Book-Keeping and Accounts Level 2

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LCCI International Qualifications

Book-keeping and Accounts Level 2

Model Answers Series 4 2009 (2007)

For further information contact us:  

Tel. +44 (0) 8707 202909 Email. [email protected] www.lcci.org.uk

 

Book- Keeping and Accounts Level 2 Series 4 2009

How to use this booklet Model Answers have been developed by EDI to offer additional information and guidance to Centres, teachers and candidates as they prepare for LCCI International Qualifications. The contents of thi this s booklet are divided into 3 elements: (1)

Questions

 –  –   reproduced from the printed examination paper

(2)

Model Answers

 –  –   summary of the main points that the Chief Examiner expected to see in the answers to each question in the examination paper, plus a fully worked example or sample answer (where applicable)

(3)

Helpful Hints

 –  –   where appropriate, additional guidance relating to individual questions or to examination technique

Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success. EDI provides Model Answers to help candidates gain a general understanding of the standard required. The general standard of model answers is one that would achieve a Distinction grade. EDI accepts that candidates may offer other answers that could be equally valid.

© Education Development International plc 2009  All rights reserved; no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the Publisher. Publisher. The book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover, other than that in which it is published, without the prior consent of the Publisher.

 

Page 1 of 14

 

QUESTION 1  After stocktaking for the year ended 31 October 2009 had taken tak en place, the closing stock of Fell Ltd was valued at cost £80,500. The following adjustments are required: (i)

Some items were no longer up to date and it was decided to sell them at half the cost price. The original selling price had been £2,400. (ii) Ten items at a cost of £69 each had been included in the stock list at £96 each. (iii) A total of £12,900 £12,900 on one stock sheet had been carried forward as £9,120 to the next sheet. (iv) damaged item, item,been which costand £630, to becollection written off.by a customer, had been included in (v) A Goods that had sethad aside, arewas awaiting stock at a valuation of £1,850. (vi) The last stock sheet, sheet, totalling £11,900, had not been included in the stock value. (vii) Goods sent on a sale or or return basis to Jones, at a sale price of £3,300, had not been sold or returned at 31 October 2009. Fell Ltd applies a mark up of 50% on cost. REQUIRED (a) Copy the following layout into your answer book and calculate the correct cost of stock at 31 October 2009. Add   Less Add Less   Original Cost of Stock Item

£ 80,500

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) ………..  ………..  ………..  ……….. 

Correct Cost of Stock

(16 marks) Simms valued his stock on 30 November November 2009 at a cost of £10,200. On the night of 5 December 2009 a fire occurred in the warehouse. The following transactions took place between 1 December 2009 and 5 December 2009: £ Purchases Purchases returns Sales Sales returns

700 50 1,800 300

Some stock, with a cost price £2,000, was saved from the fire but due to smoke damage this will be sold for £1,500. 1

The gross profit margin of Simms is 33 /3%. REQUIRED (b) Prepare a statement for the stock destroyed to show the value to be claimed from the insurance company. (9 marks) (Total 25 marks)

2007/4/09/MA

Page 2 of 14

 

MODEL ANSWER TO QUESTION 1 (a)

Fell Ltd  Ltd  Adjusted Stock Valuation at 31 October 2009 Add  Add 

Less   Less

Original Cost of Stock (i)

Less: 

Reduction to NRV (2,400 – (2,400  –  800* / 2)

(ii)

Less: 

800

Overvaluation (96 – (96  –  69 x 10)

(iii)

 Add: 

(iv)

Less: 

Written off item

(v)

Less: 

Customers’ goods  goods 

 Add: 

(vii)  Add: 

270

Stock sheet error (12,900 – (12,900  –  9,120)

(vi)

£  80,500

Stock sheet total

3,780 630 1,850 11,900

Sale or return (3,300 – (3,300  –  1,100)

2,200 17,880

……..   …….. 3,550 14,330 94,830   94,830

Correct Cost of Stock

(b)

Simms  Simms  Statement of Stock Destroyed on 5 December 2009 £ Stock: 30 November 2009  Add: Purchases Less: Returns

Less: Less:

700 50

Sales Returns

1,800 300 1,500 (1,500 – (1,500  –  500)

Less: Stock saved – saved –  NRV Adjustment Value to be claimed

2007/4/09/MA

Page 3 of 14

£ 10,200 650 10,850

1,000 9,850 1,500 8,350   8,350

 

QUESTION 2 The following information relates to the business of C Ward. Balances in the books at 30 June 2009:

Purchases Ledger

Debit Credit

£ 1,458 111,129

Sales Ledger

Debit Credit

196,326 5,580

The following balances were extracted from the books for the month ended 31 July 2009:

Cash purchases Credit purchases Returns outwards Payments by cheque to creditors Carriage charged to debtors Transfers of debit balances in sales ledger to purchases ledger Interest charged to debtors Credit sales Returns inwards Bad debts written off Discounts received Cash sales Debtors cheque dishonoured Discount allowed Payments from debtors by cheque  Allowance to a debtor, K. Miller, for damaged goods

£  57,309 316,773 5,499 289,440 14,805 12,825 1,467 597,804 8,721 3,840 7,728 343,446 11,877 16,647 651,690 2,250

Balances in the books at 1 August 2009:

Purchases Ledger Sales Ledger Provision for doubtful debts

Debit Credit Credit

£ 2,535 9,693 19,710

REQUIRED (a) Prepare for the month ended 31 July 2009: (i)

Purchases Ledger Control Account. (9 marks)

(ii)

Sales Ledger Control Account. (14 marks)

(b) State one advantage of preparing Control Accounts. (2 marks) (Total 25 marks)

2007/4/09/MA

Page 4 of 14

 

MODEL ANSWER TO QUESTION 2 (a) (i) Purchases Ledger Control Account £ 2009 July 1 July 31

Balance b/d Returns outwards

1,458 5,499

July July 31 31 July 31 July 31

Bank Contra/set off Discount received Balance c/d

 Aug 1

Balance b/d

289,440 12,825 7,728 113,487 430,437 2,535

£ 2009 July 1 July 31

Balance b/d Purchases

111,129 316,773

July 31

Balance c/d

2,535

Aug 1

Balance b/d

430,437 113,487

(ii) Sales Ledger Control Account

July 1 July 31 July 31 July 31 July 31 July 31

 Aug 1

Balance b/d Carriage Interest Sales Dishonoured cheque Balance c/d

£ 196,326 14,805 1,467 597,804 11,877 9,693

Balance b/d

831,972 130,419

July 1

Balance b/d

July 31 July 31 July 31 July 31 July 31 July 31 July 31

Contra/set off Returns inwards Bad debts Discount allowed Bank K. Miller - allowance Balance c/d

Aug 1

Balance b/d

£ 5,580 12,825 8,721 3,840 16,647 651,690 2,250 130,419 831,972 9,693

(b) One advantage from examples below for 2 marks: The identification of errors in the sales and purchases ledger.  Assist in preparing final accounts. Locate total debtors and creditors. The location of errors via control accounts eliminates the need to consider the sales and purchases ledgers when errors are revealed by the trial balance.  An audit of staff efficiency where control accounts are prepared independently by a senior member of staff. For management purposes, control account balances can be taken to equal debtors and creditors without the extraction of individual balances.

2007/4/09/MA

Page 5 of 14

 

QUESTION 3 The following Trial Balance was extracted from the books of Broom Golf Club on 31 July 2009: Dr £ Subscriptions Catering stock at 1 August 2008 Catering staff wages

Cr £ 96,250

14,250 8,000

Catering purchases Catering sales Rent and rates Golf club secretary’s salary  salary  Lighting and heating Insurance General expenses Cash at bank Cash in hand  Accumulated fund Equipment (at cost) Fixtures and fittings (at cost) Provision for depreciation on golf equipment Provision for depreciation on fixtures and fittings

52,000 6,500 21,250 8,120 17,160 24,750 40,995 125

110,340

37,310 30,750 85,000 ………...  ………...  308,900

15,000 _50,000 308,900

Additional information: (1) Depreciation is to be provided for the year ended 31 July 2009 as follows: Equipment – Equipment  – 10%  10% reducing balance Fixtures and fittings – fittings – 25%  25% straight line. (2) No subscriptions were were prepaid or accrued at 1 August 2008. (3) At 31 July 2009: General expenses included a prepayment of £1,000 Rent and rates were accrued £930 Subscriptions in arrears amounted to £1,500 Subscriptions prepaid totalled £1,200 Catering stock was valued at £16,000 at cost. REQUIRED Prepare for Broom Golf Club the: (a) Catering Account, showing the profit for the year ended 31 July 2009. (4 marks) (b) Income and Expenditure Account for the year ended 31 July 2009. (13 marks) (c)

Balance Sheet at 31 July 2009. (8 marks) (Total 25 marks)

2007/4/09/MA

Page 6 of 14

 

MODEL ANSWER TO QUESTION 3 (a) Broom Golf Club  Club  Catering Account for the year ended 31 July 2009 £ Sales   Sales Cost of sales Opening stock Purchases

14,250 52,000 66,250 16,000

Closing stock

50,250 60,090 _8,000 52,090

Catering staff wages Catering profit  profit 

(b) (b)  

£ 110,340  110,340 

Income & Expenditure Account  Account  for the year ended 31 July 2009  2009   £

Catering profit Accept 1.5 where 1,500 is shown Subscriptions (96,250 + 1,500 – 1,500 –  1,200)

£  52,090 95051.50 148,640

Less

Rent and rates (6,500 + 930) Golf club’s secretary Lighting and heating Insurance General expenses (24,750 – (24,750 –  1,000) Depreciation: Golf equipment [(30,750 – [(30,750 –  15,000) x 10%] Fixtures and fittings (85,000 x 25%)

7,430 21,250 8,120 17,160 23,750 1,575 21,250 100,535 48,105 (Accept 46,606.50 for where 1.50 used not 1,500)

2007/4/09/MA

Page 7 of 14

 

MODEL ANSWER TO QUESTION 3 CONTINUED (c) Balance Sheet at 31 July 2009 Fixed Assets Fixtures and fittings Golf equipment

Cost £ 85,000 30,750 115,750

Current Assets Stock Subscriptions in arrears General expenses prepaid Bank Cash

Current Liabilities Subscriptions prepaid Rent and rates accrued

Depreciation £ 71,250>50,000 16,575>15,000 87,825

NBV £ 13,750 14,175 27,925

16,000 1,500 1,000 40,995 125 59,620   59,620

1,200 930 2,130 57,490 85,415

Represented by  by   Accumulated fund  Add Surplus

2007/4/09/MA

37,310 48,105 85,415

Page 8 of 14

 

QUESTION 4 Peggy produces her annual accounts with a year end of 31 October. She depreciates her motor vehicles at 25% a year on the reducing balance basis. She provides a full year’s depreciation in the year of acquisition and none in the year of disposal. On 31 October 2008, her business owned three motor vehicles: Motor vehicle W was purchased on 1 January 2006 for £32,000; Motor July 2007 forfor £36,000; and Motor vehicle vehicle X Y was was purchased purchased on on 23 5 August 2008 £38,000.

REQUIRED (a) Calculate separately, for each of the motor vehicles W, X and Y, the accumulated depreciation at 31 October 2008. (8 marks)

On 1 May 2009, Peggy sold motor vehicle W for £12,400 and replaced it with motor vehicle Z, which she purchased with a cheque for £40,000.

REQUIRED (b) Prepare, for the year year ended 31 October 2009: 2009: (i)

The Motor Vehicles Cost Account (5 marks)

(ii)

The Provision for Depreciation Account (8 marks)

(iii) The Disposal Account (4 marks) Figures must be rounded to the nearest whole £. (Total 25 marks)

2007/4/09/MA

Page 9 of 14

 

MODEL ANSWER TO QUESTION 4 (a)

2006 2007 2008

Motor vehicle W £ 8,000 6,000 4,500

Workings £ (32,000 x 25%) [(32,000 – [(32,000 – 8,000)  8,000) x 25%)] [(32,000 – [(32,000 – 14,000)  14,000) x 25%)] 18,500

Motor vehicle X 2007 2008

9,000 6,750

(36,000 x 25%) [(36,000 – [(36,000 – 9,000)  9,000) x 25%)] 15,750

Motor vehicle Y 2008 Total

9,500 43,750

(38,000 x 25%)

(b) (i) Motor Vehicles 2008 1 Nov 2009 1 May 1 Nov

Balance b/d Bank Balance b/d

£ 106,000

2009 1 May

Disposal

£ 32,000

40,000 146,000 114,000

31 Oct

Balance c/d

114,000 146,000

(ii) Provision for Depreciation 2009 1 May

Disposal

31 Oct

Balance c/d

£ 18,500 47,438 65,938

2008 1 Nov 2009 31 Oct 1 Nov

Balance b/d P & L/Dep Balance b/d

£ 43,750 22,188 65,938 47,438

[1] Workings P&L

£ 5,063 7,125 10,000 22,188

Motor vehicle X [(36,000 – [(36,000 –  15,750) x 25%] Motor vehicle Y [(38,000 – [(38,000 –  9,500) x 25%] Motor vehicle Z (40,000 x 25%)

(b) (iii) Disposal Account 2009 1 May

Motor vehicle

£ 32,000  _____

2009 1 May 1 May 31 Oct

32,000

2007/4/09/MA

Bank Provn Depn P&L

£ 12,400 18,500 1,100 32,000

Page 10 of 14

 

QUESTION 5 Yeung Ltd’s Trial Balance at 31 March 2009 is as follows:  follows:   £ 146,200

Machinery at cost Provision for depreciation on machinery Fixtures and fittings at cost Provision for depreciation on fixtures and fittings Motor vehicles at cost Provision for depreciation on motor vehicles Ordinary share capital Stock at 31 March 2008: Raw materials Work in progress Finished goods Sales Salesmen’s salaries  salaries   Purchases of raw materials Direct wages Indirect wages Machinery repairs Debtors Creditors Bank Rent and rates  Administrative expenses Insurance Light and heat Motor expenses Provision for doubtful debts

87,700 27,625 11,050 61,740 31,500 176,900 9,880 5,135 23,692 455,000 15,925 112,309 146,185 36,400 11,700 70,200 18,791 8,840 29,250 21,612 17,870 15,240 24,648 _ 784,451

 Additional information: (1) Depreciation is to be provided as follows: Machinery Fixtures and fittings Motor vehicles

10% using the straight-line method 20% using the straight-line method 30% using the reducing balance method

(2) Expenses are to be apportioned as follows: Administration

Factory

% 10 30 30 30 50 10 100 50

% 90 70 70 70 50 90 50

Machinery repairs Rent and rates Insurance Light and heat Motor expenses Depreciation – Depreciation  –   Machinery Fixtures and fittings Motor vehicles (3) There is a prepayment of £1,560 for machinery repairs. (4) Stocks at 31 March 2009 were:

Raw materials

£ 11,310

Work in progress Finished goods

14,225 24,830

2007/4/09/MA

£

Page 11 of 14

3,510 784,451

 

QUESTION 5 CONTINUED

REQUIRED (a) Prepare the: (i)

Manufacturing Account for the year ended 31 March 2009. (10 marks)

(ii)

Trading and Profit & Loss Account for the year ended ended 31 March 2009. (10 marks)

(b) Define the following: (i) Direct materials (ii) Direct labour (iii) Direct expense (3 marks) (c)

Give one example of direct labour and one example of direct expense. (2 marks)

(Total 25 marks)

2007/4/09/MA

Page 12 of 14

 

MODEL ANSWER TO QUESTION 5 (a) (i)  Yeung Ltd Manufacturing Account for the year ended 31 March 2009 £ Raw materials Opening stock - raw materials Purchases – Purchases  –  raw materials Less: Closing stock - raw materials Cost of raw materials consumed Direct wages Prime cost Production overheads Indirect wages Rent and rates (29,250 x 70%) Insurance (17,870 x 70%) Light and heat (15,240 x 70%) Motor expenses (24,648 x 50%) Machinery repairs (11,700 - 1,560)] x 90%  90%   Depreciation: Machinery (146,200 x 10%) x 90%  90%   Motor vehicles [(61,740 - 31,500) x 30%] x 50%

£

9,880 112,309 11,310 110,879 146,185 257,064 36,400 20,475 12,509 10,668 12,324 9,126 13,158 4,536 119,196 376,260

 Add: Opening work in progress Less: Closing work in progress

5,135 14,225 (9,090) 367,170

Production cost

(a) (ii) Trading and Profit & Loss Account for the year ended 31 March 2009  2009  Sales Opening stock – stock –finished finished goods Production cost Less: Closing stock – stock –  finished goods

455,000 23,692 367,170 24,830 366,032 88,968

Gross profit Less: expenses Salesmen’s Salesme n’s salaries  salaries  

15,925

Rent and rates (29,250 x 30%)  Administrative expenses Insurance (17,870 x 30%) Light and heat (15,240 x 30%) Motor expenses (24,648 x 50%) Machinery repairs (11,700 - 1,560) x 10% Depreciation: Machinery (146,200 x 10%) x 10%  10%   Fixtures and fittings (27,625 x 20% ) Motor vehicles [(61,740 - 31,500) x 30%] x 50%

8,775 21,612 5,361 4,572 12,324 1,014 1,462 5,525 4,536 81,106 7,862

Net profit

2007/4/09/MA

Page 13 of 14

 

MODEL ANSWER TO QUESTION 5 CONTINUED (b) (i)

Direct materials: the cost of the raw materials that are used to make the finished products products..

(ii)

Direct labour: the wages earned by those people who are are involved in the actual production of the finished goods.

(iii) Direct expense: these are other costs that can be identified with a particular unit of output other than materials and direct labour.

(c) (i)

Direct labour: e.g. machine operatives or assembly workers.

(iii) Direct expense: e.g. royalties paid to the product designer, the hire of specialist machinery and payments to subcontractors who work on the product.

2007/4/09/MA

Page 14 of 14

© Education Development International plc 2009

 

EDI International House Siskin Parkway East Middlemarch Business Park Coventry CV3 4PE UK Tel. +44 (0) 8707 202909 Fax. +44 (0) 2476 516505 Email. [email protected] www.ediplc.com

2007/4/09/MA

© Education Development International Plc 2009.  All rights reserved. reserved. Th This is publica publication tion in its entirety is the copyright of Education Development International Plc. Reproduction either in whole or in part is forbidden without the written permission from Education Development Plc. Page 14 of 14 International © Education

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