Year 1 130 000 100 000
Year 2 90 000 110 000
Year 3 80 000 120 000
Year 4 60 000 70 000
Year 5 60 000 50 000
Scrap value 20 000 30 000

Additional information
1. The profits have been calculated after deducting depreciation using the straight line
method over the five years.
2. The company’s cost of capital is 12%
The present value of $1 is as follows:

12% 20%
Year 1 0,893 0,833
Year 2 0,797 0,694
Year 3 0,712 0,579
Year 4 0,636 0,482
Year 5 0,567 0,402

(a) Calculate for each project

(i) The Payback period [4]
(ii) The Net present value [12]
(b) Calculate the internal rate of return (IRR) for the construction project [7]
Internal rate of return = a + b x c/d
a. Is the lower discount rate
b. Is the difference between the two discount rates
c. NPV at the lower discount rate
d. The difference between the two net present values
(c) State the reasons which one of the two projects Shamiso should undertake [2]

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