Name: …………………………………………….

CHAPTER TOPICS PAGE NO.

NO.
1. Role of Accounting 1
2. Double Entry System 2-6
3. Trial Balance 7-14
4. Final Accounts of Sole Trader 15-17
5. Cashbook and petty cashbook 18-34
6. Bank Reconciliation Statement 35-51
7. Books of Prime Entry 52-76
8. Accounting for Trade Receivables 77-91
9. Accounting for Depreciation 92-125
10. Other Payables and Receivables 126-138
11. Final Accounts of Sole trader (Trading & Service businesses) 139-154
12. Final Accounts of Partnership 155-179
13. Final Accounts of Manufacturing business 180-197
14. Capital and Revenue expenditures and receipts 198-202
15. Control Accounts 203-218
16. Correction of Errors 219-250
17. Incomplete Records 251-280
18. Clubs and Societies 281-316
19. Limited Liability Companies 317-336
20. Accounting Ratios 337-381
21. Accounting Principles 382-387
 Resource Pack/Accounting/O Level

Chapter 1
Role of Accounting

Solution of Past Paper Questions

Bookkeeping and Accounting

Q # 1 Bookkeeping is the process of recording data (1) OR Bookkeeping involves preparing

accounts from source documents or prime entry records (3)
2. Accounting involves identifying, measuring and communicating financial information (2) OR
Accounting provides information for decision making (2) [max 4]

Q # 2 Book-keeping refers to the maintaining of all double entry records/recording transactions (1)
Accounting refers to the preparation (and interpretation) of financial statements (1) [2]

Answer Key of MCQs (Bookkeeping and Accounting)

Question Key Question Key

1 C 2 A
3 A 4 D
5 D 6 D
7 D 8 B
9 C 10 C
11 C
 Marking Scheme/Resource Pack/GCE O Level

Chapter 2
Double entry system

Solution of Practice Questions

Q#1
1. Asset
2. Liability
3. Asset
4. Asset
5. Asset
6. Expenses
7. Expenses
8. Liability
9. Asset
10. Asset
11. Income
12. Income
13. Income
14. Expenses

Q#2
1. Asset
2. Asset
3. Asset
4. Asset
5. Expense
6. Expenses
7. Liability
8. Asset
9. Liability
10. Asset
11. Income
12. Income
13. Asset
14. Liability
15. Asset

Q # 3 Capital $10700
Capital $23100
Liability $4300
Liability $3150
Assets $25500
Assets $51400

Q # 4 Capital $31100
 Marking Scheme/Resource Pack/GCE O Level

Asset $51600
Liability $7600
Capital $104100
Liability $26000
Asset $159000

Q # 5 Complete the columns to show the effects of the following transactions:

Effect upon
Assets Liabilities Capital
We pay a Trade Payables $70 in cash -cash -T. Payables
Bought fixtures $200 paying by cheque +fixture -bank
Bought fixtures$275 on credit +fixtures +T. Payables
The proprietor introduced another $500 cash into the firm +cash +capital
J Walker lends the firm $200 in cash +cash + J W Loan
A Trade Receivables pays us $50 in cash +cash
- T. Receivables
We returned goods $60 to the supplier whose bill we had not paid - Inventory -T. Payables
Bought additional shop premises paying $5000 by cheque +premises -bank

Q # 6 Complete the columns to show the effects of the following transactions:

Effect upon
Assets Liabilities Capital
Bought a van on credit $8700 +van +Trade
Payables
Repaid by cash a loan owed to F Duff $10000 -cash - F Duff
loan
Bought goods for $1400 paying by cheque + Inventory -bank
A Trade Receivables returns to us $150 goods. We agree to +Inventory – T.
make an allowance for them Receivables
Bought goods on credit $760 + Inventory +T.
Payables
The owner taken out $200 cash for his personal use -cash -capital
We pay a Trade Payables $1150 by cheque -bank - T.
Payables

Q # 7 Complete the following table

BUSINESS TRANSACTIONS Account to be Accounts to be

debited credited
Bought office machinery on credit from S Isaacs Ltd Off. machinery S Isaacs Ltd
The proprietor paid a creditor, C Jones from his private funds C Jones Capital
A Trade Receivables, N Fox paid us in cash Cash N Fox
Repaid part of the loan from P Exeter by cheque P Exeter Bank
 Marking Scheme/Resource Pack/GCE O Level

Returned some of the office machinery to S Isaacs Ltd. S Isaacs Ltd Off. machinery
A Trade Receivables, N Lyn pays us by cheque Bank N Lyn
Bought van by cheque Van Bank

Q # 8 Complete the following table

BUSINESS TRANSACTIONS Account to be Accounts to

debited be credited
Bought lorry for cash Lorry Cash
Paid creditor, T Lake, by cheque T Lake Bank
Repaid P Logan ‘s loan by cheque P Logan Bank
Sold lorry for cash Cash Lorry
Bought office machinery on credit from Ultra limited Office machinery Ultra Ltd
A debtor, A Hill, pays us by cash Cash A Hill
A debtor, J Cross, pays us by cheque Bank J Cross
Proprietor puts further amount into the business by cheque Bank Capital
A loan is received from L Lowe by cash Cash L Lowe
Paid a creditor, D Lord, by cash D Lord Cash

Q 9 – 12 will be solved by the teachers in the class

Q # 13 Complete the following table

BUSINESS TRANSACTIONS Account to be Accounts to be

debited credited
Goods bought on credit from J Reid Purchases J Reid
Goods sold on credit to B Perkins B Perkins Sales
Van bought on credit from H Thomas Van H Thomas
Goods sold, a cheque being received immediately Bank Sales
Goods sold for cash Cash Sales
Goods purchased by us retuned to supplier, H Hardy H Hardy Returns outwards
Machinery sold for cash Cash Machinery
Goods sold return to us by a customer, J Nelson Returns Inwards J Nelson
Goods bought on credit from D Simpson Purchases D Simpson
Goods we returned to H forbes H Forbes Returns outward

Q # 14 Complete the following table

BUSINESS TRANSACTIONS Account to be Accounts to be

debited credited
Goods bought on credit from T Morgan Purchases T Morgan
Goods returned to us by J Thomas Returns Inwards J Thomas
Machinery returned to L Jones Ltd L Jones Machinery
Goods bought for cash Purchases Cash
Van bought on credit from D Davies Ltd Van D Davies Ltd
 Marking Scheme/Resource Pack/GCE O Level

D Piton paid us his account by cheque Bank D Piton

Goods bought by cheque Purchases Bank
We paid creditor P Henry by cheque P henry Bank
Goods sold on credit to J Mulling J Mulling Sales

Question 15 to 20 will be solved by the teachers in the class or given as a home work to pupils

Answer (PP Questions)

Q#1

Q#2
 Marking Scheme/Resource Pack/GCE O Level

Answer Key of Past Paper MCQs

Question Key Question Key

1 A 2 C
3 B 4 D
5 A 6 B
7 A 8 B
9 C 10 C
11 C 12 B
13 C 14 C
15 A 16 D
17 C 18 D
19 C 20 B
21 B 22 A
23 D 24 D
25 C 26 B
27 B 28 D
29 B 30 D
31 A 32 C
33 C 34 A
35 C 36 A
37 D 38 C
39 B 40 A
41 D 42 A
43 A 44 C
45 C 46 B
47 D 48 C
49 B 50 B
51 B 52 A
53 C 54 D
55 A 56 D
57 C 58 B
59 C 60 C
61 B 62 C
 Resource Pack/Accounting/O Level

Chapter 3
Trial Balance

Solution of Past Paper Questions

Q#1

Q#2
 Resource Pack/Accounting/O Level

Q#3

Q#4
 Resource Pack/Accounting/O Level

Q#5

Q#6
 Resource Pack/Accounting/O Level

Q # 7.

Q#8
Teresa
Trial Balance at 31 January 2013
 Resource Pack/Accounting/O Level

Q#9

Q # 10
 Resource Pack/Accounting/O Level

Q # 11 Jason Moore
Trial Balance at 31 October 2008

(b) Confirms arithmetical accuracy of the double-entry (1)

Acts as a basis from which to prepare final accounts (1) [2]

Q # 12
 Resource Pack/Accounting/O Level

Q # 13

Q # 14
 Resource Pack/Accounting/O Level

Answer Key of MCQs

Question Key Question Key

1 B 2 A
3 C 4 C
5 D 6 D
7 C 8 D
9 C 10 D
11 C 12 C
13 C 14 C
15 A 16 B
17 A
 Resource Pack/Accounting/O Level

Chapter 4
Final Accounts of a Sole Trader
Q#1
Income Statement
Gross Profit $ 80736
Expenses $ 58878
Net Profit $ 21863
Statement of Financial Position
Non-Current Asset $ 112014
Current Assets $ 56009
Capital $ 151504

Q#2
Income Statement
Gross Profit $ 123110
Expenses $ 70842
Net Profit $ 52268
Statement of Financial Position
Non-Current Asset $ 86100
Current Assets $ 62170
Capital $ 136470

Q#3
Income Statement
Gross Profit $ 128953
Expenses $ 44110
Net Profit $ 84843
Statement of Financial Position
Non-Current Asset $ 57300
Current Assets $ 38606
Capital $ 93620

Q#4
Income Statement
Gross Profit $ 165774
Expenses $ 56288
Net Profit $ 109486
Statement of Financial Position
Non-Current Asset $ 198000
Current Assets $ 85166
Capital $ 259758

Q#5
Income Statement
Gross Profit $ 193320
Expenses $ 72017
 Resource Pack/Accounting/O Level

Net Profit 121303

Statement of Financial Position
Non-Current Asset $ 107300
Current Assets $ 92446
Capital $ 168146

Q#6
Income Statement
Gross Profit $ 101600
Expenses $ 50945
Net Profit $ 50655
Statement of Financial Position
Non-Current Asset $ 15312
Current Assets $ 38830
Capital $ 40042

Q#7
Income Statement
Gross Profit $ 141798
Expenses $ 77722
Net Profit $ 64076
Statement of Financial Position
Non-Current Asset $ 126106
Current Assets $ 136036
Capital $ 237272

Answer Key of Past Paper MCQs

Question Key Question Key

1 D 2 A
3 D 4 B
5 B 6 C
7 C 8 C
9 B 10 B
11 C 12 B
13 C 14 D
15 B 16 A
17 B 18 C
19 D 20 A
21 C 22 B
23 B 24 A
25 C 26 A
27 C 28 D
29 B 30 C
31 C 32 D
33 C 34 B
 Resource Pack/Accounting/O Level

35 D 36 C
37 B 38 C
39 A 40 C
41 B 42 B
43 C 44 C
45 C 46 A
47 A 48 C
49 C 50 B
51 B 52 A
53 B 54 B
55 B 56 B
57 C 58 D
59 C 60 B
61 D 62 D
63 B 64 C
65 A 66 B
67 C 68 D
69 A 70 A
71 C 72 A
73 B 74 B
75 D 76 C
77 B 78 B
79 D 80 A
81 C 82 A
 Resource Pack/Accounting/O Level

Chapter 5
Cashbook and petty cashbook

Q#1
Karl
Cash Book
 Resource Pack/Accounting/O Level

Q#2

Q#3
 Resource Pack/Accounting/O Level

Q#4
 Resource Pack/Accounting/O Level

Q#5 Abdul Anwar Cash Book

Q#6

Q # 7 (a)
 Resource Pack/Accounting/O Level

(b) $5 159 (1)O/F

Liability (1)O/F [2]

Q # 8 (a) The cash book is a book of prime (original) entry because it is written up from business
documents. (1)
The cash book is part of the double entry system as it acts as ledger accounts for cash and bank. (1)
[2]

(c) (i) Between 8 and 29 January the payments from the bank exceeded the money in the bank
account. [2]
(ii) Purchase of equipment could possibly have been delayed until later in the month. [2]

Q#9
 Resource Pack/Accounting/O Level

Q # 10

(b) It is not possible to take out more cash than is in the cash box (1) [1]

Q # 11 (a) Mitchell April 8

Amanda paid $120 in cash to Mitchell (1)
Julian April 9
Amanda received a cheque, $194, from Julian (1)
Julian was allowed $6 cash discount for prompt payment (1)
Sylvia April 14
Amanda received a cheque, $180 from Sylvia (1)
Sylvia April 21
The cheque, $180, previously received from Sylvia was dishonoured by the bank (1)
Equipment April 26
Amanda purchased equipment, $2000, by cheque (1)
Sales April 28
Amanda sold good for cash $1300 (1) [7]

(b) This is a contra entry. (1)

Office cash was paid into the bank (1) [2]

(c) (i) The cash balance represents the cash in hand (1)
The bank balance represents a bank overdraft (1) [2]
(ii) Cash balance – current asset (1)
Bank balance – current liability (1) [2]
(iii) It is not possible to take out more cash than is available [2]
 Resource Pack/Accounting/O Level

(d)

Q # 12
 Resource Pack/Accounting/O Level

Petty Cash book marking Key

Q # 1.

Q # 2 (a) The petty cashier starts each period with the same amount of money (1) (the imprest).
At the end of the period the chief cashier will make up the cash remaining so that it is equal to the
imprest amount (1) [2]
 Resource Pack/Accounting/O Level

(c) At the end of each period (1) the totals of the analysis columns for expenses (1) are debited to the
appropriate expense account (1)
The individual items in the ledger accounts column are debited to the appropriate creditors’ accounts
(1) [4]

Q # 3. (a) $ 200.00 – $ 129.00 = $ 71.00 (1)[1]

(accept $71 without .00)
(b) $ 20.00 + 17.00 + 21.00 +14.50 = $ 72.50 (1)[1]
(accept $72.5 without final 0 and throughout)
(c)$ 200.00 (1)– $ 72.50 (1)(OF from (b)) = $127.50 [2]
(award (2)for $127.50 but must show workings for OF mark)
(d) (i) Missing voucher, error or fraud (1)
(ii) Missing or stolen cash (1)[2]
(e) Always complete (get) a petty cash voucher (1)with an invoice or receipt for expenditure (1)
Record all petty cash transactions (1)[2]
(do not accept general comments about business records – must relate to petty cash)
(f)

Q # 4 (a) To remove small cash payments from the main cash book.
To reduce the number of entries in the main cash book and the expenses in the ledger
To allow the chief cashier to delegate some of the work
Or other suitable reason
Any 2 reasons (1) each [2]

(b) The petty cashier starts each period with the same amount of money (1).
At the end of the period the chief cashier will make up the cash remaining so that it is equal to the
imprest amount (1). [2]
 Resource Pack/Accounting/O Level

(c) The chief cashier is aware of exactly how much is spent in each period.
The cash remaining and the total of the vouchers received should always be equal to the imprest
amount.
Or other suitable advantage.
Any 1 advantage (1). [1]

(d) The petty cashier will receive $88. [1]

(e) (i) Debit travelling expenses account with $11. [2]
(ii) Debit N Jones account with $21 (2).
Debit W Smith account with $18 (2). [4]

Q # 5 (a) To avoid recording small cash payments in the main cash book (2)
To reduce the number of entries in the main cash book (2)
Any one reason (2) [2]

(b) The petty cashier starts each month with the same amount of money. (1)
At the end of the period the amount spent is reimbursed so the cash remaining is equal to the imprest
amount. (1) [2]

(c)
Theba – Petty Cash Book
 Resource Pack/Accounting/O Level

(e) $24 (1) O/F from (c)

Q # 6 (a) To record small cash payments

Removes small cash payments from the main cash book
Reduces the number of entries in the main cash book
Reduces the number of entries in the ledger
Allows the chief cashier to delegate some of the work
Provides training for any junior staff members
Any 2 points (1) each [2]
(b) Chief cashier knows exactly how much is spent in each month/can control expenditure of petty
cash
The cash remaining and the vouchers received should equal the imprest
Can help reduce fraud
Any 1 advantage (1) [1]
(c)
 Resource Pack/Accounting/O Level

(d) At the month end (1) the totals debited to postage account (1) [2]

Q # 7 (a)

(b) Debit Abdul Shakeel account $34(1)

Debit Syed Arshad account $16 (1) [2]
(c) Credit Postage and stationery account (2) [2]

Q#8
 Resource Pack/Accounting/O Level

Q # 9 (a)
 Resource Pack/Accounting/O Level

Q # 10 (a) Allows chief cashier to control/limit/keep track of petty cash expenditure

The cash remaining and the vouchers received should equal the imprest amount
Can help to reduce/prevent fraud
Accept other suitable advantage
Any 2 advantages (1) each

(b)
 Resource Pack/Accounting/O Level

(c)

(d) Debit Eva’s account with $62 (1)

Debit Olivia’s account with $43 (1)

(e) (i) 250 – 42 OF = 208 (1)OF

(ii)

Q # 11
 Resource Pack/Accounting/O Level

(d)

(e)

Q # 12 (a)
 Resource Pack/Accounting/O Level

Answer Key of Past Paper MCQs

Question Key Question Key

1 D 2 C
3 B 4 C
5 D 6 D
7 B 8 B
9 D 10 A
11 C 12 C
13 C 14 A
15 D 16 A
17 A 18 A
19 C 20 B
21 C 22 B
23 C 24 C
25 C 26 B
27 A 28 B
29 B 30 B
31 A 32 D
33 C 34 D
35 B 36 A
37 D 38 C
39 A 40 C
41 C 42 A
43 D 44 B
45 A 46 A
47 D 48 C
49 D 50 D
51 D 52 A
53 A
 Marking Scheme/Resource Pack/GCE O Level

Chapter 6
Bank Reconciliation Statement

Solution of Statement Form Questions (Past Papers)

Q # 1 (a)

(b)
 Marking Scheme/Resource Pack/GCE O Level

Q # 2 (a)

(b)

(c)

(d) Not enough money in account

Cheque unsigned
Amount in words and figures disagree
Takes account into unauthorised overdraft
Accept other valid points.
Any 2 acceptable reasons (1) each
 Marking Scheme/Resource Pack/GCE O Level

Q#3

Q # 4 (a)

(b)
 Marking Scheme/Resource Pack/GCE O Level

Q#5
 Marking Scheme/Resource Pack/GCE O Level

Q#6

Q # 7 (a) The bank statement is a copy of the account of the business as it appears in the books of the
bank / the bank statement is
prepared from the viewpoint of the bank (1)
The bank account in the cash book is prepared from the viewpoint of the business (1)
 Marking Scheme/Resource Pack/GCE O Level

(b)

(c)

Q # 8 (a)
 Marking Scheme/Resource Pack/GCE O Level

Q#9
 Marking Scheme/Resource Pack/GCE O Level

Q # 10.

Q # 11 (a)
Zafira
Cash Book
 Marking Scheme/Resource Pack/GCE O Level

(b) Bank reconciliation statement at 30 April 2005

(c) Incorrect entry in cash book

Transposition of figures in cash book
Addition error on cash book page
Item on bank statement omitted from cash book
- or similar explanations [Any two - 2 marks each]
[Repeating part (b) = 0]

Q # 12 (a) The balance on Abdullah’s cash book at 1 September 2007 is not the same as the balance
on the bank statement at that date because there was an unpresented cheque (1)(070) for $900 (2)
Note: answer must relate to the question, and not be general

(b)
 Marking Scheme/Resource Pack/GCE O Level

(c)

Q # 13 (a) Ascertain the true bank balance at a certain date

Assist in detecting fraud and embezzlement
Identify any “stale” cheques
Demonstrate that any differences between the cash book balance and that on the statement are due to
genuine reasons
Or other suitable reason
Any two reasons (1) each [2]

(d) $1298 (1)O/F

Asset (1)
 Marking Scheme/Resource Pack/GCE O Level

Q # 14 (a) The bank statement is a copy of the account of the business as it appears in the books of
the bank. This is from the viewpoint of the bank – the business depositing money is a creditor of the
bank. (2)
The bank account in the cash book is prepared from the viewpoint of the business – the bank is a
debtor of the business which has deposited the money. (2) [4]

(c)

(d) Answer to be based on OF balance in (b)

$1344 (1) OF
Liability (1) OF

Q # 15 (a) Items on bank statement not shown in cash book

(Accept individual items, bank charges, bank interest, etc.)
Items in cash book not on bank statement
(Accept individual items, cheques not yet presented, etc.)
Errors in cash book or made by bank (accept only one type of error)
Dishonoured cheques
any two, 2 marks each [4]
(b)
 Marking Scheme/Resource Pack/GCE O Level

(c)
Ottoman
Bank Reconciliation Statement at 30 September 2010

(d) (i)Current assets (2)

accept current liabilities if overdrawn on OF
(ii)$1890 (2)OF from (b) above, not (c) if different [4]

Q # 16 (a)

(b)
 Marking Scheme/Resource Pack/GCE O Level

Q # 17 (a)
 Marking Scheme/Resource Pack/GCE O Level

(d) The bank statement is a copy of the account of the business as it appears in the books of the bank.
This is from the viewpoint of the bank (1)– the business depositing money is a creditor of the bank.(1)
The bank account in the cash book is prepared from the viewpoint of the business (1)– the bank is a
debtor of the business which has deposited the money (1). [4]

Q # 18 (a) Dishonoured cheque – a cheque which the bank refuses to pay (1)
Cheque not presented – cheque paid by the business but which has not yet been presented to the bank
for payment/not yet paid by the bank (1) [2]
(b) Standing order – an instruction by a customer to the bank to pay fixed amounts at stated dates to a
named person or firm (1)
Direct debit – authority given to the bank to make payments (at irregular dates and amounts) on
request by a named person or firm (1) [2]
 Marking Scheme/Resource Pack/GCE O Level

Q # 19 (a)

(b)

Q # 20 (a)

(b)
 Marking Scheme/Resource Pack/GCE O Level

(c) The balance sheet would not balance if the bank statement balance was included (1) because only
balances on the books of the business can be included in the balance sheet of the business (1).
[2]
Q # 21 (a) Timing (1)
 Marking Scheme/Resource Pack/GCE O Level

Answer Key of Past Paper MCQs

Question Key Question Key

1 B 2 A
3 C 4 B
5 C 6 A
7 A 8 A
9 B 10 B
11 C 12 A
13 A 14 B
15 A 16 D
17 A 18 B
19 D 20 C
21 C 22 B
23 C 24 D
25 B 26 D
27 B 28 C
29 C 30 B
31 C 32 C
33 C 34 D
35 C 36 B
37 A 38 A
39 B 40 C
41 A 42 B
43 D 44 B
45 A 46 A
47 C 48 A
49 C
 Marking Scheme/Resource Pack/GCE O Level

Chapter 7
Books of Prime Entry or Original Entries

Solution of past paper questions (Business documents)

Q#1

Q#2

Past Paper Questions (Books of Prime Entry)

Q # 1 (a)

(b)

(c)
 Marking Scheme/Resource Pack/GCE O Level

Q # 2 (a)
 Marking Scheme/Resource Pack/GCE O Level

Q # 3 (a) Reduces the number of entries in the ledger

Acts as an aid for posting to the ledger
Helps to gather and summarise accounting information e.g. total credit purchases
Helps in the preparation of control accounts
Groups together similar types of transactions
Allows work to be divided between several people/train junior accountants
To see as a list of transactions/reference purposes
Accept other valid points.
Any 2 reasons – 1 mark each

(b) 1 Cash Book

2 Purchases returns journal
3 General journal or journal

(c)

(d) (838) + 220 (1) + 392 (1) = 226 overdrawn/Cr or / (226) (1)
(e) (i) Sales ledger or trade receivables ledger
(ii) General or nominal ledger
 Marking Scheme/Resource Pack/GCE O Level

Q#4

Q#5
 Marking Scheme/Resource Pack/GCE O Level

(d)

(e)

Q#6
 Marking Scheme/Resource Pack/GCE O Level

Q#7

Q # 8 (a)
 Marking Scheme/Resource Pack/GCE O Level

Q # 9 (a)
 Marking Scheme/Resource Pack/GCE O Level

(b)

(c)
 Marking Scheme/Resource Pack/GCE O Level

Q # 10 (a) Reason for using a purchases journal:

• fewer transactions recorded in the purchases account
• bookkeeping can be spread between several people
• can be analysed into products/areas etc.
• to identify credit purchases (can be useful for comparison purposes)
• provides information for the purchases ledger control account.
Or other suitable point

(b) (i)
 Marking Scheme/Resource Pack/GCE O Level

Q # 11

Q # 12 (a) (i) 3 000 [1]

(ii) $100.00 [1]
(iii) $1 300.00 [1]
(iv) Cash discount [1]

(b) (i) $75.00 [1]

(ii) $2 425.00 [1]
(iii) Nil [1]
(iv) $1 300.00 [1]
 Marking Scheme/Resource Pack/GCE O Level

Q # 13 (a) Work can be shared between several people

Easier for reference as same type of accounts are kept together
Easier to introduce checking procedures
(b)

(c)
 Marking Scheme/Resource Pack/GCE O Level

Q # 14 (a) Customer’s name, address, date, total sales, sales returns, invoice numbers, amount due,
discount, net total, cash/cheques received, terms of business, due date (any four, (1) each) [4]
(b) Sasha (not Invoice) (1)
1 August 2007 (1)
170 (1)
$0.85 (1)
$144.50 (1) [5]

(c)

(d) [250 × $0.85] = $212.50 (1)× 5% (1)= $10.62 (1)OF (but only if 5% used) [3]

(e)$212.50 (1)OF– $10.62 (1)OF= $201.88 (1)OF [3]

(f)$201.88 (1)OF× 2.5% (1)= $5.05 (1)OF [3]

Q # 15
 Marking Scheme/Resource Pack/GCE O Level

Q # 16 (a) Purchases journal (day book) (1)

(accept “purchases”, “purchases book”, not“account” or “ledger”)
 Marking Scheme/Resource Pack/GCE O Level

Q # 17 (a) To inform or remind the customer of the amount due

To confirm the settlement terms
To ensure that no errors have been made by customer or supplier
Other relevant comment any one [2]
(b) (i) Sam had taken 2% discount ($8.00) [1]
accept any mention of discount taken, whether entitled or not
(ii) No, not correct amount (1)
Sam did not pay the amount due within the 21 days / time limit allowed to earn any discount (2) [3]
(c) (i) Amount due $265.00 (1) @ 2% (1) = $5.30 (1) [3]
(correct figures only)
 Marking Scheme/Resource Pack/GCE O Level

(ii) Net amount due $265.00 (1) – $5.30 (1) = $259.70 (1) [3]
(correct figures only)

(d) Pay balance within 21 days / by due date / within terms / on time [2]
(not pay more quickly, prompt payment, etc.)

Q # 18
 Marking Scheme/Resource Pack/GCE O Level

Q # 19 (a) To notify the customer of the amount outstanding at the end of the month.
To provide the customer with a summary of the month’s transactions.

(b) Fiona Fraser

(e) (i) Cash book (1)

(ii) Sales journal (1)
(iii) Sales returns journal (1) [3]

(f) Goods returned

Allowance for damaged/faulty goods
Correction of overcharge
Any one reason (1) [1]

(g) (i) $225.40 (1)

(ii) The amount was paid within the period of credit allowed (1) [2]
 Marking Scheme/Resource Pack/GCE O Level

Q # 20 (a)

(b) A debit note may be issued by a customer to request a reduction in an invoice (1)
A credit note may be issued by a supplier to reduce an invoice for returns/overcharge etc (1) [2]
(c) (i) purchases journal (1)
(ii) sales returns journal (1) [2]
(d) A statement of account is not a transaction (1)
It is a summary of the account of the customer in the books of the supplier
Or
It is a reminder to the customer of the amount due (1) [2]

Q # 21 (a)
 Marking Scheme/Resource Pack/GCE O Level

(c) Purchases ledger/Creditors ledger [1]

Q # 22 (a)Purchases (Ledger) [1]

(b) 7 September Bank
Explanation: Amount paid to HiClass Foods Ltd for purchases (on credit/amounts due) (1)
Double Entry: CreditBank Account (1)
7 September Discount
Explanation: Amount claimed as discount for prompt payment (1)
Double Entry: CreditDiscount Received Account (1)
12 September Purchases
Explanation: Amount bought on credit from HiClass Foods Ltd (1)
Double Entry: DebitPurchases Account (1)
15 September Purchase Returns
Explanation: Goods returned to HiClass Foods Ltd as unsuitable/not required (1)
Double Entry: CreditPurchase Returns Account / Returns Outwards (1)
30 September Balance c/d
Explanation: Amount owing to HiClass Foods Ltd at end of month (1)
Double Entry: CreditHiClass Foods Ltd ( October account ) (1) [10]
 Marking Scheme/Resource Pack/GCE O Level

Q # 23 (a)

(b)

Q # 24 (a)

(b)
 Marking Scheme/Resource Pack/GCE O Level

(c)

(d) To notify the customer of the amount outstanding

To provide a summary of the transactions for the month
To enable the customer to compare his records and check for errors
Or other suitable statement
Any 2 statements (1) each [2]

(e) A credit note is issued by a credit supplier because of returns, faulty goods or an overcharge. (1)
A debit note is issued by a credit customer to notify the supplier of any returns, faulty goods or
overcharge. (1) [2]

Q # 25 (a)
 Marking Scheme/Resource Pack/GCE O Level

(b) 260 × 0.95 (1) = $247 (1)

OR 260 – 13 (1) = $247 (1)
OR 260 – 5% = $247 (2)

Q # 26

27
 Marking Scheme/Resource Pack/GCE O Level

General Journal

Past Paper Questions

Q # 1 (a)

(b) Correction of errors

Purchase/sale of non-current assets on credit
Year-end transfers
Transactions not entered in any other book of prime (original) entry
Accept other relevant points.
Any 2 uses (1) each
 Marking Scheme/Resource Pack/GCE O Level

Q#2

Q#3

Q#4
 Marking Scheme/Resource Pack/GCE O Level

Q#5

Answer Key of Past Paper MCQs

Business Documents

Question Key Question Key

1 A 2 B
3 C 4 A
5 B 6 C
7 B 8 D
9 D 10 B
11 A 12 B
13 A 14 A
15 A 16 B
17 A 18 B
19 A 20 D
21 D 22 D
23 B 24 C
25 C 26 A
27 D 28 D
29 C 30 B
31 A 32 A
33 B 34 B
35 A 36 A
37 D 38 A
39 C 40 D
41 D 42 C
43 B 44 B
45 B 46 A

Books of Prime Entry

Question Key Question Key

1 B 2 B
3 D 4 C
5 A 6 C
 Marking Scheme/Resource Pack/GCE O Level

7 B 8 B
9 C 10 A
11 C 12 D
13 B 14 D
15 B 16 D
17 C 18 C
19 B 20 B
21 A 22 C
23 A 24 D
25 A 26 A
27 D 28 B
29 B 30 B
31 B 32 B
33 D 34 A
35 D 36 B
37 C 38 C
39 C 40 D
41 A 42 A
43 C 44 B
45 C 46 B
47 B 48 C
49 C 50 C
51 A 52 D
53 B 54 D
55 C 56 B
57 D 58 A
59 D 60 B
61 A 62 C
63 D 64 D
65 B 66 B
67 C 68 B
69 A 70 C
71 C 72 C
73 C 74 B
75 C 76 B

General Journal
Question Key Question Key
1 B 2 B
3 C 4 A
5 C 6 A
7 B 8 A
9 A 10 A
11 B
 Marking Scheme/Resource Pack/GCE O Level

Chapter 8
Accounting for Trade Receivables

Solution of Past Paper Questions

Q#1

(b)
 Marking Scheme/Resource Pack/GCE O Level

(e)

(h)

(i) Increase by $250

 Marking Scheme/Resource Pack/GCE O Level

Q # 2 (i)

(ii)

Q # 3 (a)

(b) Increase (1) OF of $787 (1)OF

(c)

(d) General journal (1)

(e)

(f) Accruals/matching (1)

Prudence (1)
 Marking Scheme/Resource Pack/GCE O Level

Q#4

(b)

Q#5
 Marking Scheme/Resource Pack/GCE O Level

Q#6

Q#7
Marking Scheme/Resource Pack/GCE O Level
 Marking Scheme/Resource Pack/GCE O Level

Q#8

Q#9
 Marking Scheme/Resource Pack/GCE O Level

Q # 10 (a) Reason for providing a provision for doubtful debts –

Ensures that the profits are not overstated (prudence)
Ensures that the debtors are shown in the Balance Sheet at a more realistic amount (prudence)
Application of the matching principle as the amount of sales unlikely to be paid for are treated as an
expense of that particular year

Or other suitable reason.

Any one reason (2) marks [2]

(b) (i)

(ii)

(iii)

*Alternatively transfer to Bad debts account, in which case the transfer from Bad debts account to
Profit & Loss Account will be $30 on the debit side of Bad debts account
** Alternatively allow “Zaki”, as may be using method where the amount is credited to customer’s
account and then debited and transferred to bad debts recovered account [2]
 Marking Scheme/Resource Pack/GCE O Level

(iv)

(c) (i) Write Zanetti’s account off as a bad debt (1)

Amount now outstanding for over 1 year with little hope of recovery (1)
Or other acceptable explanation
(ii) No entries in accounting records are necessary (1)
Account is still likely to be paid, there is no evidence yet that it will not be paid by Lim (1)
Or other acceptable explanation
(iii) Create a provision for doubtful debts of $280 (1)
Must ensure that he does not overstate his net profit for the year (1)
Or other acceptable explanation [6]

Q # 11 (a) Matching (1)

Prudence (1) [2]

(b)

(c) Any two of the following:

Look at debtors’ accounts and estimate which ones will not be paid.
Estimate on the basis of past experience what percentage of the debtors will prove to be bad.
Make use of an ageing schedule.
Any two points (1) each [2]
(d)
 Marking Scheme/Resource Pack/GCE O Level

Q # 12 (a) (i) So that the profits for the year are not over-stated [1]
(ii) So that the debtors in the Balance Sheet are shown at a realistic amount [1] [2]
(b) Matching principle [1]

* Alternatively, transfer to bad debts account. The transfer from bad debts to profit & loss would
then be $45.
 Marking Scheme/Resource Pack/GCE O Level

Q # 13 (a) (i) A bad debt is an amount owing to the business (1) which the debtor is unable or
unwilling to pay (1). [2]
(ii) A provision for doubtful debts is an estimate (not %)(1)of the amount likely to be lost through
bad debts (1). [2]

(b)

(d)
 Marking Scheme/Resource Pack/GCE O Level

Q # 14 (a) Provision for doubtful debts

2½% × (15 530 – 90) (1)= $386 (1)

Q # 15 (a)

(b)
Either
Matching (1)
To match the amount of sales for which the business is unlikely to be paid against the sales of the
year in which the sale was made (2)
Or
Prudence (1)
To avoid overstating the profits for the year/anticipate losses but not profits
Or to avoid overstating the trade receivables/current assets (2) [3]
 Marking Scheme/Resource Pack/GCE O Level

Q # 16 (a) Bad debts

Amounts owing to a business which will not be paid by the debtor (1)
Provision for doubtful debts
Estimate of the amount which a business may lose in a financial year because of bad debts (1) [2]

Q # 17
 Marking Scheme/Resource Pack/GCE O Level

Alternatively the total of the bad debts recovered account could be transferred to the bad debts
account (1)
The net amount of bad debts transferred to the income statement would then be $379 (1)

Q # 18
 Marking Scheme/Resource Pack/GCE O Level

Q # 19 (a) 3% × (18 650 – 150) = 555 [1]

(b)

(c) Ensures that the profit for the year is not overstated (1)
Ensures that the trade receivables are not overstated (1) [2]

(d) The matching principle requires the costs for the year to be matched against the revenue of
the same period (1)
Comment relating this principle to provision for doubtful debts (1) [2]

Answer Key of Past Paper MCQs

Question Key Question Key

1 A 2 B
3 A 4 D
5 B 6 A
7 C 8 B
9 A 10 B
11 B 12 B
13 B 14 C
15 C 16 A
17 C 18 C
19 C 20 A
21 C 22 B
23 A 24 C
25 C 26 B
27 B 28 A
 Resource Pack/Accounting/O Level

Chapter 9
Accounting for depreciation

Solution of Past Paper Questions

Q#1

Q#2
 Resource Pack/Accounting/O Level

Q#3
 Resource Pack/Accounting/O Level

(e)

(f)
 Resource Pack/Accounting/O Level

Q#4
 Resource Pack/Accounting/O Level

(g)

Q # 5 (a)

(b) 1 May 2015:

Cash book (1)
1 August 2016:
1 Nominal (general) journal (1)
2 Cash book (1)

(c)

(d)

(e)
 Resource Pack/Accounting/O Level

(f) Reducing (diminishing) balance method (1)

Annual percentage rate (1) is applied to the net book value (1) of the asset.
OR
Revaluation method (1)
The difference between the opening and closing valuations is taken (1) and adjusted for any purchases
or disposals (1)

Q#6
 Resource Pack/Accounting/O Level

(b)

Q # 7 (a)

(b)

(c)

(d) Non-current assets (1)

 Resource Pack/Accounting/O Level

Q#8

Q#9
Resource Pack/Accounting/O Level
 Resource Pack/Accounting/O Level

Q # 10
 Resource Pack/Accounting/O Level

Q # 11
Resource Pack/Accounting/O Level
 Resource Pack/Accounting/O Level

Q # 12. (a)

(b)

(c)

(d)
 Resource Pack/Accounting/O Level

Q # 13

Q # 14 (a)
 Resource Pack/Accounting/O Level

(b)

(c) (i)

(ii)

Q # 15 (a) To charge the cost of the capital expenditure to profits earned over the useful life of the
asset [2] (or similar acceptable answer)
 Resource Pack/Accounting/O Level

Q # 16 (i) Matching OR Prudence [1]

(ii)Matching
To ensure that the loss in value of fixed assets is spread over the period in which they are earning
revenue.
OR
Prudence To ensure that the profit is not overstated and the value of the fixed assets is not overstated.
[2]
 Resource Pack/Accounting/O Level

(c)

Q # 17 (a) Note – Narrative and correct amount required for each mark
Correct dates required for additional marks
Complete reversal of account – no marks
Account in note or memorandum form – no marks
 Resource Pack/Accounting/O Level

Q # 18 (a) Ensures that the loss in value of motor vehicles is spread over the period in which they are
earning revenue.
 Resource Pack/Accounting/O Level

Q # 19 (a) To measure the use of a fixed asset over the period of its useful life (2) (not to calculate its
net book value or to find a profit or loss on sale)
(b) Prudence or matching (1) [1]
(c) (i) (9 000 – 600) = 8 400 (1)/ 4 (1)= 2 100 (1)OF [3]
(ii) 2 100 (1) OF ` [1]

Award OF marks if the calculations are correct but the amounts used are incorrect e.g. the expected
scrap value has been omitted giving depreciation of $2 250. Award the marks if depreciation is
calculated and shown but ignore any calculations of net book value in this part.
 Resource Pack/Accounting/O Level

(e) $4 800 (1) OF [1]

Accept OF if calculated correctly from figures in (c)

Q # 20
 Resource Pack/Accounting/O Level

(b)

(d) (i) Fixed assets are valued at the end of each financial year. (1)
This value is compared with the previous valuation (or the cost if it is the first year of ownership) and
the amount by which the asset has fallen in value is the depreciation for the year. (1)[2]
(ii) Hand tools
Packing cases
Or other suitable example
Any 1 example (1) mark [1]

Q # 21 (a) (i) Cost $12 000 (1)@ 30% (1)= $3 600 (1)OF [3] (Award only the component marks but
not the mark for $3600 if other calculations are
shown, e.g. net book value or for other years.)
(ii) Net book value = $8 400 (1)OF [1] (Award this mark if correct by reference to answer to (i).)

(b)

(Mark is for reasonable narrative and amount, not date.)

(*Award 2marks for “Net book value 8400”, but 0for “Balance b/down 8400”.)[5]

(c) (i) The rate may be too low as large loss arose on scrapping car.
 Resource Pack/Accounting/O Level

An increased rate, up to 60%, would reduce loss. [2]

(Award marks for similar comments.)

(ii) Straight line method (1)over life of car, or using scrap value (1)
or Based on estimated mileage over three years (2)
or other reasonable suggestion and explanation. [2]

Q # 22 (a) To spread the cost of the asset over its useful life [2]
(not to calculate profit or loss on sale etc.)
(not causes of depreciation, but accept depletion, wear and tear, obsolescence and usage
over time as reasons for need to depreciate.)

(b) (i)$3200 (1) – $700 (1) = $2500 / 5 (1) = $500 (1)OF

(Note: if answer then goes on to give NBV, do not award calculation mark, so max 3)

(ii) Same amount – $500 (2) [OF only if agrees with (b) (i)]
(if answer then goes on to give NBV, no marks) [6]

(c)

(d)

(e) Straight line [method] (1)

over three years (33⅓%) (1),
to fully depreciate over that period (1), or [3]
 Resource Pack/Accounting/O Level

Reducing balance [method] (1) (not reducing method)

at rate >75% (1)
to fully depreciate over three years (1) [3]
Revaluation [method] (1) only

Q # 23 (a) Depreciation is an estimate of the loss in value of a non-current (fixed) asset over its
expected working life.
Or other acceptable definition [1]

(b) Physical deterioration

Economic reasons
Passage of time
Depletion
Any 2 causes (1) each [2]
 Resource Pack/Accounting/O Level

Q # 24 (a) Straight line method, revaluation method (1 mark each) [2]

(b) Depreciation

(i) Year 1 4500 (1) @ 40% (1) = 1800 (1)OF

(ii) Year 2(4500 – 1800) = 2700 (2)OF @ 40% = 1080 (1)OF
(iii) Year 3(2700 – 1080) = 1620 (2)OF @ 40% = 648 (1)OF [9]
 Resource Pack/Accounting/O Level

(c)

(d) Depreciation rate should have been higher (1) because net book value after three years ($972) is
greater than expected scrap value after three years ($750) (1) [2]

Q # 25 (a) Consistency [1]

(b) Ensures that profits are not overstated (1)
Ensures that the non-current assets are not overstated (1) [2]

(c) Accruals (Or matching) [1]

 Resource Pack/Accounting/O Level

Q # 26 (a) Disposal (of non-current assets account) (disposal of office furniture account) [2]
(b) (Error of) principle. (2)

(e) (i) The profit on sale of the office furniture, or the difference between the NBV and the sale
proceeds. (either correct) [2]
(ii) Select a different rate of depreciation on the reducing balance method, or select a
 Resource Pack/Accounting/O Level

different method of providing for depreciation. (either correct) [2]

Q # 27 (a) Straight line, reducing (diminishing) balance, revaluation (any two (1)each) [2]

(d) (i) The sale proceeds were less than the net book value (worth)
The expected life might have been shorter than assumed
The expected scrap value was less than assumed
Depreciation should have been higher
Accept a valid non-accounting reason (eg: properly maintain asset) [2]

(ii) Increase the rate of depreciation (NOT decrease/lower)

Assume a shorter life
Assume a lower scrap value
Use a different method eg revaluation
Accept a valid non-accounting reason (eg: properly maintain asset) [2]

Q # 28 (a) (i)
 Resource Pack/Accounting/O Level

(b)

Q # 29 (a) Economic reasons

Obsolescence/out of date
Depletion
Passage of time
Any 3 reasons (1) each [3]
 Resource Pack/Accounting/O Level

(b)

(c)

Q # 30 (a) 2 years [2]

 Resource Pack/Accounting/O Level

(b)

(c)

(d)

(e)
 Resource Pack/Accounting/O Level

(f) Consistency [1]

(g) Three from –
Wear and tear
Obsolescence/economic factors
Passage of time
Depletion
Any 3 reasons (1) each [3]

Q # 31

Q # 32
Resource Pack/Accounting/O Level
 Resource Pack/Accounting/O Level

Answer Key of Past Paper MCQs

Question Key Question Key

1 A 2 A
3 D 4 B
5 A 6 C
7 C 8 B
9 B 10 C
11 B 12 A
13 A 14 C
15 B 16 A
17 C 18 B
19 D 20 D
21 B 22 A
23 A 24 C
25 B 26 C
27 D 28 D
29 B 30 A
31 B 32 A
33 B 34 C
35 B 36 C
37 A 38 B
39 C 40 B
41 A 42 A
43 A 44 B
45 D 46 B
47 B 48 A
49 A 50 A
 Resource Pack/Accounting/O Level

51 A 52 B
53 A 54 D
55 A 56 B
57 C 58 A
59 C 60 A
61 B 62 A
63 B 64 B
65 D 66 C
67 A 68 C
69 C 70 A
71 C 72 B
73 A 74 B
 Resource Pack/Accounting/O Level

Chapter 10
Accruals and Prepayments

Solution of Past Paper Questions

Q # 1 (a)

(b)

Q#2
 Resource Pack/Accounting/O Level

Q#3

Q # 4 (a)
 Resource Pack/Accounting/O Level

Q#5
 Resource Pack/Accounting/O Level

Q # 6 (a)

(b)
 Resource Pack/Accounting/O Level

Q#7

Q#8

Q#9
 Resource Pack/Accounting/O Level

Q # 10

Q # 11 (a) Matching income OR expenditure (1) to the period to which it relates. (1) (2)
Accrual, prepayments, depreciation (any example). (2)

Q # 12
 Resource Pack/Accounting/O Level

(c)

Q # 13 (a)

(b) (i) This is the amount paid in advance for business rates for the following financial year (2)
(ii) Current asset (1)

Q # 14

(b) The balance represents the amount of rates (property tax) still outstanding for the financial year ended
31 March 2010.[2]
 Resource Pack/Accounting/O Level

(c) (i) The accruals (matching) principle requires the revenue of the accounting period to be matched
against the costs of the same period. (2)

(ii) The total rates relating to the financial year ended 31 March 2010 were transferred to the income
statement. (2) [4]

Q # 15

Q # 16 (a) An other payable (accrued expense) is an amount due and payable [in respect of expenses
incurred in an accounting period] (1) which remains unpaid at the end of that period (1). [2]

(b)
 Resource Pack/Accounting/O Level

Q # 17

(b) The balance represents the amount of rent prepaid by the tenant for the following financial year. (2)

Q # 18

(c) Accruals (matching) [1]

(d) (i) Current assets (1)
(ii) Current assets (1) [2]
 Resource Pack/Accounting/O Level

Q # 19 (a) The costs and expenses of an accounting period must be matched against the revenue (of the
same period). [2]
(b)

(c) Profit will be too high as accrued wages have not been included in expenses for the period. [1]

Q # 20 (a)

(b) Current liabilities (1)

Nancy Tanwin has a liability to provide a benefit for which she has already been paid. (1) [2]

(c)
 Resource Pack/Accounting/O Level

Q # 21 (a) Ledger account

(c)

(d)
 Resource Pack/Accounting/O Level

Q # 22

(b) The business entity principle has been applied when the stationery taken for personal use
was transferred from the stationery account to the drawings account. [2]

(d) The accruals principle has been applied when only the expense for the year was transferred to
the income statement. [2]

Q # 23
 Resource Pack/Accounting/O Level

Solution of Past Paper MCQs

Question Key Question Key

1 A 2 B
3 B 4 B
5 B 6 A
7 A 8 C
9 B 10 C
11 C 12 C
13 A 14 B
15 C 16 B
17 A 18 A
19 A 20 A
21 A 22 D
23 C 24 D
25 B 26 C
27 A 28 B
29 A 30 C
31 A 32 B
33 B 34 C
35 C 36 B
37 D 38 B
39 B 40 C
41 D 42 D
43 A 44 A
45 B 46 C
47 A 48 A
49 C 50 B
51 C 52 B
53 A
 Resource Pack/Accounting/O Level

Chapter 11
Sole Trader Final Accounts

Solution of Past Paper Questions

Q#1

Q#2
 Resource Pack/Accounting/O Level

Q#3

Q # 4 (a)
 Resource Pack/Accounting/O Level

(b)

Q#5
 Resource Pack/Accounting/O Level

Q#6

Q#7
 Resource Pack/Accounting/O Level

Q#8
 Resource Pack/Accounting/O Level

Q#9
 Resource Pack/Accounting/O Level

Q # 10 Morgan
Statement of financial position at 31 August 2006
 Resource Pack/Accounting/O Level

Q # 11

Q # 12
 Resource Pack/Accounting/O Level

Q # 13 (a)
 Resource Pack/Accounting/O Level

Q # 14

Q # 15 (a) Accountant – service business (1)

Baker – trading business (1)
Travel agent – service business (1)
 Resource Pack/Accounting/O Level

Q # 16
 Resource Pack/Accounting/O Level

Q # 17

Q # 18
 Resource Pack/Accounting/O Level

Q # 19

Q # 20
 Resource Pack/Accounting/O Level

Q # 21 (a)

(b)
 Resource Pack/Accounting/O Level

Q # 22

Q # 23

Answer Key of Past Paper MCQs

 Resource Pack/Accounting/O Level

Question Key Question Key

1 B 2 C
3 A 4 D
5 D 6 C
7 B 8 A
9 D 10 A
11 C 12 A
13 C 14 B
15 D 16 B
17 D 18 B
19 B 20 A
21 B 22 A
23 D 24 B
25 B 26 A
27 C 28 D
29 A 30 C
31 D 32 C
33 B 34 C
35 A 36 A
37 B 38 B
39 D 40 D
41 D 42 A
43 B 44 B
45 C 46 B
47 C 48 A
49 D 50 A
51 C 52 A
53 D 54 B
55 B 56 D
57 A 58 D
59 A 60 B
61 B 62 B
63 D 64 C
65 A 66 C
67 A 68 A
69 A 70 D
71 D 72 D
73 A 74 D
75 D 76 B
77 C 78 B
79 D
 Resource Pack/Accounting/O Level

Chapter 12
Partnership Final Accounts

Solution of Past Paper Questions

Q # 1 (a) Easier to see amount invested by each partner

Easier to calculate interest on capital
Easier to see the profit retained by each partner
Easier to see if a partner is making excessive drawings
Any 2 advantages (1) each
(b)

(c)
 Resource Pack/Accounting/O Level

(d) Ella has higher drawings so higher interest/Mark has lower drawings so lower interest
Present agreement may discourage Ella from taking excessive drawings
Not charging interest on drawings will reduce Mark’s share of the profits
Or other suitable comments
Any 2 comments (1) each
(e) What profit share he would get
Whether interest on capital is allowed/interest on drawings is charged
Whether he would get a partnership salary
Comparison of present income with possible income if a partner
Whether capital would have to be invested
Responsibilities compared to those he now has
Will be responsible for the debts of the business
The capital employed/value of the business
Profitability of the business
Prospects for the future
Or other suitable considerations
Any 2 considerations (1) each

Q # 2 (a)

(b)
 Resource Pack/Accounting/O Level

(c)

Q#3
 Resource Pack/Accounting/O Level

Q#4

(d)

(e)

Q # 5 (a) A business in which two or more people work together as owners.

(b)
 Resource Pack/Accounting/O Level

(c)

(d) Profit for the year would be lower by the amount of the loan interest. (1)
Interest on capital would be lower by the interest on the additional capital. (1)
Shares of profit might be higher or lower depending on rate of loan interest. (1)
Max 2
(e) Samara has a debit balance on her current account (1) which means that she owes funds to the
business. (1)
Samara’s drawings are greater than her total allocation of profit, (1) which means she is reducing the
capital of the business. (1)
The partnership agreement could be amended (1) to introduce a partner’s salary/interest on
drawings/change in the profit sharing ratio. (1)
Amina has had to introduce additional capital (1) in order to run the day to day business/cover what
Samara has taken as drawings. (1)
One mark for basic point, plus one for development to max 4

Q#6
 Resource Pack/Accounting/O Level

(c)

(d)

Q # 7 (a)
 Resource Pack/Accounting/O Level

(b)

Q#8
 Resource Pack/Accounting/O Level

Q#9
 Resource Pack/Accounting/O Level

Q # 10
 Resource Pack/Accounting/O Level

Q # 11
Resource Pack/Accounting/O Level
 Resource Pack/Accounting/O Level

Q # 12
 Resource Pack/Accounting/O Level

(b)

Q # 13

Q # 14
Wood and Coe
Profit and Loss account for the year ended 30 April 2004
 Resource Pack/Accounting/O Level

(b) Interest on drawings discourages large or early cash withdrawals (2)

Thus could improve cash/working capital position (2)
Also produces additional residual income/profits for division between partners (2)
Any 2 from 3, maximum 4

Q # 15

Q # 16
Smith and Travers
Income Statement for the year ended 30 September 2006
 Resource Pack/Accounting/O Level

(b)
Smith
Current account calculation, year ended 30 September 2006

Q #17 (a) (i) Arthur

$30 000 × 3% (1) = $900 (1) OF[2]
(ii)Nancy
$40 000 × 3% (1)= $1 200 (1) OF [2]
(b) (i)Arthur
$35 000 × 4% (1) = $1 400 (1) OF[2]
(ii)Nancy
$15 000 × 4% (1) = $600 (1) OF [2]

Q # 18 (a) To avoid misunderstandings/disagreements later. [2]

 Resource Pack/Accounting/O Level

(b) (i) To discourage the partners from making excessive drawings. [2]
(ii) To compensate for an unequal work-load.
OR In recognition of work done in the business. [2]

Q # 19 (a) To compensate for the fact that she does more work than Samuel.
Or To recognise the work that she does in the partnership.
(b)

Q # 20 (a) Drawings and interest on drawings exceeded the interest on capital and share of profit. [2]
(b)
 Resource Pack/Accounting/O Level

(c)

(d) Easier to see the profit retained by each partner

Easier to calculate the interest on capital
Or other suitable point
Any one point (2) [2]

(e) The members of a limited liability company have limited liability and their personal assets are not at
risk is the business fails. [2]

Q # 21 (a) To show how the profit for the year is shared between the partners [2]

(b)

(c)
 Resource Pack/Accounting/O Level

Q # 22 (a) Additional finance

Additional knowledge and skills
Sharing of responsibilities
Sharing of risks
Discussions can take place before taking decisions
Any 2 (1) each [2]
(b) Profits have to be shared
Decisions have to be recognised by all partners/disagreements may arise
Decisions may take longer to put into effect
One partner’s actions are binding on all partners
All partners are responsible for the debts of the business
Any 2 (1) each [2]
 Resource Pack/Accounting/O Level

(f) Increase Raoul’s salary

Allow commission on sales
Change the profit-sharing ratio
Any 1 (2) [2]

Q # 23 (a)

(b)

(c) This represents the amount owing by Tun to the business [2]
(d) To compensate for an unequal workload
Or In recognition of work done in the business [2]
(e) To discourage the partners from making excessive drawings [2]
 Resource Pack/Accounting/O Level

Q # 24 (a) (i) Share losses

Share responsibilities
Share risks
Share decision-making
Additional finance may be available
Additional skills and experience are available
Or other suitable comment
Any 1 comment (1)
(ii) Share profits
Decisions must be recognised by all partners
Decisions may take longer to implement
One partner’s actions can bind the other partners
Disagreements can occur All partners are responsible for the debts of the business Or other suitable
comment
Any 1 comment (1) [1]
(b) To avoid misunderstandings and disagreements later [1]

(c)

(d) The balance represents the amount owing by Carol Chen to the business.
Or appropriate answer based on candidate’s answer to (c) [2]

(e)

Q # 25 (a) Share losses

Share responsibilities
Share risks
Additional finance is available
Discussion can take place before decisions are made
Or other suitable points
 Resource Pack/Accounting/O Level

Any 2 correct points (1) each [2]

(b) To avoid any misunderstandings/disagreements later.

Q # 26
 Resource Pack/Accounting/O Level

Q # 27 (a) Profit/loss available for distribution (10 050 + 500) – (6600 + 5000) = (1050) (1)
Share of loss for each partner 1050 ÷ 2 = 525 (1) [2]

(c) Drawings and interest on drawings exceeded the interest on capital, interest on loan and share of profit
Or
Share of loss, drawings and interest on drawings exceeded the interest on capital and interest on loan [2]
(d) Easier to see the profit retained by each partner
Easier to calculate interest on capital
Or other suitable advantage
Any one advantage (2) [2]
 Resource Pack/Accounting/O Level

Q # 28 (a) The partnership was making losses

The drawings exceeded the partners’ profit share, interest and salary
Any 1 reason (2) [2]

Q # 29 (a) Share losses

Share responsibilities
 Resource Pack/Accounting/O Level

Share risks
Share decision-making
Additional finance may be available
Additional skills and experience are available
Or other suitable advantage
Any 2 advantages (1) mark each. [2]
 Resource Pack/Accounting/O Level

Answer Key of Past Paper MCQs

Question Key Question Key

1 B 2 C
3 C 4 D
5 A 6 A
7 D 8 B
9 C 10 A
11 B 12 B
13 B 14 B
15 B 16 C
17 A 18 B
19 A 20 C
21 B 22 D
23 B 24 B
25 A 26 D
27 D 28 B
29 A 30 A
31 C 32 C
33 B 34 D
35 A 36 C
37 C 38 C
39 A 40 A
41 A 42 C
43 C 44 C
45 C 46 C
47 A 48 B
49 C 50 A
51 C 52 C
53 B 54 A
55 B 56 C
57 D 58 A
 Resource Pack/Accounting/O Level

Chapter 13
Manufacturing Final Accounts

Solution of Past Paper Questions

Q # 1 (a)

(b) Total of direct materials plus direct labour (1) plus direct expenses/royalties (1)

(c)
 Resource Pack/Accounting/O Level

(d)

(e) Cheaper to buy than make

Cannot manufacture those particular items themselves
Production cannot keep up with demand
1 mark per point – maximum 2

Q#2
 Resource Pack/Accounting/O Level

Q#3

(b)

Q#4

(b)
 Resource Pack/Accounting/O Level

(c) Buy in bulk to get trade discount/look for cheaper suppliers

Reduce wages
Reduce/control factory / general expenses
Reduce factory heat and light
Look for cheaper carriage on raw materials
Reduce rate of depreciation
Accept other valid points.
Any 2 ways (1) each

Q # 5 (a)
 Resource Pack/Accounting/O Level

(b)

Q#6

(c)
 Resource Pack/Accounting/O Level

Q#7

(d)
 Resource Pack/Accounting/O Level

Q # 8 (a)

(b)
 Resource Pack/Accounting/O Level

Q#9
 Resource Pack/Accounting/O Level

Q # 10

Q # 11
 Resource Pack/Accounting/O Level

Q # 12

(c)
 Resource Pack/Accounting/O Level

Q # 13
Playground Company
Manufacturing Account for the year ended 31 December 2003

(b)
Playground Company
Trading Account for the year ended 31 December 2003

Q # 14 (a)
 Resource Pack/Accounting/O Level

(b)

Q # 15 (a)

(b)

Q # 16 (a) To calculate how much it has cost the business to manufacture the goods produced in the
financial year. [2]
(b) Production did not meet demand.
It was cheaper to buy the goods rather than make them.
 Resource Pack/Accounting/O Level

Those particular items could not be made by the business.

Or other suitable reason
Any 2 reasons (1) each

(c)

Q # 17 (a)
 Resource Pack/Accounting/O Level

Q # 18 (a)

(b) (i) Inventory of raw materials

Goods remaining at the year-end which were originally purchased for converting into finished articles (1)
Example – wood, nails, screws, handles or other suitable example (1) [2]
(ii) Inventory of work in progress
Furniture which is partly made at the year end (1)
Example – partly made table/ wardrobe/chair/other suitable example (1) [2]
(iii) Inventory of finished goods
Completed furniture which is awaiting sale (1)
Example – finished table/wardrobe/chair/other suitable example (1) [2]
 Resource Pack/Accounting/O Level

Q # 19 (a)

(b)

Q # 20
 Resource Pack/Accounting/O Level

(c) $334 000 (1) OF + 50% = $501 000 (1) OF

Q # 21
 Resource Pack/Accounting/O Level

Q # 22

Q # 23
 Resource Pack/Accounting/O Level

Answer Key of Past Paper MCQs

Question Key Question Key

1 D 2 D
3 B 4 C
5 A 6 C
7 C 8 C
9 C 10 C
11 A 12 C
13 A 14 B
15 C 16 A
17 B 18 A
19 D 20 B
21 C 22 C
23 D 24 A
25 D 26 C
27 B 28 D
 Resource Pack/Accounting/O Level

Chapter 14
Capital and Revenue expenditures and receipts

Solution of Past Paper Questions

Q#1

Q#2

Q#3
 Resource Pack/Accounting/O Level

Q # 4 (a)

(b)

Q#5

Q#6
 Resource Pack/Accounting/O Level

Q#7

Q # 8 (a) (i) Capital expenditure is money spent on acquiring, improving and installing fixed assets.(1)
Revenue expenditure is money spend on running a business on a day-to-day basis. (1) [2]
(ii) Capital receipts are amounts received from the sale of fixed assets (1)
Revenue receipts are sales and other items of income which are recorded in the trading and profit and
loss account. (1) [2]

Q # 9 (a) (i) Capital expenditure is money spent on acquiring, improving and installing fixed assets.(1)
Revenue expenditure is money spent on running a business on a day-to-day basis. (1)
(ii) Capital receipts are amounts received which do not form part of the day-to-day trading activities.
(1)
Revenue receipts are amounts received in the day-to-day trading activities from revenue and other
items of income. (1) [2]
(b)
 Resource Pack/Accounting/O Level

Alternatively

Q # 10 (a) (i) Expenses are overstated (1)

Profit for the year is understated (1) [2]
(ii) Non-current assets are understated (1)
Owner’s capital (Profit )is understated (1) [2]

Q # 11
 Resource Pack/Accounting/O Level

Answer Key of Past Paper MCQs

Question Key Question Key

1 C 2 A
3 A 4 A
5 D 6 A
7 B 8 B
9 C 10 C
11 C 12 C
13 A 14 D
15 C 16 D
17 A 18 D
19 B 20 B
21 B 22 D
23 A 24 D
25 D 26 B
27 B 28 B
29 C 30 D
31 C 32 D
33 B 34 C
35 C 36 D
37 A 38 A
 Resource Pack/Accounting/O Level

Chapter 15
Control Accounts

Solution of Past Paper Questions

Q#1

Q # 2 (a)

(b)
 Resource Pack/Accounting/O Level

(c) Helps to prove the arithmetical accuracy of sales ledger

Helps to reduce fraud
Can (assist in) locating errors, allow help, identify errors
Easy access to total receivables figure
Quicker production of financial statements
Provides a summary of transactions relating to trade receivables
(1 mark per benefit, maximum 2)

Q#3

Q#4

Q # 5 (a)

(b)
 Resource Pack/Accounting/O Level

(c) Overpayment of amount owing to credit supplier

Return of goods to credit supplier after payment made
Cash discount not deducted when payment was made to credit supplier
Payment made to credit supplier in advance
Any 2 reasons (1) each

Q#6

(c)

Q # 7 (a)
 Resource Pack/Accounting/O Level

(b)

(c) (i) An entry which appears on the debit side of the purchases ledger control
account and the credit of the sales ledger control account (1)
(ii) It is made when a sales ledger account is set off against a purchases ledger
account of the same person/business (1)
(d) Overpayment of the amount owing
Failure to deduct cash discount due
Goods returned after account settled
Payment made in advance
Any 2 reasons (1) each

Q # 8 (a)
 Resource Pack/Accounting/O Level

Q # 9 (a)
 Resource Pack/Accounting/O Level

Q # 10
 Resource Pack/Accounting/O Level

Q # 11. (a)

(d)
 Resource Pack/Accounting/O Level

Q # 12.
Purchases Ledger Control account

Sales Ledger Control account

Q # 13. (a)
 Resource Pack/Accounting/O Level

(b) Item appearing in list but not in control account:

Cash sales: The double entry is sales account and cashbook. They do not appear in a debtor’s
account and so do not appear in the sales ledger control account.
Provision for bad debts: This is the balance on the provision account atthe start of the month to cover
any future bad debts. It does not appear in a debtor’s account and so does not appear in the sales ledger
control account.
Any 1 item (1) for identifying the item (2) for a suitable explanation
(c) Total of debtors’ balances: $7 124 O/F– $280 = $6 844 O/F [1]
(d) Source of information for items in the purchases ledger control account:
(i) purchases journal (1)
(ii) cash book (1)
(iii) cash book (1) [3]
(e) Advantages of control accounts:
• provides instant totals of debtors and creditors
• prove the arithmetical accuracy of the ledgers they control
• enable the Balance Sheet to be prepared quickly
• may be used to identify ledgers in which there are errors when a trial balance does not agree
• provides a summary of the transactions relating to debtors/creditors for the period
• provides an internal check on the appropriate ledgers – may reduce fraud
Or other relevant points
Any 2 points (1) each [2]

Q # 14

(b) Reasons for a debit balance

Overpayment of amount due
Cash discount not deducted before payment made
Returned goods after payment of amount due
Payment made to creditor in advance
Or other suitable point
Any 2 points (1) each [2]
 Resource Pack/Accounting/O Level

(c) A purchases ledger control account acts as a check on the purchases ledger. If there is an error in
the purchases ledger it will not be revealed by a control account prepared from the individual accounts
in that ledger. [2]

Q # 15 (a) Advantages of preparing a sales ledger control account (apart from helping locate errors
when a trial balance does not balance) –
Provides instant total of debtors
Proves the arithmetical accuracy of sales ledger
Enables the Balance Sheet to be prepared quickly
Provides a summary of the transactions relating to debtors for the period
Provides an internal check on the sales ledger – may reduce fraud

(b) A contra entry is where a transfer is made from an account of a person/business in the sales ledger
to an account of the same person/business in the purchases ledger.
This may occur when a person/business is both a customer and a supplier. [2]

(c)

Q # 16. (a)

(b) Overpayment of amount due by debtor

Cash discount not deducted by debtor before payment made
Goods returned by debtor after payment of amount due
Payment made in advance by debtor
Or other suitable point
Any 1 reason (1) mark [1]
 Resource Pack/Accounting/O Level

Q # 17

Q # 18 (a) Assist in the location of errors

Provide instant totals of trade receivables and trade payables
Proves the arithmetical accuracy of the sales/purchases ledgers
Enable a balance sheet to be prepared quickly
Provide a summary of the transactions relating to trade receivables and trade payables
Provide an internal check on sales/purchases ledgers – may reduce fraud
Or other relevant points
Any 2 points (1) each [2]
 Resource Pack/Accounting/O Level

(c) A contra entry is when an account in the sales ledger is set against an account in the purchases
ledger. (1)Such an entry is made when a supplier is also a customer of the business and has an account
in both ledgers. (1) [2]
(d) The sales ledger control account acts as a check on the sales ledger. If there is an error in the sales
ledger it will not be revealed by a control account prepared from the individual accounts in that ledger.

Q # 19 (a) Assist in the location of errors

Provide instant totals of trade receivables and trade payables
Proves the arithmetical accuracy of the sales/purchases ledgers
Enable a balance sheet to be prepared quickly
Provide a summary of the transactions relating to trade receivables and trade payables
Provide an internal check on sales/purchases ledgers – may reduce fraud
Or other relevant points
Any 2 points (1) each [2]
(b) Overpayment of amount due by a debtor
Cash discount not deducted by debtor before payment made
Goods returned by debtor after payment of amount due
Payment made in advance by debtor
Any 1 point (1) [1]

Q # 20 (a) To assist in the location of errors

To provide instant totals of trade receivables and trade payables
To prove the arithmetical accuracy of the sales and purchases ledgers
To enable a balance sheet to be prepared quickly
To provide a summary of transactions relating to trade receivables and trade payables
To provide an internal check on sales and purchases ledgers – may reduce fraud
Any 2 points (1) each [2]
(b) The purchases ledger control account acts as a check on the purchases ledger. If there is an error in
the purchases ledger it will not be revealed by a control account prepared from the individual accounts
in the ledger. [2]
 Resource Pack/Accounting/O Level

(d) Overpayment to supplier

Payment made without deducting cash discount
Goods returned to supplier after payment of balance due
Payment made in advance to supplier
Any 2 points (1) each [2]
(e) A contra entry is one which appears on the debit of the purchases ledger control account and the
credit of the sales ledger control account.(1)
This entry is made when a sales ledger account is set off against a purchases ledger account of the
same person/business. (1)

Q # 21 (a) Work can be shared amongst several people

Easier for reference as the same type of accounts are kept together
Easier to introduce checking procedures
Any 1 point (1) [1]

(b)

(c) Assist in the location of errors

Provide instant total of trade payables
Proves the arithmetical accuracy of the purchases ledger/the ledger they control
Enables a balance sheet to be prepared quickly
Provides a summary of the transactions relating to trade payables
 Resource Pack/Accounting/O Level

May reduce fraud

Any 2 points (1) each [2]
(d)

(e)

Q # 22 (a) To reduce the possibility of fraud [2]

(b) This is what Asma Anwar owes one or more of her credit customers (1) because of overpayment,
returns after goods have been paid for etc. (1) [2]
 Resource Pack/Accounting/O Level

Q # 23 (a)

(b)

Answer Key of Past Paper MCQs

Question Key Question Key

1 B 2 C
3 C 4 D
5 B 6 B
7 A 8 D
9 A 10 C
11 C 12 A
13 B 14 A
15 D 16 A
17 B 18 A
19 A 20 D
21 A 22 B
23 B 24 B
 Resource Pack/Accounting/O Level

25 C 26 B
27 A 28 A
29 D 30 B
31 B 32 B
33 C 34 C
35 B 36 C
37 A 38 D
39 A 40 D
41 A 42 A
43 C 44 D
45 C 46 B
 Resource Pack/Accounting/O Level

Chapter 16
Correction of Errors
Solution of Past Paper Questions

Q#1

Q # 2 (a)
 Resource Pack/Accounting/O Level

(b)

(c)

Q # 3 (a) To balance the trial balance

Because there are errors on the trial balance
To allow draft financial statements to be prepared
Accept other valid points.
Any 2 reasons (1) each
(b)

(c) All errors have not been discovered (1)

The suspense account will not be closed (1)
($650 + $180 on debit and $1000 on credit)
Accept alternative answers depending on entries in (b)
 Resource Pack/Accounting/O Level

(d)

Q#4

Q#5

(c)
 Resource Pack/Accounting/O Level

(d) Yes/no (1) OF

Errors affecting the trial balance have all been discovered as the suspense account has been cleared (1)
OF
(e)

Q # 6 (a)

(b) (i)
 Resource Pack/Accounting/O Level

(ii)

(c)

Q#7
 Resource Pack/Accounting/O Level

Q#8

Q#9
 Resource Pack/Accounting/O Level

(e)

Q # 10 (a)

(b)
 Resource Pack/Accounting/O Level

Q # 11

Q # 12
 Resource Pack/Accounting/O Level

Q # 13 (a)

(b)
 Resource Pack/Accounting/O Level

Q # 14

Q # 15 (a)

(b)
 Resource Pack/Accounting/O Level

(c)

Q # 16 (a)

(ii)

(b) (i)

(ii)
 Resource Pack/Accounting/O Level

Q # 17 (a)

Q # 18
Journal
 Resource Pack/Accounting/O Level

Q # 19 (a) When suspense account is required –

When a trial balance fails to balance [1]
(b) The second error requires a correcting entry in the suspense account (1)
This is required because this error affects the balancing of the trial balance (2) [3]

(c)

Q # 20
 Resource Pack/Accounting/O Level

Q # 21 (a) To make the totals of the trial balance agree (1) and so that draft final accounts may be
prepared (1)
 Resource Pack/Accounting/O Level

Q # 22 (a)

(b)

Q # 23 (a)
Journal
 Resource Pack/Accounting/O Level

(c) Answer to be based on answer to (b) – If (b) shows a closing balance –

No (1)
If all the errors has been discovered the suspense account would be closed (1)
If (b) shows the account is closed –
Yes (1)
It is likely that the errors have been discovered as the suspense account is closed (1) [2]

Q # 24 (a) To prepare final account

To check arithmetical accuracy of books
To check accounts balance
To locate errors
Other acceptable reason

(b)

(c)
 Resource Pack/Accounting/O Level

(d) Nil [1] OF

Q # 25 (a)
 Resource Pack/Accounting/O Level

(c)

Q # 26 To balance the trial balance

To allow draft final accounts to be prepared
Any one point (1)

(b)

Q # 27 (a) Used to prepare final accounts

Can trace or identify errors.
Other sensible comment.
One reason [1]
(b)
 Resource Pack/Accounting/O Level

(c)

(d)

Q # 28 (a) A narrative explains the reasons for the entries which are to be made in the ledger. [2]
(b) Journal
 Resource Pack/Accounting/O Level

Q # 29 (a)

(b)

(c)
 Resource Pack/Accounting/O Level

Q # 30 (a)

(b)

(c)
 Resource Pack/Accounting/O Level

Q # 31 (a)

Q # 32 (a) To assist in the preparation of financial statements

To check for arithmetical accuracy/errors (must include arithmetical)
Any 1 reason (1) [1]
 Resource Pack/Accounting/O Level

(b)

(c)

(d)
 Resource Pack/Accounting/O Level

(e) All the errors have NOT YET been discovered. (1)
There is a balance remaining on the suspense account/Trial Balance. (1) [2]

Q # 33 (a)
 Resource Pack/Accounting/O Level

Q # 34

Q # 35 (a)
 Resource Pack/Accounting/O Level

(b)

(c) Either
Error number (i) (1)
Reasons it is an error or omission
Neither a debit nor a credit entry has been made so the books balance
Any 1 reason (1)
Or
Error number (ii) (1)
Reason it is an error of principle
A double entry has been made but in the wrong class of account.
Any 1 advantage (1) [2]

Q # 36 (a)

(b) It would appear that not all the errors have been discovered (1) as there is still a balance on the
suspense account (1)
Or – if the candidate’s suspense account is closed –
It would appear that all the errors have been discovered (1)as there is no balance remaining on the
suspense account (1) [2]
(c) Only errors that affect the balancing of the trial balance are corrected using a suspense account. (1)
Error 3 (The omission of goods for own use) does not affect the balancing of the trial balance and so is
not corrected using that account. (1) [2]
 Resource Pack/Accounting/O Level

Q # 37 (a)

(b) Error number 2 – Error of commission (1)

Error number 3 – Error of principle (1)

(c)

Q # 38 (a) To ensure that the totals of the trial balance agree (1)
To allow draft financial statements to be prepared (1)
Resource Pack/Accounting/O Level
 Resource Pack/Accounting/O Level

Q # 39

Q # 40
 Resource Pack/Accounting/O Level

(c) Error of principle (1) [1]

Q # 41 (a)

(c) Error of commission (1)

Answer Key of Past Paper MCQs

Errors not affect the Trial Balance

Question Key Question Key

1 A 2 B
3 A 4 D
5 D 6 D
7 A 8 A
9 B 10 B
11 D 12 C
 Resource Pack/Accounting/O Level

13 D 14 D
15 A 16 A
17 D 18 A
19 B 20 D
21 C 22 D
23 B 24 C
25 D 26 D
27 A 28 B
29 B 30 D
31 B 32 B
33 C 34 D
35 C 36 B
37 A 38 D
39 C 40 A
41 42

Errors affect the Trial Balance

Question Key Question Key

1 C 2 D
3 D 4 C
5 C 6 D
7 D 8 D
9 B 10 B
11 D 12 C
13 C 14 C
15 B 16 B
17 B 18 B
19 D 20 B
21 D 22 B
23 C 24 C
25 D 26 C
27 D 28 A
29 C 30 C
31 B 32 B
33 B 34 A
35 B 36 A
37 B 38 A
39 A 40 D
41 A 42 D
43 B 44 B
45 D 46 D
47 D 48 D
49 C 50 C
 Resource Pack/Accounting/O Level

51 A 52 B
53 D 54 D
55 C 56 A
 Resource Pack/Accounting/O Level

Chapter 17
Incomplete Records

Solution of Past Paper Questions

Q # 1 (a)

(b)
 Resource Pack/Accounting/O Level

Q # 2 (a)

(b)
 Resource Pack/Accounting/O Level

(c)

(d) Margin is the gross profit measured as a percentage of selling price (1)
Mark-up is the gross profit measured as a percentage of cost price (1)

Q # 3 (a)

(b)
 Resource Pack/Accounting/O Level

Q#4

Q # 5 (a)

(b)
 Resource Pack/Accounting/O Level

(c)

Q # 6 (a)

(b)

(c)

(d) Reduce inventory levels

More sales activity
Or other suitable points
Any 2 points (1) each
 Resource Pack/Accounting/O Level

Q#7
 Resource Pack/Accounting/O Level

Q # 8 (a)
 Resource Pack/Accounting/O Level

Q#9
 Resource Pack/Accounting/O Level

Q # 10
 Resource Pack/Accounting/O Level

Q # 11
Resource Pack/Accounting/O Level
 Resource Pack/Accounting/O Level

Q # 12

(c)
 Resource Pack/Accounting/O Level

Q # 13

(b)

Q # 14 (a) (i)

(ii)

(b)
 Resource Pack/Accounting/O Level

(c) (i)

(ii) Profitability aspect

Stock replacement
Comparisons
Identifying causes of fluctuations
Remedial/corrective action

Q # 15 (a)

(b)

(c)
 Resource Pack/Accounting/O Level

Q # 16 (a)

(b)

*5 items = 2 marks
1 error = 1 mark
2 errors = 0 marks
Error = wrong figure, alien or omission
 Resource Pack/Accounting/O Level

Q # 17

Q # 18
 Resource Pack/Accounting/O Level

Q # 19

(b) Mark-up is when the gross profit is measured as a percentage of the cost price of the goods (1)
Margin is when the gross profit is measured as a percentage of the selling price of the goods (1) [2]
 Resource Pack/Accounting/O Level

Q # 20

(d) Contribute further capital – but not by taking (bank) loan

Obtain capital by taking partner
Reduce drawings
Increase net profit (reduce loss if shown in (b))
(e.g. by increasing fees/commissions, reducing expenses (or any one specific expense) but only one
example, so 2 marks for only any one method of increasing net profit)
Any two (2) each [4]
 Resource Pack/Accounting/O Level

Q # 21

(b)

(c) Rate of inventory (stock) turnover

= Cost of goods sold / average inventory (stock)
= 9 700 (1)OF/ [(1 780 + 1 920)/2 = 1 850 (1)OF]
= 5.24 (1)OF times (1) [4]
(Note – a calculation mark may be awarded even if the formula is wrong.)

Q # 22
 Resource Pack/Accounting/O Level

Q # 23
 Resource Pack/Accounting/O Level

Q # 24 (a)
 Resource Pack/Accounting/O Level

Q # 25 (a)

Q # 26 (a) Less risk of errors

Less risk of fraud
Easier to refer to previous transactions
Financial position can be ascertained
Easier to prepare financial statements
Easier to make business decisions
Easier to calculate accounting ratios
 Resource Pack/Accounting/O Level

Or other acceptable point

Any two points (2) each [4]

Q # 27 (a)

(e) Reduce inventory levels

Generate more sales activity
Only replace inventory when needed
Any 2 points (2) each [4]
 Resource Pack/Accounting/O Level

Q # 28 (a)
 Resource Pack/Accounting/O Level

Q # 29
 Resource Pack/Accounting/O Level

Q # 30 (a) Calculation of credit purchases

(Suitable alternative presentations acceptable)

(b) Calculation of amount received from credit customers

(suitable alternative presentations acceptable)

(c) Calculation of expenses paid

(Suitable alternative presentations acceptable)
 Resource Pack/Accounting/O Level

Q # 31 (a)

(b)
 Resource Pack/Accounting/O Level

Q # 32

Q # 33
 Resource Pack/Accounting/O Level

Answer Key of Past Paper MCQs

Question Key Question Key

1 B 2 A
3 B 4 B
5 B 6 D
7 D 8 D
9 D 10 C
11 D 12 D
13 C 14 B
15 D 16 B
17 D 18 B
19 D 20 D
21 A 22 D
23 A 24 D
25 C 26 C
 Resource Pack/Accounting/O Level

27 D 28 C
29 A 30 D
31 D 32 B
33 B 34 C
35 A 36 D
37 B 38 C
39 D 40 D
41 A 42 D
43 D 44 A
45 B 46 B
47 C 48 D
49 D 50 C
51 C 52 A
53 D 54 A
55 B 56 A
57 A 58 B
59 C 60 A
61 D 62 D
63 B 64 C
65 A 66 B
67 D 68 D
69 D 70 C
71 A 72 C
73 D 74 C
75 A 76 D
 Resource Pack/Accounting/O Level

Chapter 18
Clubs and societies
Solution of Past Paper Questions

Q # 1 (a)

(b)
 Resource Pack/Accounting/O Level

(c)

(d) Increase selling prices

Find cheaper suppliers/obtain discounts
Change the mix of sales
Reduce expenses
Reduce wages
Buy cheaper products
(or other acceptable suggestions)
1 mark for each suggestion – maximum 3

Q # 2 (a)
 Resource Pack/Accounting/O Level

(b)

(c) (i) Bank balance (opening or closing)

Repayment of loan
Purchase of equipment
Insurance prepaid
Subscriptions prepaid (at 28 February 2019)
Any 2 items (1) each
(ii) Deficit
Depreciation of equipment
Accrued general expenses (at 28 February 2019)
Any 2 items (1) each
(d) $165 (1)
Liability (1)

(e) $6880 – $120 OF = $6760 (1)OF

Q # 3 (a)
 Resource Pack/Accounting/O Level

(b)

(c)

(d) It is the total of all the surpluses (1) made by the club less all the deficits (1) since the start of the club

Q # 4 (a)
 Resource Pack/Accounting/O Level

(b)
 Resource Pack/Accounting/O Level

Q # 5 (a)

(b)

(c)
 Resource Pack/Accounting/O Level

(d) Loan interest is an expense account/any accrued interest is a current liability (1)
The loan is a non-current liability (1)
Accept other valid points

Q # 6 (a) Subscriptions paid in advance at the year-end (1)

(b)

(c)

(d)
 Resource Pack/Accounting/O Level

Q # 7 (a)

(b)
 Resource Pack/Accounting/O Level

Q # 8 (a)

(b)

(c)

(d)
 Resource Pack/Accounting/O Level

Q#9
 Resource Pack/Accounting/O Level

Q # 10
 Resource Pack/Accounting/O Level

Q # 11
Resource Pack/Accounting/O Level
 Resource Pack/Accounting/O Level

Q # 12
 Resource Pack/Accounting/O Level

Q # 13

Q # 14 (a)
 Resource Pack/Accounting/O Level

(c)

Q # 15
Resource Pack/Accounting/O Level
 Resource Pack/Accounting/O Level

Q # 16

(c)

(d)
 Resource Pack/Accounting/O Level

Q # 17 (a)

(b)

(c) Ways to raise funds:

•increase subscriptions
•fundraising activities
• obtain long-term loans
•loan/mortgage
Or other relevant points Any 2 points (1) each

Q # 18 (a) (i) The Income and Expenditure Account is equivalent to a Profit and Loss Account of a trading
organisation. (1)It is used to calculate the annual surplus or deficit. (1) Or other suitable points [2]
(ii) The accumulated fund is equivalent to the capital of a trading organisation, the difference between the
assets and the liabilities. (1)The annual surpluses (less any deficits) accumulate within a non-trading
organisation to form the accumulated fund. (1)
[2]
 Resource Pack/Accounting/O Level

Q # 19
 Resource Pack/Accounting/O Level

(c) Reasons why bank balance does not equal surplus/deficit –

R & P A/c shows total money paid and received
I & E A/c adjusts figures for accruals and prepayments
I & E A/c includes non-monetary items such as depreciation
I & E A/c includes only revenue items

Or other relevant points

Any 2 acceptable points (1) each

Q # 20
Resource Pack/Accounting/O Level
 Resource Pack/Accounting/O Level

Q # 21 (a)

(b) Either
Opening bank balance (1)
This is neither income nor expenditure for the year as it represents the bank overdraft on 1 October 2006.
(1)
Or
Purchase of new instruments (1)
This is not regarded as revenue expenditure as it is the purchase of a fixed asset. (1) [2]
(c)
 Resource Pack/Accounting/O Level

Q # 22

(c) (i) Either

Opening balance or closing balance (1)
Opening/closing bank balance is neither income nor expenditure for the year as it represents the amount of
money in the bank on that particular date. (1)
Or
Transfer to bank deposit account (1)
Transferring money from one bank account to another is neither income nor expenditure. (1)
Or
Purchase of equipment (1)
This is not regarded as revenue expenditure as it is the purchase of a fixed asset. (1) [2]
(ii) Either
Subscriptions prepaid on 1 April 2008 (1)
This item represents an amount received during the previous financial year which relates to the current
financial year. Application of matching principle. (1)
Or
Subscriptions owed by member 31 March 2009 (1)
 Resource Pack/Accounting/O Level

This item represents an amount relating to the current financial year which has not yet been received.
Application of matching principle. (1)
Or
Rent accrued (1)
This item represents an amount relating to the current financial year which has not yet been received.
Application of matching principle. (1)
Or
Depreciation of equipment (1)
This is a non-monetary expense but must be taken into account in calculating the surplus/deficit.
Application of matching principle. (1)
Or
Deficit for the year (1)
This is the difference between the income and expenditure and is the “loss” for the year and does not
represent money paid/received. (1)
Alternatively accept surplus with a suitable comment if a surplus is shown in the answer to (b).[2]

Q # 23 (a)

(c) R & P A/c shows total money paid and received

 Resource Pack/Accounting/O Level

I & E A/c adjusts figures for accruals and prepayments

I & E A/c includes non-monetary items such as depreciation
I & E A/c includes only revenue items
Any 1 acceptable explanation (2) [2]

11. (a) (i) Income and expenditure account (1)

(ii) Surplus (or excess of income over expenditure) (1)
(iii) Accumulated fund (1)

(b)

(c)

Q # 24 (a)
 Resource Pack/Accounting/O Level

(b)

Q # 25 (a) The accumulated fund represents the surpluses (less any deficits) the club has made since it was
formed.

(c) The income and expenditure account includes only revenue items
The income and expenditure account includes non-monetary items
The income and expenditure account adjusts figures for accruals and prepayments
The receipts and payments account shows total money paid and received
Any 2 points (2) each [4]
 Resource Pack/Accounting/O Level

Q # 26

(b) Current liability [1]

(c) Subscriptions are amounts paid by members of a club or society to use the facilities provided by the
club [1]
(d) This is a non-current asset and the income and expenditure account only contains revenue expenditure.
(1) for basic statement + (1) for development [2]
(e) Part of the payment for insurance is for the next financial year. (1)
Either
 Resource Pack/Accounting/O Level

The income and expenditure account includes only expenses for that year
This is an application of the matching/accruals principle (1) [2]

(f)

Q # 27 (a)
 Resource Pack/Accounting/O Level

(b)

Q # 28 (a)

(b)

(c)
 Resource Pack/Accounting/O Level

(d)

(e)

Q # 29 (a)

(b)
 Resource Pack/Accounting/O Level

(c)

(d) Increase selling prices

Buy cheaper goods
Try to find cheaper suppliers
Try to reduce shop expenses
Or other suitable points
Any 2 correct points (1) each [2]

Q # 30 (a) An amount paid by a member for the right to use the facilities of a club (1) [1]
(b) Some members of the club may be in arrears with their subscriptions (1) and other members
may have prepaid their subscriptions (1) [2]
 Resource Pack/Accounting/O Level

(f) Members have not invested any capital (1) so there can be no drawings which represent amounts taken
from the return on an investment (1) [2]

Q # 31

(c) $15400 – $1148 OF = $14252 (1) OF [1]

(d) The members have not invested any capital (1) so there can be no dividend which represents a return on
the amount invested (1) [2]
 Resource Pack/Accounting/O Level

Q # 32

(b) Current assets (1) OF

Answer to be based on closing balance in (a) [1]
 Resource Pack/Accounting/O Level

Q # 33
 Resource Pack/Accounting/O Level

Solution of Past Papers MCQs

Question Key Question Key

1 C 2 C
3 D 4 D
5 A 6 B
7 A 8 A
9 C 10 B
11 A 12 C
13 D 14 A
15 C 16 A
17 D 18 C
19 C 20 D
21 B 22 A
23 D 24 B
25 D 26 B
27 D 28 B
29 D 30 D
31 D 32 A
33 D 34 D
35 D 36 C
37 A 38 B
39 D 40 D
41 A 42 A
43 D 44 D
45 B 46 A
47 D 48 D
 Resource Pack/Accounting/O Level

Chapter 19
Limited liability companies Accounts

Solution of Past Paper Questions

Q#1
 Resource Pack/Accounting/O Level

Q # 2 (a)

Q#3
 Resource Pack/Accounting/O Level

(b)

(c) Get a fixed return

Have priority over ordinary shareholders for the interest/dividend
Have priority over ordinary shareholders in a winding-up
Neither have voting rights
Not members of the company
Or other suitable comment
Any 2 comments (1) each

(d)

(e) Bank overdraft not suitable for long-term borrowing

Bank may require overdraft to be repaid at short notice
Interest may be more than that on a loan
Overdraft facility may be withdrawn at short notice
 Resource Pack/Accounting/O Level

Or other suitable comments

Any 2 comments (1) each

(f)

Q # 4 (a)

(d)
 Resource Pack/Accounting/O Level

(e) Will not dilute their stake in the company

Will not dilute their voting power
If expansion profitable, potential for higher dividend as debenture holders receive fixed interest
Or other acceptable comment
Any 1 comment (1)

(f) Annual profit reduced because of debenture interest

Reduced profit available for ordinary shareholders
Prior claim on assets in a winding-up
Or other acceptable comment

Q # 5 (a)
 Resource Pack/Accounting/O Level

(b)
 Resource Pack/Accounting/O Level

(c) Interest on debentures must be paid irrespective of whether there is a profit (but profit
is expected to increase after two years)
Prior claim on the assets of the company in a winding up
Funds have to be available when repayment is due
Prior claim on the profits of the company/less profit available for ordinary share
dividend (this may only be a disadvantage in the first two years)
Or other relevant point
Any 2 points (1) each
 Resource Pack/Accounting/O Level

(d) Dilution of ownership of company

New shares rank equally with existing ordinary shares with regard to
dividend(even though profit expected to increase after two years dividend may reduce)
New shares rank equally with existing ordinary shares with regard to repayment in a
winding up
Or other relevant point
Any 2 points (1) each

Q#6

Q # 7 (a)

(b)
 Resource Pack/Accounting/O Level

(c)

(d) In statement of changes in equity (1)

Q#8
 Resource Pack/Accounting/O Level

(e)

326
Make Accounting easy with Sir Muzammil
 Resource Pack/Accounting/O Level

(h)

Q # 9 (a)
 Resource Pack/Accounting/O Level

(b)

(c)
 Resource Pack/Accounting/O Level

Q # 10 (a)

(b)

Q # 11
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Q # 12
 Resource Pack/Accounting/O Level

Q # 13
Resource Pack/Accounting/O Level
 Resource Pack/Accounting/O Level

Q # 14
 Resource Pack/Accounting/O Level

Q # 15 (a)
 Resource Pack/Accounting/O Level

(b) Prior claim on the profits of the company

Interest must be paid irrespective of whether there is a profit
Prior claim on the assets of the company in a winding-up
Funds must be available when repayment is due
Or other relevant point
Any 2 points (1) each [2]

Past Papers (IGCSE)

Q # 16 (a) $30000 × 5% = $1500 (1)

$50000 × 6% = $3000 (1)
$70000 × 8% = $5600 (1) [3]
(b) To indicate that part of the profit is for long term use within the company and is not available
for distribution. [1]
 Resource Pack/Accounting/O Level

(e) Non-current liabilities [1]

(f) (i) Current liabilities [1]
(ii) $750 [1]
Answer Key of Past Paper MCQs

Question Key Question Key

1 C 2 A
3 A 4 B
5 A 6 C
7 C 8 A
9 C 10 B
11 C 12 A
13 D 14 D
15 A 16 A
17 B 18 C
19 C 20 D
21 A 22 D
23 B 24 C
25 C 26 D
27 D 28 C
29 B 30 B
31 A
 Resource Pack/Accounting/O Level

Chapter 21
Accounting Ratios/Financial Ratios
Solution of Pat Paper Questions

Q # 1 (a)

(b)

Q # 2 (a)

(b) Decrease in inventory/trade receivables/cash

Increase in trade payables/bank overdraft
Purchase of non-current assets
Increase in drawings
Repayment of long-term liabilities
Any 2 reasons (1) each
 Resource Pack/Accounting/O Level

(c)
 Resource Pack/Accounting/O Level

Q#3
 Resource Pack/Accounting/O Level

Q # 4 (a)

(b)
 Resource Pack/Accounting/O Level

(f)

(g)

(h) Increase in selling price so possibility of greater gross profit (1)

Customers may go to cheaper suppliers, so sales and profit may decrease (1)
Accept other valid points

Q # 5 (a) Current assets : current liabilities(1)

(b)

Q # 6 (a) Current assets – inventory : current liabilities

 Resource Pack/Accounting/O Level

(b)

(c)

Q#7
 Resource Pack/Accounting/O Level

(e)

Q#8
 Resource Pack/Accounting/O Level

(f)

Q#9
 Resource Pack/Accounting/O Level

Q # 10

Q # 11
 Resource Pack/Accounting/O Level

Q # 12
Resource Pack/Accounting/O Level
 Resource Pack/Accounting/O Level

Q # 13 (a)
 Resource Pack/Accounting/O Level

Q # 14 (a)

(b)

(c)
 Resource Pack/Accounting/O Level

Q # 15 (a)
(i) $12000 (1)
(ii) Purchase returns (accept ‘returns’) (1)
(iii) Closing stock (accept ‘Stock at 31 March 2003’) (1)
(iv) $5000 (1)
(v) received (1)
(vi) £15000 (1)
(b)

(c)

(d) N.P. as percentage of capital employed:

- measures overall profitability of the business in relation to resources used
- indicates adequacy of return on owner’s investment
- enables comparisons to be made, e.g. against other investments, earlier years, similar firms
- assists decision-making, e.g. in production, cost of borrowing or other acceptable points
For each reason given: 2 marks

Q # 16 (a)
 Resource Pack/Accounting/O Level

(b) (i) May have problems paying debts as they fall due
May not be able to take advantage of cash discounts
Cannot make the most of opportunities as they occur
Difficulties in obtaining further supplies
Or other suitable points
Any two suitable points – (2) each [4]
(ii) Injection of more capital
Long-term loans
Sale of surplus fixed assets
Reduce drawings
Or other suitable points
Any two suitable points – (2) each [4]

Q # 17 (a)

(d)
 Resource Pack/Accounting/O Level

Q # 18 (a)
(i) $25000 (1)
(ii) Assets (1)
(iii) $3000 (1)
(iv) Creditors (1)
(v) Capital (1)
(vi) $20000 (1)
(vii) Drawings (1)

Q # 19 (a) (i) Margin – when the gross profit is expressed as a percentage of the selling price [2]
(ii) Mark-up – when the gross profit is expressed as a percentage of the cost price [2]
(b) (i)

(b) (ii) All responses to be based on own figure calculations in (b) (i)

Gross profit as a percentage of sales –

Purchasing goods more cheaply
Reducing trade discounts to customers
Increasing selling prices

Net profit as a percentage of sales-

 Resource Pack/Accounting/O Level

Increase in gross profit percentage

Reduction in expenses
Differences in types of expenses (fixed/variable)

Collection period for debtors –

Less efficient credit control
Allowing longer credit to maintain sales
Not allowing cash discounts to debtors

Payment period for creditors –

Shortage of liquid funds
Knock-on effect of debtors taking longer to pay
Suppliers not allowing cash discounts
In each case other suitable points acceptable In each case – any 2 points (1) each [8]

(c) Interested parties–

Zaraki (Proprietor) -
Assessment of past performance
Planning for the future
Identifying areas where corrective action is required

Manager (if any) –

Assessment of past performance
Planning for the future
Identifying areas where corrective action is required

Bank manager –
Assessment of prospects of any requested loan/overdraft being repaid when due Assessment of prospects
of any interest on loan/overdraft being paid when due Assessment of the security available to cover any
loan/overdraft

Lenders –
Assessment of prospects of any requested loan being repaid when due
Assessment of prospects of interest on loan being paid when due
Assessment of the security available to cover the loan

Creditors for goods –

Assessment of the liquidity position
Identifying how long the business normally takes to pay creditors
Identifying future trading prospects of the business

In each case other suitable reasons acceptable

Three parties to be identified – (1) each giving a total of (3) One reason required in each case – (1) giving
a total of (3) [6]
 Resource Pack/Accounting/O Level

Q # 20 (a) (i) $6000 (1)

(ii) Stock (1)
(iii) $71 000 (1)
(iv) Inwards (1)
(v) $14 000 (1)
(vi) Received (1) (accept income)
(vii) $7000 (1)

(b) (i)

(ii)

(c)

Q # 21 (a)

(c) Ways to improve working capital:

• injection of more capital
• more long-term loans
• sale of surplus fixed assets
• Reduction of drawing.
 Resource Pack/Accounting/O Level

Or other suitable points Any 2 points (2) each [4]

(d) Reasons why should not compare with other business:
• different type of business (sole trader/partnership)
• different type of trade (manufacturing/foodstore)
• one run by managers, one run by owner
• one in its first year of trading, one in its fifth year
• different type of sales (cash/credit)
• different types of expenses (rent/cost of maintaining premises)
• different type of fixed assets (machinery/premises, fixtures).
Or other relevant points
Any 4 points (2) each

Q # 22 (a)

(ii) Quick ratio [1]

Stock is not regarded as a liquid asset – a buyer has to be found and then the money collected. Some stock
may prove to be unsaleable.
The quick ratio shows whether the business would have any surplus liquid funds if all the current liabilities
were paid immediately from the liquid assets.

(ii) 1 Not satisfied – if (c) (i) is more than 30 days

Or – satisfied if (c) (i) is less than 30 days [1]
2 Debtors are allowed 30 days credit but on average are taking 51 days
Or suitable explanation based on O/F answer to (c) (i).

(ii) Advantage of paying creditors before due date –

 Resource Pack/Accounting/O Level

May be able to take advantage of cash discounts

Improves the relationship with suppliers
Or other suitable comment
One advantage required (1) [1]

(iii) Disadvantage of paying creditors before due date –

The business is deprived of the use of the money earlier than necessary
Or other suitable comment
One disadvantage required (1) [1]

Q # 23 (a)

(b) Understandability. (1)

Comparability. (1)
Relevance. (1)

Q # 24

(b) All responses to be based on own figure calculations in (a)

Current ratio
Increase in current liabilities greater than the increase in current assets
Increase in bank overdraft
Increase in creditors
Decrease in stock
Decrease in debtors

Quick ratio
 Resource Pack/Accounting/O Level

Greater proportion of current assets in form of stock

Increase in bank overdraft
Increase in creditors
Decrease in debtors
In each case any 1 correct point (1)

(c) All responses to be based on own figure calculations in (a)

Collection period for debtors
Less efficient credit control
Allowing longer credit to encourage sales
Not allowing cash discounts

Payment period for creditors

Shortage of liquid funds
Knock-on effect of debtors taking longer to pay
Suppliers not allowing cash discounts
In each case other suitable points accepted
In each case – any 2 points (1) each [4]

(d) Problems of inter-firm comparison –

Should compare with a business in same trade
Should compare with a business of approximately the same size
Should compare with a business of the same type (sole trader/partnership etc)
The accounts may be for 1 year only which will not show trends and may not be a typical year
The financial year may end on different dates and the period of time covered may be different
The businesses may operate different accounting policies
There may be differences which affect profitability and the items on the Balance Sheet
The accounts do not show non-monetary items, but these are important in the success of a business
It is not always possible to obtain all the information about a business in order to make a true comparison
Or other suitable points
Any 3 correct points (2) each [6]

Q # 25

(b) Does not include stock in the calculation [1]

Either
 Resource Pack/Accounting/O Level

Stock is not regarded as a liquid asset – a buyer has to be found and then the money collected. Some stock
may prove to be unsaleable. [1]
Or
The quick ratio shows whether the business would have any surplus liquid funds if all the current liabilities
were paid immediately from the liquid assets. [1] [2]

(c) Satisfied if (a) (ii)is higher than the ratio for 2005
Not satisfied if (a) (ii)is lower than the ratio for 2005 [1]

(d) Increase in current liabilities greater than the increase in current assets
Increase in creditors and no significant change in current assets
Decrease in debtors and no significant change in current liabilities
Decrease in bank and no significant change in current liabilities
Decrease in stock and no significant change in current liabilities
Or suitable response based on own figure calculation in (a) (i)
Any 1 acceptable point [2] [2]

(e) (i) Not satisfied if (a) (iii) is more than the ratio for 2005
Satisfied if (a) (iii) is less than the ratio for 2005 [1]

(ii) Debtors are taking 9 days longer to pay than the previous year
Or suitable explanation based on O/F answer to (a) (iii) [2]
(f) Debtors are taking longer to pay so this may have a knock-on effect and mean that the creditors may
have to wait longer for their accounts to be paid.
Or suitable explanation based on O/F answer to (a) (iii) and (a) (iv) [2]

(g) Rate of stock turnover [1]

(h) The accounts may be for 1 year only and not show trends
The accounts may not be for a typical year
The financial year may end at a different point in the trading cycle
The businesses may operate different accounting policies e.g. depreciation
The accounts do not show non-monetary items but these are important in the success of a business
It is not always possible to obtain all the information about a business in order to make a true comparison
Or other suitable points
Any 3 correct points [1] each [3]

Q # 26 (a) (i) Net book value (accept NBV, written down value, WDV) (1)
(ii) $300 (1)
(iii) $8 600 (1)
(iv) Net current assets or Working capital (1)
(v) $14 100 (1)
(vi) (Net) Profit (notGross profit) (1)
(vii) $5 600 (based on (viii)) (1)OF
(viii) $14 100 (must agree with (v)) (1) OF[8]
 Resource Pack/Accounting/O Level

(b) (i)current ratio

= Stock + debtors + cash/bank/Creditors

= 5 200 + 8 600 + 1 100 = 14 900 (2)/3 800 (1)
= 3.92:1 (1)OF[4]

(ii) Return on opening capital employed

= Net profit/opening capital employed × 100

= 6 700 (1)/13 000 (1)= 51.54% (2)OF[4]

(c) Different type of business

Different products
Capital/labour intensive business
Business with higher net profit
Business with lower capital
– other reasonable answers (2 each) [4]

Q # 27
 Resource Pack/Accounting/O Level

Q # 28 (a)

(b)

(c) (i) Current assets / Current liabilities

6 000 (1)OF/ 2 100 (1)OF = 2.86:1 (1)OF
(accept 2.85 but not 2.8, 2.9 or 3, other correct OF calculations on same basis)
(ii) Current assets – stock / Current liabilities
(6 000 – 1 900) = 4 100 (1)OF/ 2 100 (1)OF= 1.95:1 (1)OF
(or debtors 3 400 + bank 700 = 4 100 (1))
(do not accept 1.9 or 2, accept other correct OF calculations on same basis) [6]
 Resource Pack/Accounting/O Level

(d)

Q # 29 (a) Selling goods at lower prices

Allowing higher rates of trade discount for bulk buying
Not passing on increased costs to customers
Buying more expensive goods
Or other suitable point
Any 2 reasons (1) mark each[2]

(b) Reduce expenses e.g. reduce staffing levels, reduce advertising etc.
Increase gross profit e.g. increase profit margin, increase selling prices etc.
Increase other income e.g. rent out part of premises, earn more discount etc.
Or other suitable point
Any 1 reason (1) mark

(c) (i) 25% – 10% = 15% (1)

(ii) 21% – 9% = 12% (1)[2]

(d) Percentage of expenses to sales has reduced so the efficiency of the business in controlling expenses
has increased.
Or suitable answer based on O/F answers to (c)

(f) In both years the debtors are paying Kalpna Khan earlier than she is paying the creditors (though the
gap is smaller in the second year). (1)
She is able to make use of the money within the business for this period. (1)
Or other suitable comments up to (2) marks

(g) Offer cash discount for prompt payment

Charge interest on overdue accounts
Improve credit control
Refuse further supplies on credit until outstanding balance paid
Invoice discount and debt factoring
Or other relevant points
 Resource Pack/Accounting/O Level

Any 2 points (1) each [2]

(h) (i) Non-monetary factors

One example – goodwill, quality of management, or other suitable example (1)
Such items will not appear on the accounting statements but can influence the profitability and prospects of
a business. (1)
(ii) Accounting policies
One example – methods of depreciation, methods of stock valuation, or other suitable example (1)
These will affect calculation of the profit and the profitability ratios and the value of the assets. (1) [4]

Q # 30

Q # 31 (a) (i) Mark-up is the gross profit measured as a percentage of the cost price. [1]
(ii) Margin is the gross profit measured as a percentage of the selling price. [1]

(b) (i) Cost of sales = (25 200 + 347 200) – 28 000 = 344 400 (1)
Gross profit = 430 500 – 344 400 = 86 100 (1)

(ii) Sales = 430 500

Gross profit = 86 100
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(c) Increase selling prices.

Obtain cheaper supplies.
Change mix of sales.
Or other acceptable point.
Any 2 points (1) each.[2]

(d) Current assets = 28 000 + 36 300 + 100 = 64 400 }

Current liabilities = 29 600 + 13 200 = 42 800 } (1)
Current ratio = 64 400 : 42 800 (1)= 1.50 : 1 (1)[3]

(e) Liquid assets = 36 300 + 100 = 36 400 }

Current liabilities = 29 600 + 13 200 = 42 800 } (1)
Quick ratio = 36 400 : 42 800 (1)= 0.85 : 1 (1)[3]

(f) Answer to be based on O/Fs in (e).

Not satisfied (1)
Immediate liabilities cannot now be met out of liquid assets without selling stock (2).
Or other suitable comment.[3]

(g) (ii)No effect (1)

(iii) Decrease (1)

Q # 32

(b) All comments and reasons to be based on OFs from (a)

Gross profit percentage has fallen from 35.50% to 29.63%.
Is earning $29.63 per $100 sales compared to $35.50 previously.
The business is less profitable in respect of gross profit.
Or other suitable comment
Any 1 comment (2)
Reduction in selling prices.
Increase in cost of supplies.
Change in proportions of different goods.
Not passing on increased costs to customers.
Or other acceptable reason
Any 1 reason (2)
Net profit percentage has increased from 10.45% to 12.96%.
Is earning $12.96 per $100 sales compared to $10.45 previously.
The business is more profitable.
Or other suitable comment
Any 1 comment (2)
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Increased control of expenses.

Change in types of expenses.
Or other acceptable reason
Any 1 reason (2) [8]

(c) Cannot meet liabilities when they are due.

May experience difficulties in obtaining further supplies on credit.
Cannot take advantage of cash discounts.
Cannot take advantage of business opportunities as they arise.
Any 2 points (2) each [4]

Q # 33

(b) (i) Percentage of gross profit to sales

This measures the success in selling goods
The ratio shows the gross profit earned per $100 of sales
The ratio can be compared with previous years
The ratio can be compared against other businesses
Mark Ukata has spent 80% (O/F) of the sales income on the cost of goods
Or other relevant explanation
Any 3 points (1) each [3]

(ii) Percentage of profit for the year (net profit) to sales

This measures the overall success of the business
The ratio shows the net profit earned per $100 of sales
The ratio can be compared with previous years
The ratio can be compared against other businesses
The ratio indicates how well the business controls its expenses
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Mark Ukata has spent 11.53% (O/F) of the sales income on expenses
Or other relevant explanation
Any 3 points (1) each [3]

(iii) Return on capital employed (ROCE)

The ratio shows the profit earned per $100 employed in the business
The ratio can be compared with previous years
The ratio can be compared against other businesses
The ratio measures the profitability of the investment in the business
The ratio shows how efficiently the capital is being employed
Or other relevant explanation
Any 3 points (1) each [3]

Q # 34

(e) Offer cash discount for prompt payment

Charge interest on overdue accounts Improve credit control
Refuse further supplies on credit until outstanding balance paid
Invoice discounting and debt factoring
Or other relevant points
Any two points (1) each [2]

(f) (4100 + 3800) : (5300 + 2900) (1) = 0.96 : 1 (1) [2]

(g) Unsatisfied if O/F in (f) is less than 2:1 (1)

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She is unable to meet her immediate liabilities from her immediate assets (1)
Or
Satisfied if O/F in (f) is 2:1 or over (1)
She is able to meet her immediate liabilities from her immediate assets (1) [2]

(h) Introduce additional capital

Reduce drawings
Obtain long term loan
Sell surplus non-current assets
Any two points (1) each [2]

Q # 35

.
(b) (i) Salma Ali is –
Not buying goods as cheaply
Not taking advantage of bulk buying
Not passing increased costs on to customers
Buying more expensive goods
Selling goods at a lower margin
Allowing customers a higher rate of trade discount
Or other suitable point
Any one reason (2)

(ii) Salma Ali has –

Lower expenses
Better control of expenses
Different types of expenses (fixed/variable)
Higher amount of other income
Or other suitable point
Any one reason (2)
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(iii) Salma Ali has –

Higher stock levels
Lower sales activity
Or other suitable point Any one reason (2) [6]

(c) Should compare with a business of approximately the same size

Should compare with a business of the same type (sole trader)
Should compare with business selling same type of goods
Should compare with a business with approximately the same amount of capital
The accounts may be for one year only which will not show trends and may not be a typical year
The financial year may end at a different point in the trading cycle
The businesses may operate different accounting policies
There may be differences which affect profitability and the items on a balance sheet
The financial statements do not show non-monetary items
It is not always possible to obtain all the information about a business in order to make a true comparison
Or other suitable points
Any three points (2) each [6]

Q # 36

(d) Yes (1)

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Reasons:
1 Selling car parts and opening a workshop would increase Vasco’s profits (1)
2 The percentage of gross profit to sales would increase as the profitability of selling parts is higher than
selling fuel (1) [3]
(Not possible to award marks for comments about return on capital as not known)

Q # 37 (a) Selling goods at higher prices

Reducing the rate of trade discount
Passing on increased costs to customers
Buying goods at cheaper prices
Or other suitable point
Any 2 reasons (1) each [2]

(b) Increase in the gross profit percentage

Reduction in expenses
Increase in other income
Or other suitable point
Any 2 reasons (1) each [2]

(c) (i) Year ended 31 July 2010

21% – 10% = 11% (1)

(ii) Year ended 31 July 2011

25% – 11% = 14% (1) [2]

(d) Percentage of expenses has increased (1)

The efficiency of the business in controlling expenses has decreased (2)
Or other suitable answer based on O/F answers to (c) [3]

(e) (4 500 + 3 800 + 50 + 1 000):5 600

= 9 350:5 600 (1)
= 1.67:1 (1) [2]

(f) (3 800 + 50 + 1 000):5 600

= 4 850:5 600 (1)
= 0.87:1 (1) [2]

(g) Unsatisfied (1)

The ratio has decreased. It is now below 1:1
She cannot pay her immediate liabilities from her liquid assets
She is relying on the sale of stock to be able to pay her immediate liabilities
Any two points (1) each
Accept alternative answers based on O/F answer to (f) [3]

(h) To be able to meet debts when they fall due

To be able to take advantage of cash discounts
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To be able to take advantage of business opportunities as they arise

To ensure that there is not difficulty in obtaining further supplies
Or other suitable explanation
Any 1 point (2) [2]

(j) (i) Bank manager

Prospects of any requested loan/overdraft being repaid when due
Prospects of any interest on loan/overdraft being paid when due
Security available to cover any loan/overdraft

(ii) Employee
Ability of business to continue operating
Prospects for jobs and wages

(iii) Supplier of goods on credit

Assessment of liquidity position
Identifying how long it takes the business to pay creditors
Identifying future prospects of the business
Establishing a credit limit

(iv) Potential purchaser of the business

Profitability of the business
Value of the assets of the business
Or other suitable reason in each case
Any 1 acceptable reason for each person [4]

Q # 38 (a) (i) Current assets – current liabilities (1)

(36 000 + 60 000) – (63 000 + 17 000) = 96 000 – 80 000 (1)
= $16 000 (1) OF [3]

(ii) Current assets : current liabilities (1)

96 000 : 80 000 (1) = 1.2 : 1 (1) OF [3]

(iii) Current assets – inventory : current liabilities (1)

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60 000 : 80 000 (1) = 0.75 : 1 (1) OF [3]

(b) (i) Cole Limited (1)

Cole Limited can pay the immediate liabilities from the current assets and/or Fanza
Limited’s ratio is lower than is usually acceptable (2) [3]

(ii) Cole Limited (1)

Cole Limited can meet the immediate liabilities from the liquid assets but Fanza may
have difficulty in paying current liabilities when they fall due/Fanza Limited’s ratio is lower than is usually
acceptable(2) [3]

Q # 39 (a)

(ii) Supermarket/Conrad turnover is higher but gross profit percentage lower

Supermarket prices may be lower than shop/Congo prices
Different goods have different profit margins
Customers may be willing to pay higher prices for fresh items
Supermarket has to carry greater stock
Any acceptable comment
Any one comment (2) based on OF [2]

(ii) Supermarket has higher expenses than shop

Supermarket pays more rent than shop (or similar examples)
Shop better at controlling expenses
Any acceptable comment
Any one comment (2) based on OF [2]
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(ii) Supermarket made higher profit for the year on less capital
Shop made better use of capital employed
Any acceptable comment
Any one comment (2) based on OF [2]

(d) May reduce prices (1)so could be selling at a gross loss (1)
May be selling at a lower profit margin (1)and not covering costs (1)
May have higher expenses (1)which reduces profit (1)
Any acceptable comment
(1) for identification and (1) for expansion [2]

Q # 40 (a) To see the average time the trade receivables take to pay their accounts. [1]

(b) No (1)
She has to wait 6 more days (1)for them to settle their accounts. (1) [3]

(c) No (1) unless justified by suitable reason

It is shorter than the payment period for the previous year (1) but is still 10 days longer than the period of
credit allowed. (1) [3]

(d) To be able to meet debts when they fall due

To be able to take advantage of cash discounts To be able to take advantage of business opportunities as
they arise To ensure that there is no difficulty in obtaining further supplies
Or other suitable explanation
Any 1 point (2) [2]

(e)
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(f) Satisfied: Yes (1)

The profit earned for every $100 used in the business has increased/the business is more
profitable (2)
OR The capital is now being used more efficiently (2) [3]

(g)

(h) Only items which can be recorded in monetary terms are shown in the financial
statements (1)
There are many important factors which influence the performance of a business which will not appear in
the financial statements. (1) [2]

Q # 41 (a)
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(b) (i) Kelly Limited –

Has a higher selling price
Is selling goods at a higher mark-up
Has a lower cost price
Is taking advantage of bulk buying
Is allowing customers a lower rate of trade discount
Or other suitable reason
Any 1 reason (2) [2]

(ii) Kelly Limited –

Has higher expenses
Has less control over expenses
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Has different types of expenses (fixed/variable)

Has lower amount of other income Or other suitable reason
Any 1 reason (2) [2]

(c) (i) This shows the profit earned for each $100 used in the business. (1) The higher the percentage the
more efficiently the capital is being employed. (1) [2]

(ii) Patrick Murphy Or appropriate answer based on answer to (a)(iii) [1]

(d) Should compare with a business of approximately the same size

Should compare with a business of the same type (sole trader)
The financial statements may be for one year which will not show trends
The financial statements may be for one year which is not a typical year
The financial year may end on different dates (when inventories are high/low)
The businesses may operate different accounting policies
The statements do not show non-monetary factors
It may not be possible to obtain all the information needed to make comparisons
Or other suitable points
Any 2 points (2) each [4]

Q # 42 (a) The expenses percentage has increased (1) so the efficiency of the business has decreased (1)
[2]

(b) Reduce expenses

Increase other income
Increase gross profit percentage
Any 1 point (2) [2]

(c) (i) The total funds being used by a business [1]

(ii) The profit earned for every $100 used in the business [1]
(iii) Decrease in capital employed [2]

(d)
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(e) 1 Accounts only record information which can be expressed in monetary terms. (1)
Many important factors which influence the performance of the business will not appear
in the financial statements. (1)

2 Transactions are recorded at the actual cost. (1)

Because of inflation it is difficult to compare transactions which have taken place at
different times. (1) [4]

Q # 43

(b) The brother has better control of his expenses (1).

The brother has a larger business and experiences economies of scale on overheads such as rent (1).
The brother buys goods for resale at a lower price (1).
The brother sells the goods at a higher price (1).
Any one for (1) mark [1]
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(d) Increasing sales

Decreasing inventory levels
More efficient purchasing of inventory
Change in type of goods sold
Increase in business activity
Lower inventory levels
More sales activity
Any two for (1) each [2]

Inventory valuation

Solution of past papers

Q#1

Q#2

Q # 3 (a)

(b)
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Q # 4 (a) Stock is valued at the lower (1)of cost (1)and net realisable value (1) [3]

(c) Prudence [2]

Q # 5 (a) 200 units (1)@ $3.20 (1) = $ 640 (1)OF[3]

Accept if just shown as figures, 3 marks for just the correct answer.
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Q#6

(c) Cost is the actual purchase price plus any additional costs incurred in bringing the inventory (stock) to
its present condition and position. (1)
Net realisable value is the estimated receipts from the sale of the inventory (stock), less any costs of
completing or selling the goods. (1) [2] (d) Inventory (stock) should always be valued at the lowest of cost
and net realisable value. (1)
This is an application of the principle of prudence. (1)
Over-valuing inventory (stock) causes both the profit for the year and the current assets to be incorrect. (1)
Or other relevant explanation
Any 2 points (1) each [2]

(e)
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(f) Reduce (inventory) stock levels

Generate more sales activity
Only replace inventory (stock) when needed
Or other suitable point
Any 2 points (1) each [2]

Q # 7 (i) Prudence (1) [1]

(ii) At the lower (1) of cost and net realisable value (1) [2]
(iii)

Answer Key of Past paper MCQs

Question Key Question Key

1 D 2 C
3 A 4 B
5 D 6 C
7 C 8 A
9 A 10 B
11 A 12 A
13 C 14 C
15 C 16 D
17 B 18 D
19 B 20 B
21 D 22 A
23 C 24 D
25 A 26 B
27 B 28 B
29 C 30 D
31 B 32 B
33 A 34 B
35 A 36 B
37 D 38 C
39 A 40 B
41 A 42 C
43 D 44 B
45 B 46 D
47 B 48 C
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49 D 50 B
51 C 52 B
53 D 54 B
55 C 56 A
57 C 58 C
59 D 60 D
61 B 62 D
63 B 64 C
65 B 66 C
67 B 68 B
69 B 70 C
71 C 72 A
73 B 74 D
75 C 76 A
77 D 78 B
79 B 80 D
81 B 82 B
83 C 84 B
85 D 86 B
87 C 88 A
89 B 90 D
91 D 92 B
93 B 94 B
95 C 96 B
97 B 98 D
99 B 100 D
101 D 102 B
103 D

Answer Key of MCQs (Stock Valuation)

Question Key Question Key

1 B 2 B
3 B 4 A
5 B 6 A
7 D 8 B
9 A 10 A
11 C 12 A
13 A 14 A
15 C 16 A
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17 A 18 C
19 A 20 A
21 A 22 A
23 A
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Chapter 23
Accounting Principles

Solution of practice Questions

1.

Q # 2 Business entity (1)

Money measurement (1)
Realisation (1)

Q#3

Q#4
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Q#5
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Q#6

Q#7
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Q#8

Revalue his premises recording the increase in market value as a

Historic cost
profit
Include a value for business reputation in his income statement Money measurement (1)
Record his drawings in the income statement Business entity (1)
To stop charging depreciation on non-current assets for the year Consistency (1)
Not to provide for trade debts which are probably irrecoverable Prudence (1)
[4]

Answer Key of Past Paper MCQs

Question Key Question Key

1 A 2 C
3 C 4 A
5 B 6 A
7 D 8 C
9 C 10 C
11 B 12 C
13 A 14 C
15 D 16 B
17 C 18 D
19 B 20 D
21 D 22 D
23 D 24 C
25 C 26 D
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27 A 28 C
29 A 30 B
31 B 32 D
33 C 34 B
35 D 36 B
37 D 38 C
39 C 40 C
41 A 42 C
43 A 44 D
45 B 46 B
47 C 48 B
49 C 50 A
51 B 52 D
53 A 54 C
55 D 56 A
57 B 58 C
59 B 60 A
61 B 62 A
63 D 64 C
65 D 66 B
67 A 68 B
69 A 70 B
71 D 72 D
73 B 74 B
75 A 76 B
77 D 78 A
79 A 80 D
81 D 82 B
83 D 84 D
85 C 86 D
87 A 88 B
89 A 90 A
91 B 92 D
93 B 94 D
95 C 96 B
97 A
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