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UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS

GCE Ordinary Level

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MARK SCHEME for the May/June 2010 question paper for the guidance of teachers

7110 PRINCIPLES OF ACCOUNTS

7110/22 Paper 22 (Structured), maximum raw mark 120

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes must be read in conjunction with the question papers and the report on the examination.

CIE will not enter into discussions or correspondence in connection with these mark schemes.

CIE is publishing the mark schemes for the May/June 2010 question papers for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses.

Page 2 1 (a) Owners capital Capital employed (b) Item (i) (ii) (iii) (iv) (v)

Mark Scheme: Teachers version GCE O LEVEL May/June 2010 $3 000 (1) $6 500 (1)

Syllabus 7110

Paper 22

[2]

Book of prime entry Cash book

Effects on current assets $200

Effect on current liabilities No effect

Effect on capital $200

Purchases day book (1) +$1 500 Sales day book Cash book Cash book (1) +$800 (1) $4 000 (1) $1 440

(1) +$1 500 (1) No effect (1) No effect (1) $1 500

(1) No effect (1) +$800 (1) No effect (1) +$60

(1) (1) (1) (1) [16]

(c)

Trial balance of Leung as at 31 May 2010 Dr $ Gross profit Inventory (stock) Bank loan Trade receivables (debtors) Trade payables (creditors) Office equipment Cash (bank) Discount received Rent and expenses Capital 4 600 1 200 4 000 1 750 3 850 15 400 Marks awarded for description and figure. Cr $ 6 650 (1) (1) 3 500 (1) (1) 2 100 (1) (1) (1) 150 (1) (1) 3 000 (1) 15 400 [10] [Total: 28]

UCLES 2010

Page 3 2 (a) Bank/cash Discount received Balance c/d

Mark Scheme: Teachers version GCE O LEVEL May/June 2010 Purchase Ledger Control Account $ 47 000 (1) 300 (1) 2 300 (1) 49 600 Balance b/d Purchases $ 1 700 (1) 47 900 (1) 49 600 $ 950 (1) 165 785 (1)of $ 800 150 950 (1)of 90 1 040 (1)of Journal Dr $ 1 040 Cr $ (1)of 785 (1)of 255 (1)of

Syllabus 7110

Paper 22

[5]

(b) (i) Net pay of Susan Salary Tax and social security (ii) Cost of employing Susan 160 $5 = 20 $7.5 = Salary Social security

[2]

[2]

(c)

Wages and expenses Bank Tax authorities

[3]

(d) Tsang Income statement (Trading and Profit and Loss Account) for the month ended 31 March 2010 $ Revenue (sales) Opening inventory (stock) Purchases Closing inventory (stock) Cost of sales Gross profit Discount received Wages & expenses Profit for the year (net profit) Alternatives formats accepted 3 400 47 900 (1) 51 300 2 900 48 400 16 600 300 16 900 2 500 14 400 (2)1of (1) (1) (1)of [6] [Total: 18] $ 65 000

UCLES 2010

Page 4 3

Mark Scheme: Teachers version GCE O LEVEL May/June 2010

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(a) Goodwill is the value of a business over and above the value of its recorded assets. (1) Examples would include reputation, quality of service, brand names, location, existing workforce, regular customers (1). [2] OR Goodwill is the difference between the value of the separate net assets of a business and the total value of the business. (b) Money measurement Prudence (c) Calculation: Capital 31 August 2009 Less share of goodwill Capital 1 September 2009 (d) (i) Chan $ 50 000 20 000 (1) 30 000 (1) (ii) David $ 15 000 10 000 (1) 5 000 (1) [2] [2]

[4]

Newstart Balance Sheet at 1 April 2009 $ Non-current (fixed) assets Current assets Inventory (stock) Trade receivables (debtors) Current liabilities Trade payables (creditors) Bank overdraft Net current assets Financed by: Capital Chan David 30 000 (1)of 5 000 (1)of 35 000 [6] 12 000 7 000 19 000 (1) 11 000 (1) 6 000 (1) 17 000 2 000 35 000 $ 33 000 (1)

UCLES 2010

Page 5

Mark Scheme: Teachers version GCE O LEVEL May/June 2010

Syllabus 7110

Paper 22

(e) Newstart Income statement (Profit and Loss Appropriation Account) for the year ended 31 March 2010 $ Profit for the year (net profit) Plus interest on drawings Chan David Less salaries Chan David Share of losses Chan David 750 1 000 1 750 12 000 8 000 7 000 (15 000) (3 000) (2 000) (1 000) (3 000) (1)of if correct split (1)of if correct split [5] [Total: 21] 4 (a) (i) Cost of sales Sales Less 40% Gross profit Cost of sales (ii) Raw materials (purchases) Opening stock Purchases Closing stock Cost of sales (iii) Expenses Gross profit Expenses Net profit 40% 8% $ 250 000 100 000 150 000 (3) $ 10 000 165 000 (2)of 175 000 25 000 (1) 150 000 (1)of $ 100 000 80 000 (3) 20 000 (1) for both salaries $ 10 250 (1) (1)

[3]

[4]

[3]

(iv) Rate of inventory (stock) turnover

Cost of goods sold Average inventory (stock)

150 000 (of) = 8.57 times (3)of ((10 000 + 25 000)/2)

[3]

[Total: 13]

UCLES 2010

Page 6 5 (a)

Mark Scheme: Teachers version GCE O LEVEL May/June 2010

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Wang Yee Manufacturing Account for the year ended 31 January 2010 Inventory (stock) of raw materials at 1 February 2009 Purchases of raw materials Less: Inventory (stock) of raw materials at 31 January 2010 Cost of raw materials consumed Direct factory wages ($62 140 + $1 120) Prime cost Rent Factory managers salary Provision for depreciation of plant and machinery Add decrease in work in progress ($23 570 $18 780) Cost of production $ 14 700 75 600 90 300 16 250 74 050 63 260 16 800 31 500 11 600 $ (1) (1) (1) (1) (1) 137 310 (1) (1) (1) (1) 59 900 197 210 4 790 (1) 202 000 (1)

[11]

(b) Wang Yee Income statement (trading and profit and loss account) for the year ended 31 January 2010 $ Revenue (sales) Less Revenue (sales) returns Inventory (stock) of finished goods at 1 February 2009 Cost of production Raw materials (purchases) of finished goods Inventory (stock) of finished goods at 31 January 2010 Cost of sales Gross profit Rent Office salaries Distribution costs Sundry office expenses ($9 870 $630) Finance costs (loan interest) ($2 400 + $800) Provision for depreciation of Office equipment ($24 000 20%) $4 800 ($6 000 20% 4 12) 400 Increase in provision for doubtful debts Profit for the year (net profit) 35 000 202 000 15 500 252 500 32 500 11 200 41 600 28 650 9 240 3 200 5 200 250 99 340 21 910 $ 342 500 (1) 1 250 (1) 341 250 (1) (1)of (1) (1) 220 000 121 250 (1) (1) (1) (1) (2) (2) (1) [15]

UCLES 2010

Page 7 (c)

Mark Scheme: Teachers version GCE O LEVEL May/June 2010 Wang Yee Balance sheet as at 31 January 2010 Cost $

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Paper 22

Depreciation to date $ 43 600 17 200 60 800

NBV $ 80 000 (1) 46 400 (1) 12 800 (1) 139 200

Non-current (fixed) assets Property (land and buildings) Plant and machinery Office equipment Current assets Inventory (stock) Raw materials Work in progress Finished goods Trade receivables (debtors) Less: provision for doubtful debt Other receivables (prepaid expenses) Less: Current liabilities Trade payables (creditors) Other payables (accrued expenses) ($1 120 + $800) Loan repayable within 12 months (bank overdraft) Net current assets Non-current (long term) liabilities 8% loan repayable 31 December 2015 Financed by: Capital Plus: Net profit Less: Drawings

80 000 90 000 30 000 200 000 16 250 18 780 32 500

67 530 45 000 1 800 43 200 630 111 360 60 700 1 920 33 030 95 650

(1) (2) (1) (1) (2) (1) 15 710 (1) 154 910 40 000 (1) 114 910

110 000 21 910 131 910 17 000 114 910 (1)of [14] [Total: 40]

UCLES 2010