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Acc144050_M21711A.

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Paper Reference(s)

6001

London Examinations GCE
Accounting (Modular Syllabus)
Advanced Subsidiary/Advanced Level
Unit 1 – The Accounting System
and Costing
Tuesday 17 May 2005 – Afternoon
Time: 3 hours
Materials required for examination
Answer book (AB16)

Items included with question papers
Accounting paper (AB34)

Instructions to Candidates
Answer FIVE questions, choosing TWO from Section A and THREE from Section B.
All calculations must be shown.
In the boxes on the answer book, write the name of the examining body (London Examinations), your
centre number, candidate number, the subject title (Accounting), the paper reference (6001), your
surname and other name(s), and signature.
Answer your questions in the answer book.
Ensure that your answers to parts of questions are clearly numbered.
Use additional answer sheets if necessary.
If the accounting paper provided does not allow you to set out your answer in the way you wish, rule
up a page of your answer book to suit your requirements.

Information for Candidates
The total mark for this paper is 100.
The marks for individual questions and the parts of questions are shown in round brackets: e.g. (2).
This paper has seven questions. There are no blank pages.
Calculators may be used.

Advice to Candidates
Write your answers neatly and in good English.

Printer’s Log. No.

M21711B

*m21711b*

W850/U9011/57570 5/4/4/3/2/
This publication may be reproduced only in accordance with Edexcel Limited copyright policy. ©2005 Edexcel Limited.

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z Ravindra owed £7 700 to the suppliers of goods. Ravindra commenced business as a general retailer on 1 May 2004.Acc144050_M21711A. z Telephone of £85 was owing. Additional information for the year ended 30 April 2005: (i) Most sales have been for cash. At that date his capital consisted of £1 500 in the bank. z Depreciation was charged on fixtures at 10% and computer equipment at 30% using the straight line method. (ii) Payments were made in cash in each of the 52 weeks of the year from the cash till. The following analysis of the bank account is available. Where sales have been on credit these have been recorded and invoiced. z Ravindra had taken goods with a cost price of £2 750 for his personal use during the year. z Rent of £1 500 was prepaid. (v) On 30 April 2005: z Customers owed Ravindra £3 000. £ Sales assistants’ wages 125 per week Drawings 100 per week (iii) After deducting the cash expenditure in (ii) above. z A debtor has informed Ravindra that he is unable to pay his debt of £350. shop fixtures £3 000 and stock £2 500. £ Receipts Cheque to open the account Cash sales Credit sales banked 1 500 83 000 7 000 Payments Rent and rates General expenses Suppliers of goods Electricity Telephone Computer equipment 7 500 4 000 65 000 3 600 800 2 000 (iv) During the year Ravindra received discount of £1 000 from suppliers for prompt payment. all cash takings had been paid into the bank.qxd 17/02/05 08:41 Page 2 SECTION A Answer TWO questions from this section 1. M21711B 2 . z Stock was valued at £4 200. Ravindra has not kept a full set of books. A provision is to be made for the doubtful debt.

(4) (Total 26 marks) M21711B 3 Turn over . (4) (c) Evaluate the advantages and disadvantages of keeping a full set of double entry accounts rather than the system currently in use by Ravindra. explain why only a proportion of the purchase price of computer equipment will be recorded in the profit and loss account for a single year. (2) (ii) Using an accepted accounting concept. (8) (ii) balance sheet as at 30 April 2005. (8) (b) (i) Distinguish between capital expenditure and revenue expenditure.qxd 21/02/2005 10:26 Page 3 Required: (a) Prepare for Ravindra the: (i) trading and profit and loss account for the year ended 30 April 2005.Acc144050_M21711A.

The chemical plants are the major employers in both towns. (i) Stock levels. (4) (ii) Calculate for the business as a whole. the return on capital employed. (1) (iii) Comment upon the sufficiency of the ratios calculated in (i) and (ii) above. The lower grade materials would substantially increase the pollution from the plant. Additional information for each chemical plant for the year ended 30 April 2005: Gross profit as a percentage of sales Net profit as a percentage of sales Stock turnover Current ratio Liquid (acid test) ratio Sales Owners capital Fixed assets Long term loans Newtown Burnham Town 60% 20% 12 times 1. 17/02/05 08:41 Page 4 Antoni Chemicals operates two chemical plants. (3) M21711B 4 . discuss how social accounting and profit maximisation can play an equal part in the decision making of businesses.8:1 £1 500 000 £1 000 000 £1 200 000 £1 000 000 30% 6% 7 times 2.Acc144050_M21711A. (3) (ii) “Social accounting will always be sacrificed by businesses as they strive for profit maximisation. (2) (ii) Purchasing costs of raw materials. (2) (b) (i) Calculate for Newtown and for Burnham Town the: z z fixed assets to sales percentage return on capital employed. one in Newtown and one in Burnham Town. Antoni Chemicals are considering the closure of the plant at Burnham Town because the only way to make the plant operate profitably would be to use lower grade materials.” With reference to the above statement.6:1 £1 000 000 £500 000 £600 000 £1 000 000 Required: (a) Using the figures above comment upon the following for Newtown and Burnham Town.qxd 2.6:1 0.4:1 0. The plant in Burnham Town is old and inefficient and there are concerns about possible pollution from the plant. (3) (c) (i) Explain the term social accounting.

Your evaluation should give consideration to both the financial and non financial factors to be considered. (2) (e) Evaluate the action that Antoni Chemicals could now take in respect of the Burnham Town chemical plant.Acc144050_M21711A.qxd 17/02/05 08:41 Page 5 (d) State two implications of closing the Burnham Town plant for each of the following: (i) the local community (2) (ii) material suppliers. (4) (Total 26 marks) M21711B 5 Turn over .

Acc144050_M21711A. (6) (d) Calculate for the machining and finishing departments the: (i) projected overhead absorption rates. (b) Distinguish between allocation and apportionment in overhead recovery. (4) (e) Evaluate the advantages and disadvantages of calculating separate overhead recovery rates for the machining and finishing departments as an alternative to calculating a single overhead recovery rate for the business as a whole. (2) (ii) actual under or over absorption of overhead. 21/02/2005 10:26 Page 6 Basic Manufacturing has two production departments: Machining and Finishing. and two service departments: Administration and Stores. (ii) “Most overhead costs are fixed or semi-fixed.” Comment upon the validity of the above statement. giving an example of each. (4) (Total 26 mark) M21711B 6 . Note: Calculations should be made to the nearest pound. Budgeted overheads have been allocated and apportioned to the four departments as follows: £ 20 000 30 000 6 000 4 000 Machining Finishing Administration Stores The budgeted use of the two service departments will be as follows: Administration Stores Machinery 40% 60% Finishing 40% 30% Stores 20% – Administration – 10% Additional information: Budgeted direct labour hours Budgeted machine hours Machining – 4 300 Finishing 8 550 – Actual direct labour hours Actual machine hours Actual overhead cost – 4 850 £26 650 8 300 – £34 250 Required: (a) (i) Explain the terms fixed and semi-fixed costs.qxd 3. (4) (2) (4) (c) Re-apportion the overheads of the service departments to the production departments using the continuous allotment method.

(iii) Goods sold to a customer for £8 000 had been debited to both the sales account and the customers account. (4) (ii) the suspense account showing clearly the opening balance.Acc144050_M21711A. Identify one other checking device used in accounting and evaluate its benefits. (2) (b) Draft the revised trial balance following the correction of all errors. The following trial balance was prepared for the business of Kassam on 30 April 2005. (7) (c) A trial balance is a checking device. The trial balance was prepared by an inexperienced bookkeeper and contains both errors in drafting and errors of double entry. Narrations are not required. Debit £ Sales Purchases Stock at 1 May 2004 Purchase returns Salaries and trade expenses Telephone charges Capital Bank overdraft Fixtures (at cost) Fixtures provision for depreciation Debtors Creditors Provision for doubtful debts Credit £ 96 450 42 000 5 700 800 45 200 1 540 15 000 1 600 40 000 1 800 12 920 15 050 600 The following errors in double entry were found in the books: (i) Goods purchased on credit valued at £200 were returned on 28 April 2005 but no entries had been made in the books to record the return. Required: (a) Prepare for Kassam: (i) journal entries to correct the errors.qxd 25/01/05 13:20 Page 7 SECTION B Answer THREE questions from this section 4. but no other entries had been made. (iv) Telephone charges of £60 had been paid by cheque and correctly recorded in the telephone charges account. (3) (Total 16 marks) M21711B 7 Turn over . (ii) New fixtures costing £1 500 had been posted to the purchases account.

The following are being considered: z z changing the stock valuation to the First In First Out (FIFO) method. 500 items purchased in March at a cost of £4. Actual hours worked Hourly rate of pay Output (items) Small Large Adnam 36 £4 Belinda 44 £7 110 175 120 250 Standard time allowed (per unit) Small Large 6 minutes 9 minutes All hours worked above 40 in any week are paid at time and a half. Each minute earned is valued at £0. M21711B 8 . The business is considering changing the methods of valuing stock and of remunerating its production workers. All production staff are paid on a day-work basis. 09/02/2005 10:00 Page 8 Shah Manufacturing produces a single product. (ii) The following stock transactions took place in May: 3 May 7 May 15 May 24 May Issued Received Received Issued 1 500 items 2 000 items @ £6 per item 1 000 items @ £7 per item 1 500 items (iii) The following details relate to a week in the month of May for two production employees. 1 000 items purchased in April at a cost of £5.Acc144050_M21711A.10 for piecework calculation.qxd 5. changing the remuneration for production workers to piecework. Shah Manufacturing values its stock on the Last In First Out (LIFO) basis. Additional information at 1 May 2005: (i) Stock records show that 2 000 items were in stock at the beginning of the current period and were valued on the basis of: z z z 500 items purchased in February at a cost of £3.

showing all receipts and issues for the month of May.qxd 17/02/05 08:42 Page 9 Required: (a) Calculate the value of the closing stock. (2) (Total 16 marks) M21711B 9 Turn over . (ii) piecework. (4) (d) Evaluate one benefit to Shah Manufacturing of remuneration by piecework.Acc144050_M21711A. (4) (c) Calculate the earnings of each employee using: (i) day-work. using: (i) Last In First Out (LIFO) (3) (ii) First In First Out (FIFO) (3) (b) Explain two advantages to the business of changing its stock valuation to the FIFO method.

17/02/05 08:42 Page 10 Paul Bain prepared the following balance sheet as at 30 April 2005. Paul Bain – Balance Sheet as at 30 April 2005. (iii) Paul Bain valued the skill of his staff at £30 000 and had placed this sum in the balance sheet and the profit and loss account. For that year Paul had charged depreciation ‘writing the asset down’ to its scrap value at the end of the year. M21711B 10 . £ Fixed assets Premises Office fixtures Staff skill Current assets Stock Debtors Bank less Current liabilities Creditors Financed by: Capital Net profit Drawings 180 000 100 30 000 210 100 15 000 19 000 5 900 39 900 16 000 234 000 160 000 81 000 241 000 7 000 234 000 Paul had not received any formal financial training before preparing the balance sheet. The business uses a 50% mark up on goods. (iv) The closing stock was valued at resale value. The usual depreciation rate of 20% was not applied for the year ending 30 April 2005. (ii) Office fixtures had a book value of £4 000 on 1 May 2004. This was considered as a profit for the year. The asset will continue to be used in the business for several years.Acc144050_M21711A.qxd 6. The following information is available: (i) The value of the premises was increased by £20 000 to take account of the increased market value in the year.

(5) (c) Prepare a revised balance sheet as at 30 April 2005 which complies with accepted accounting concepts and conventions. (4) (b) Calculate the revised net profit after applying the correct interpretation of the accepted accounting concepts and conventions.qxd 17/02/05 08:42 Page 11 Required: (a) Identify.Acc144050_M21711A. (5) (d) Evaluate the role played in accounting by accepted accounting concepts and conventions. which should have been complied with. (iii) and (iv) above. the accepted accounting concept or convention. for each of (i). other than prudence. (2) (Total 16 marks) M21711B 11 Turn over . (ii).

The withdrawal was made on 1 July 2005. z the club had an investment account with the bank containing £1 000. 1 January 2005 Subscriptions Rental of clubroom Payment for treasurer’s services Sales of club magazine Visiting speakers’ fees Sales of books Club magazine printing costs Stationery and postage New computer printer General expenses Investment account withdrawal Cost of books for resale Additional information: (i) On 1 January 2005: z rent was outstanding £50 and stationery and postage was prepaid £11. 17/02/05 08:42 Page 12 The Receipts and Payments Account of the Kewside Literary Club for the year ended 31 December 2005 recorded the following: £ 612 1 815 600 50 125 325 1 240 80 64 400 740 200 1 010 Balance at bank. The current annual membership fee is £60. z computer equipment was valued at £600.Acc144050_M21711A. (10) (c) A member has proposed that the club introduce a 10 year membership fee costing £400 payable in full in the first year. (2) (Total 16 marks) TOTAL FOR PAPER: 100 MARKS END M21711B 12 . (iv) Interest on the investment account was 5% to 30 June 2005 and 4% from 1 July 2005. Evaluate the proposal of introducing 10 year membership fees at the proposed level. (4) (b) Prepare the income and expenditure account for the year ended 31 December 2005. Required: (a) Calculate the accumulated fund balance at 1 January 2005. (ii) Depreciation is to be charged at the rate of 25% on the balance of computer equipment owned on 31 December 2005. (iii) On 31 December 2005 subscriptions outstanding for 2005 were £50 and prepaid for 2006 were £106.qxd 7. z subscriptions outstanding for 2004 were £84 and prepaid for 2005 were £57.