You are on page 1of 13

Book-Keeping

& Accounts
Level 2

Model Answers
Series 3 2008 (Code 2006)
Vision Statement
Our vision is to contribute to the achievements of learners around
the world by providing integrated assessment and learning services,
adapted to meet both local market and wider occupational needs
and delivered to international standards.

© Education Development International plc 2008 Company Registration No: 3914767


All rights reserved. This publication in its entirety is the copyright of Education Development International plc.
Reproduction either in whole or in part is forbidden without written permission from Education Development International plc.

International House Siskin Parkway East Middlemarch Business Park Coventry CV3 4PE
Telephone: +44 (0) 8707 202909 Facsimile: + 44 (0) 24 7651 6505
Email: enquiries@ediplc.com
Book-Keeping & Accounts Level 2
Series 3 2008

How to use this booklet

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

(1) Questions – reproduced from the printed examination paper

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

(3) Helpful Hints – where appropriate, additional guidance relating to individual


questions or to examination technique

Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success.

EDI provides Model Answers to help candidates gain a general understanding of the standard
required. The general standard of model answers is one that would achieve a Distinction grade. EDI
accepts that candidates may offer other answers that could be equally valid.

© Education Development International plc 2008

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

Page 1 of 11
Page 2 of 11
Book-Keeping & Accounts Level 2
Series 3 2008
QUESTION 1

Linda and Chesney are in partnership sharing profits and losses in the ratio 2:1 respectively. The
following partial list of balances was extracted from the books on 31 August 2007 after preparation of
the Trading Account:
£
Gross Profit 86,618
Capital Accounts:
Linda 30,000
Chesney 15,000
Current Accounts:
Linda 3,000 Dr
Chesney 1,000 Cr
Drawings Accounts:
Linda 10,000
Chesney 5,000
Trade debtors 9,950
Rent 7,000
Insurance 3,100
Lighting & heating 4,900
Vehicle running costs 6,300
Depreciation expense 8,000
General expenses 1,400
Wages & salaries 50,600

The partnership agreement states that:

(i) The partners are entitled to interest on their fixed capitals at 6% per annum
(ii) Chesney is to receive an annual salary of £17,000
(iii) Interest is to be charged at 5% of the balance on each partner’s drawings account at the financial
year end

Other information relating to the year ended 31 August 2007:

(iv) Accrued lighting and heating expenses amounted to £250 and prepaid insurance amounted to
£600
(v) Vehicle running costs include £1,600 to be shared equally between the partners for private use of
the firm’s vehicles
(vi) The partners decided to create a provision for doubtful debts of 4% of trade debtors.

REQUIRED

(a) Prepare, for the year ended 31 August 2007, the:

(i) Profit & Loss and Appropriation Account (12 marks)

(ii) Partners’ current accounts in columnar form. (11 marks)

From 1 September 2007, the partners decided to share profits and losses equally. All assets and
liabilities at that date were considered to be fairly valued and goodwill was calculated to be worth
£60,000, although no goodwill account was to be opened in the books of the partnership.

REQUIRED

(b) Prepare a journal to record the profit share change. A narrative is not required. (2 marks)

(Total 25 marks)

2006/3/08/MS Page 3 of 11
MODEL ANSWER TO QUESTION 1

(a)
(i) Linda and Chesney
Profit & Loss and Appropriation Account
for the year ended 31 August 2007

£ £ £
Gross Profit b/d 86,618

Less:
Rent 7,000
Insurance (3,100 - 600) 2,500
Lighting & heating (4,900 + 250) 5,150
Vehicle running costs (6,300 - 1,600) 4,700
Depreciation 8,000
General expenses 1,400
Wages & salaries 50,600
Provision for doubtful debts (9,950 x 4%) 398
79,748
Net Profit 6,870

Add:
Interest on drawings: Linda ([10,000 + 800] x 5%) 540
Chesney ([5,000 + 800] x 5%) 290
830
7,700
Less:
Interest on capital: Linda (30,000 x 6%) 1,800
Chesney (15,000 x 6%) 900
2,700
5,000
Salary to Chesney 17,000
-12,000
Share of loss: Linda 8,000
Chesney 4,000
12,000
0

2006/3/08/MS Page 4 of 11
MODEL ANSWER TO QUESTION 1 CONTINUED

(ii)
Current Accounts
L C L C
£ £ £ £
Bal b/d 3,000 Bal b/d 1,000

Drawings 10,800 5,800 Interest on


capital 1,800 900
Interest on
drawings 540 290 Salary 17,000

Loss 8,000 4,000

Bal c/d 8,810 Bal c/d 20,540


22,340 18,900 22,340 18,900

Bal b/d 20,540 Bal b/d 8,810

(b)
Goodwill calculation
Old New Dr Cr
Linda 40,000 30,000 10,000
Chesney 20,000 30,000 10,000

Journal

Dr Cr
£ £

Linda - Capital A/c 10,000

Chesney - Capital A/c 10,000

2006/3/08/MS Page 5 of 11
QUESTION 2

On 1 April 2007, Eagle Ltd of Coventry consigned 100 crates of cheese, costing £500 per crate, to
Parker in Hong Kong. Eagle Ltd paid £1,000 by cheque for carriage and insurance.

On 31 July 2007, Parker forwarded an interim Sales Account to Eagle Ltd together with a bank draft.
The Sales Account contained the following details:
(1) Landing charges and import duties for original consignment - £750
(2) Sales - 80 crates at £1,200 each
(3) Selling costs - £40 per case sold
(4) Parker had deducted his commission at the agreed rate of 15% of sales value.

REQUIRED

(a) The Consignment to Parker Account in the books of Eagle Ltd as it would appear when balanced
on 31 July 2007. Show the value of stock carried down to the next period and the relevant
transfer to the Profit and Loss Account.
(13 marks)

Jim extracted a Trial Balance prior to preparing his final accounts for the year ended 31 March 2008.
The trial balance failed to agree and Jim posted the difference to a suspense account. The following
errors were subsequently discovered:

(1) Discounts allowed of £350 had been correctly entered in the debtors’ accounts but had been
credited to the Discounts Received Account
(2) A credit balance of £200 on the Commissions Received Account had been omitted from the Trial
Balance listing
(3) A payment to creditor Barry of £125 had been credited to Perry in the Sales Ledger. Control
accounts are not in use
(4) Cash sales of £9,000 had been correctly entered in the Cash Book and debited to the Purchases
Account.

REQUIRED

(b) Journal entries, without narratives, to record the correction of the above errors. You are not
required to prepare the Suspense Account.
(12 marks)

(Total 25 marks)

2006/3/08/MS Page 6 of 11
MODEL ANSWER TO QUESTION 2

(a)
Consignment to Parker
£ £
Goods on Sales 96,000
consignment 50,000 Stock c/d* 10,350
Bank:
Carriage & insurance 1,000
Parker:
Landing & import 750
Selling costs 3,200
Commission 14,400
Profit & Loss 37,000 ______
106,350 106,350

Stock b/d 10,350

* 50,000 + 1,000 + 750 = 51,750 x 20 = £10,350


100

(b)

Dr Cr
£ £
[1] Discount received 350
Discount allowed 350
Suspense 700

[2] Suspense 200


No credit entry required

[3] Perry 125


Barry 125
Suspense 250

[4] Suspense 18,000


Purchases 9,000
Sales 9,000

2006/3/08/MS Page 7 of 11
QUESTION 3

The accounts of Sparrow are prepared on a monthly basis. The month end stocktaking for July 2007
did not take place but the following information was subsequently obtained:

(1) The accounts for the month ended 30 June 2007 showed stock in trade, at that date, of £56,800.
Stock is always valued at cost price.
(2) The stock sheets at 30 June 2007 had been over-added by £850.
(3) Sales during July 2007 amounted to £42,600. All sales include a mark-up of 25%.
(4) Goods purchased by Sparrow during July 2007 cost £29,800.
(5) Returns made by customers during July 2007 amounted to £725 at selling price.
(6) Returns of goods to suppliers during July 2007 amounted to £1,350 at cost price.
(7) It was decided that a quantity of stock, valued at full cost at 30 June 2007, and which would
normally sell for £2,400, could now only be sold at half cost price.
(8) Included in the July 2007 sales figure were goods on sale or return with a sales value of £650.
The customer has still not indicated her intention with regard to the goods.

REQUIRED

(a) Commencing with the opening balance of £56,800, prepare a calculation showing Sparrow’s
stock valuation at 31 July 2007.
(15 marks)

(b) Prepare, in vertical format, the Trading Account of Sparrow for the month ended 31 July 2007.

(10 marks)

(Total 25 marks)

2006/3/08/MS Page 8 of 11
MODEL ANSWER TO QUESTION 3

(a)
£ £
Opening stock at 1 July 2007 56,800

Less:
Over added stock 850

July sales 42,600


1.25 34,080

Purchases returns 1,350

Reduced price 2400 = 1920 x 50% = 960


1.25
37,240
19,560
Add:
July purchases 29,800

Sales returns 725


1.25 580

Sale or return 650


1.25 520
30,900
Closing stock at 31 July 2007 50,460

(b) Sparrow
Trading Account for the month ended 31July 2007
£ £ £
Sales (42,600 - 650) 41,950
Less: returns 725
41,225
Cost of Sales

** Opening stock (56,800 - 850) 55,950


Purchases 29,800
Less: returns 1,350
28,450
84,400
Closing stock 50,460
33,940
Gross Profit 7,285

** Assumed that June accounts will have been adjusted for stock overvaluation.

2006/3/08/MS Page 9 of 11
QUESTION 4

Carol has a year end of 30 April. The following balances were extracted from her books on
1 April 2008:
Dr Cr
£ £
Purchases Ledger 690 41,280
Sales Ledger 76,900 860

The balance on the Provision for Doubtful Debts Account at 1 May 2007 was £4,250.

During the month of April 2008, the following transactions took place:
£
Sales on credit 69,420
Cash sales 8,900
Credit purchases 39,015
Bad debts written off 700
Returns inwards 6,022
Returns outwards 2,680
Payments to suppliers 42,718
Discounts received 1,400
Receipts from customers 78,445
Discounts allowed 2,180
Legal fees re debt collection charged to customers account 800
Debtor’s cheque dishonoured 200
Cash purchases 3,800
Debit balance on Sales Ledger transferred to Purchases Ledger per contra 6,000
Bill of Exchange issued by Carol and accepted by the debtor 750

At 30 April 2008, the following information was available:

(i) Sales Ledger credit balances 62


(ii) Purchases Ledger debit balances 295
(iii) The Provision for Doubtful Debts was to be adjusted to 4% of the debit balances in the Sales
Ledger
(iv) Receipts from customers included £3,125 from Wendy whose account balance was previously
written off in May 2005.

REQUIRED

(a) Prepare the Purchases Ledger Control Account for the month of April 2008. (8 marks)

(b) Prepare the Sales Ledger Control Account for the month of April 2008. (13 marks)

(c) Prepare the Provision for Doubtful Debts Account at 30 April 2008. (2 marks)

(d) Prepare the account of Wendy in Carol’s Sales Ledger to record the recovery of the bad debt
previously written off in May 2005. No other entries have been made in this account since the
date of the bad debt write-off.
(2 marks)

(Total 25 marks)

2006/3/08/MS Page 10 of 11
MODEL ANSWER TO QUESTION 4

(a)
Purchases Ledger Control
£ £
Bal b/d 690 Bal b/d 41,280
Bank 42,718 Purchases 39,015
Discount received 1,400 Bal c/d 295
Returns outwards 2,680
Sales Ledger contra 6,000
Bal c/d 27,102 ..
80,590 80,590
Bal b/d 295 Bal b/d 27,102

(b)
Sales Ledger Control
£ £
Bal b/d 76,900 Bal b/d 860
Sales 69,420 Bank 78,445
Legal fees 800 Discount allowed 2,180
Bank - dishonoured cheque 200 Bad debts 700
Bad debts recovered 3,125 Returns inwards 6,022
Bal c/d 62 Purchases Ledger contra 6,000
Bills receivable 750
Bal c/d 55,550
150,507 150,507
Bal b/d 55,550 Bal b/d 62

(c)
Provision for Doubtful Debts
£ £
Profit & Loss 2,028 Bal b/d 4,250
Bal c/d 2,222
4,250 4,250
Bal b/d 2,222

(d)
Wendy
£ £
Bad debts recovered 3,125 Bank 3,125
3,125
3,125

2006/3/08/MS Page 11 of 11 © Education Development International plc 2008