IGCSE IGCSE Cambridge Accounting (0452) MS For Classified

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me/igcse_files
Prepared by D. El-Hoss
IGCSE
Accounting
Books
of
Original Entry
www.igcseaccounts.com
All questions are the copyright of Cambridge International Examination Board.
1
1
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1 (a) Abdul started a business by transferring his own vehicle to the business at a valuation of
$9000 and introducing a sum of cash.
In the first year of trading profit was $2000. At the end of the first year the balance on his capital
account was $51 000.
How much cash did Abdul introduce?
A $40 000
B $44 000
C $58 000
D $62 000
Answer: A. $40 000
(b) Agnes and Brian operate in similar businesses. They provide the following information.
Agnes Brian
Trade receivables collection period 31 days 40 days
Which statement is true?
A Agnes receives money from customers sooner than Brian.
B Agnes pays her suppliers sooner than Brian.
C Brian receives money from customers sooner than Agnes.
D Brian pays his suppliers sooner than Agnes.
Answer: A. Agnes receives money from customers sooner than Brian.
(c) The following account appeared in Andrew’s ledger.
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2
Answer: B. Andrew had prepaid $700 for advertising on 1 May 2015.
2 (a) Name two books of prime (original) entry which a trader may keep. In each case name a source
document for that book. An example has been provided.
Book of prime (original) entry Source document
Cash book Cheque counterfoil
Answer:
Book of prime (original)

entry Source document
Cash book Cheque counterfoil
Any two of:

Sales journal Sales invoice
Sales returns journal Sales credit note issued
Purchases journal Purchase invoice
Purchases returns Credit note received/debit note
journal issued
Notification of debtor going bankrupt/other
General journal suitable
answer
Petty cash book Voucher
for (1) mark each for (1) mark each
(b) State one reason why a trader might use books of prime (original) entry.
Answer: To avoid multiple entries in the ledger (1)

Different books of prime entry can be maintained by different people (1)
Acts as an aid for posting to the ledger by analysing a transaction into debit and credit entry (1)
Helps to reduce the amount of detail in the ledger as only totals are posted to the ledger (1)
Provides evidence of transactions since they are recorded from source documents (1)
Helps in the auditing/tracking process/facilitates cross-referencing (1) Easy
reference to source of a transaction (1)
Helps in gathering and summarising of accounting information (1) Groups
together similar types of transactions in one book in date order (1) Reduces
number of entries in ledger (1)
(c) Name the two accounts which are posted with the totals from a three column cash book.
3
3
Answer: Discount allowed (1) Discount received (1)
3 Lamoudi has an accounting year end of 31 December.
On 1 April 2013 he paid $1200, by cheque, for a year’s insurance starting on that date.
On 1 April 2014 he paid $1440, by cheque, for insurance for twelve months to 31 March 2015.
REQUIRED
(a) Prepare Lamoudi’s insurance account for the year ended 31 December 2014. Balance the
account and bring down the balance on 1 January 2015.
Lamoudi
Insurance account
Date Details $ Date Details $
….…. ……………..…..………. …..…. ……… ………....…………… …..…..
…….. ……………....……… …..…. ….….. ………..…..………… …..….
….…. ……………....……… …..…. …..…. ………..……..……… …..….
….…. ……………....……… …..…. …..…. ………..……..……… …..….
….…. ……………....……… ……... …..…. ………..……..……… …..….
….…. ……………….……… …..…. …..…. ………..……..……… …..….
Answer:
Lamoudi
Insurance account

2014 2014
1 Jan Balance b/d 300 31 Dec Income statement 1380
1 Apr Bank/Cash 1440 Balance c/d 360
1740 1740
2015
1 Jan Balance b/d 360
(b) State one reason why a trader might prepare a trial balance.
Answer:
To check the arithmetical accuracy of the double entry.
OR
As a basis for the preparation of the financial statements/final accounts.
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4 Complete the following table. Enter the word ‘true’ or ‘false’ against each statement.
The first has been completed as an example.
Every transaction has a twofold aspect True
Costs must be matched against related income
Revenue can be recorded before it is earned
Staff expertise can be recorded in the financial statements
Answer:
Every transaction has a twofold aspect True
Costs must be matched against related income True (1)
Revenue can be recorded before it is earned False (1)
Staff expertise can be recorded in the financial statements False (1)
5 Abdoulaye withdrew $200 from the bank for personal use.
REQUIRED
State how this is recorded in the books of account.
Account debited Account credited
Answer:
Account debited Account credited
Drawings (1) Bank (1)
5
5
6 Farhad and Ali are traders. On 1 January 2015 Farhad owed Ali $300. The following transactions
took place.
5 January Ali sold goods, $250, to Farhad.
8 January Farhad returned half of the goods bought on 5 January.
19 January Farhad paid the amount owed on 1 January, by cheque, having deducted 3%
cash discount.
REQUIRED
(a) Prepare Farhad’s account in the books of Ali. Balance the account and bring down the
balance on 1February 2015.
Ali
Farhad account
….…. …………………………. ………. ……… ……………………..… ……….
….…. …………………………. ………. ….…. …………………………. ……….
….…. …………………………. ………. ….…. …………………………. ……….
….…. …………………………. ………. ….…. …………………………. ……….
….…. …………………………. ………. ….…. …………………………. ……….
….…. …………………………. ………. ….…. …………………………. ……….
….…. …………………………. ………. ….…. …………………………. ……….
….…. …………………………. ………. ….…. …………………………. ……….
Answer:

2015 2015
Sales
1 Jan Balance b/d 300 8 Jan returns 125
5 Jan Sales 250 19 Jan Bank 291
Discount
allowed 9
Balance c/d 125
550 550
2015
1 Feb Balance b/d 125
(b) Complete the following table. Name the document sent by Ali to Farhad on 5 January and
on 8 January and state his reason for sending each document.
Document Reason
5 January
8 January
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6
Answer:
Document Reason
5 January Invoice To inform Farhad of the quantity of goods

bought and their price /as a demand for
payment.
8 January Credit note To inform Farhad of the allowance he was
being given for goods returned.
(c) Complete the following table. Name the book of prime (original) entry in which Ali would
record the transactions listed.
Book of prime (original) entry
Ali sold goods, $250, to

Farhad
Farhad returned half of the

goods bought on 5 January
Farhad paid the amount

owed on 1 January having
deducted 3% cash discount
Answer:
Ali sold goods, $250, to Sales journal

Farhad
Farhad returned half of the Sales returns journal

goods bought on 5 January
Farhad paid the amount Cash book

owed on 1 January having
deducted 3% cash discount
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7 During February 2015 the following transactions took place.

1 Took out long term bank loan, $10 000.
2 Bought delivery van, $8000, paying by cheque.
3 Bought inventory, $300, from John on credit.
4 Sold goods for cash, $80 (cost $50).
REQUIRED
(b) Complete the following table to show the double entry needed to record each transaction.
Transaction Account debited $ Account credited $
1
…………………………. …… …………………………. ……
2
…………………………. …… …………………………. ……
3
…………………………. …… …………………………. ……
4
…………………………. …… …………………………. ……
Answer:
Transaction Account debited $ Account credited $
1 Bank 10 000 Loan 10 000
2 Motor vehicles 8 000 Bank 8 000
3 Purchases 300 John 300
4 Cash 80 Sales 80
8 Kuda Maposa had the following transactions on 31 March 2015.
1 Took goods costing $300 for personal use.
2 Purchased a motor vehicle, $12 000, for business use, using a cheque drawn on her
personal bank account.
3 Received an invoice from Valley Machines for $990. This included $865 for a new machine.
The balance was for repairs to existing machine.
REQUIRED
(a) Prepare journal entries to record the above transactions. Narratives are required.
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8
Kuda Maposa
Journal
Debit Credit
$ $
1 …………..……………………………………………… …………….. ……………..
…………..…………………………………………….. …………….. ……………..
…………..…………………………………………….. …………….. ……………..
…………..…………………………………………….. …………….. ……………..
…………..…………………………………………….. …………….. ……………..
2 …………..…………………………………………….. …………….. ……………..
…………..…………………………………………….. …………….. ……………..
…………..…………………………………………….. …………….. ……………..
…………..…………………………………………….. …………….. ……………..
…………..…………………………………………….. …………….. ……………..
3 …………..…………………………………………….. …………….. ……………..
…………..…………………………………………….. …………….. ……………..
…………..…………………………………………….. …………….. ……………..
…………..…………………………………………….. …………….. ……………..
…………..…………………………………………….. …………….. ……………..
Answer:
Debit Credit
$ $
1 Drawings 300
Purchases 300
Goods taken for personal use
2 Motor vehicles 12 000

Capital 12 000
Motor vehicle purchased using private funds
3 Machinery 865
Machinery repairs 125
Valley Machines 990
Invoice received for purchase of new machine and
repairs to existing machine
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9 (a) Insert the missing figures in the following document.
CREDIT NOTE
Jai Kapur
44 West Street
Hightown
Vijay Singh
11 North Road
Lowtown 25 April 2015
Quantity Description Unit price Amount

$ $
4 External doors 55 220
Less (i)...............% trade discount 33
(ii) ............
20 metres Floorboards 1.50 ....30...
(iii)...........
Answer: (i) 15%

(ii) $187
(iii) $217
(b) Name the person who issued the credit note.
Answer: Jai Kapur
(c) Suggest one reason for the issue of the credit note.
Answer: Goods returned

Overcharge
Allowance for faulty/damaged goods
Any one reason
(d) Name the document which would have been issued to request a credit note.
Answer: Debit note
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(e) Complete the following table to show where the credit note would be recorded.
Books of Jai Kapur Books of Vijay Singh
Account debited Account credited Account debited Account credited
........................... ........................... ........................... ...........................
........................... ........................... ........................... ...........................
Answer:
Books of Jai Kapur Books of Vijay Singh
Account debited Account credited Account debited Account credited
Sales returns Vijay Singh Jai Kapur Purchases returns
10 On 30 March 2015 Akhtar Hussain received an invoice for $9360 from PJ Autos Limited. This
included $360 for repairs to a motor vehicle. The remainder was the cost of a new motor vehicle.
REQUIRED
(a) Prepare a journal entry to record this transaction. A narrative is required.
Akhtar Hussain
Journal
Debit Credit
$ $
………………………………………………………… …………….. ……………..
………………………………………………………… …………….. ……………..
………………………………………………………… …………….. ……………..
………………………………………………………… …………….. ……………..
………………………………………………………… …………….. ……………..
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Answer:
Debit Credit
$ $
Motor vehicles 9000 ……………..
Motor repairs 360 ……………..
PJ Autos …………….. 9360
Invoice received for purchase of new vehicle and motor
repairs …………….. ……………..
Motor vehicles …………….. ……………..
11 Nirmal Singh is a trader. He maintains a full set of accounting records. All purchases are made on
credit terms. His purchases journal and purchases returns journal for February 2015 are shown below.
Purchases Journal
Amount
Date Name
$
2015
Feb 8 Ansari Stores 640
(after 20% trade discount)
Feb 19 T Marks 480
Purchases Returns Journal
Amount
Date Name
$
2015
Feb 14 Ansari Stores 280
(after 20% trade discount)
REQUIRED
(a) Calculate the list price of the goods purchased by Ansari Stores on 8 February.
Answer:
(b) State why trade discount was deducted from the goods returned on 14 February.
Answer: Any returns must be recorded at the price which the customer was originally charged for
those goods.
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11 On 1 February 2015 Nirmal Singh’s purchases ledger included the following accounts.
$
Ansari Stores 560 credit
T Marks 200 credit
The following additional transactions took place in February 2015.
Feb4 Paid $200 by cheque to T Marks
10 The bank dishonoured the cheque paid to T Marks on 4 February
26 Paid $546 to Ansari Stores by cheque in full settlement of the balance owing on 1 February
2015
28 T Marks charged $10 interest on the overdue account.
REQUIRED
(a) Name the business document Nirmal Singh would use to record the following transactions. You
can find the transactions on page 5 and 6.
February Transaction Document
4 Payment
8 Purchases
14 Purchases returns
Answer:
February Transaction Document
4 Payment Cheque counterfoil
8 Purchases Invoice
14 Purchases returns Credit note
(b) Prepare the following accounts in the ledger of Nirmal Singh for the month of February 2015.
Balance the accounts and bring down the balances on 1 March 2015.
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13
Nirmal Singh
Ansari Stores account
….…. ……………..…..………. …..…. ……… ………....…………… …..…..

…….. ……………....……… …..…. ….….. ………..…..………… …..….
…….. ………..…..………… …….. …….. ………..…..………… ……..
…….. ………..…..………… …….. …….. ………..…..………… ……..
….…. ……………....……… …..…. …..…. ………..……..……… …..….
….…. ……………....……… …..…. …..…. ………..……..……… …..….
….…. ……………....……… ….…. ….…. ……………....……… ….….
….…. ……………....……… ….…. ….…. ……………....……… ….….
….…. ……………....……… ……... …..…. ………..……..……… …..….
T Marks account
….…. ……………..…..………. …..…. ……… ………....…………… …..…..

…….. ……………....……… …..…. ….….. ………..…..………… …..….
…….. ………..…..………… …….. …….. ………..…..………… ……..
…….. ………..…..………… …….. …….. ………..…..………… ……..
….…. ……………....……… …..…. …..…. ………..……..……… …..….
….…. ……………....……… ….…. ….…. ……………....……… ….….
….…. ……………....……… ….…. ….…. ……………....……… ….….
….…. ……………....……… ……... …..…. ………..……..……… …..….
….…. ……………….……… …..…. …..…. ………..……..……… …..….
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14
Answer:
12 Amla Khan is a trader. Her financial year ends on 31 December.
Amla Khan maintains one combined account for rates and insurance. She provided the following
information.
On 1 January 2014 three months’ rates, $480, was outstanding and four months’ insurance,
totalling $700, was prepaid.
During the year ended 31 December 2014 the following payments were made by cheque.
$
Rates 16 months to 31 January 2015 2560
Insurance 12 months to 30 April 2015 2400
REQUIRED
(a) Prepare the rates and insurance account in the ledger of Amla Khan for the year ended 31
December 2014. Balance the account and bring down the balances on 1 January 2015.
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15
Amla Khan
Rates and insurance account
Answer:
16
16
(b) Name the section of the statement of financial position at 31 December 2014 in which the
balance on the rates and insurance account would appear.
Give a reason for your answer.
Section of statement of financial position __________________________________________
Reason_____________________________________________________________________
Answer: Current assets

Both the rates and insurance are prepaid at the end of the year
13 Joda Limited provided the following information for the year ended 31 January 2015.
1 The total revenue was
$
Cash sales 9 600
Credit sales 154 400
Credit customers are allowed a credit period of 30 days.

2 The total of the trade receivables on 31 January 2015 amounted to $15 300.
REQUIRED
(a) Calculate the collection period for trade receivables. Round your answer up to the next whole
day.
_________________________________________________________________________
_________________________________________________________________________
Answer:
(b) State whether Joda Limited would be satisfied with the collection period for trade receivables.
Satisfied or unsatisfied ______________________________________________________

Reason __________________________________________________________________
_________________________________________________________________________
Answer: Unsatisfied – if answer to (a) is 31 days or over

Or
Satisfied – if answer to (a) is 30 days or less
Taking 7 days more than credit period allowed
Have to wait longer than expected to receive the money
May have knock-on effect for paying trade payables
May mean shortage of funds available for other things
Or
appropriate comments based on OF answer to (a)
Any 1 comment
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17
14 (a) State what is meant by a book of prime (original) entry.

________________________________________________________________________
________________________________________________________________________
Answer: The book where transactions (and other entries) are first recorded.
(b) Name two of the books of prime (original) entry which a business may maintain.
1. __________________________________________________________________
2. __________________________________________________________________
Answer: Cash book/petty cash book/sales journal/sales returns journal/purchases journal/purchases

returns journal/general journal/returns inwards and returns outwards journals
15 Neel started a business on 1 June. The following transactions took place in June.
1 Opened a business bank account with $8000 of his own money.

2 Received a bank loan, $2000.
3 Bought a delivery van, $5200, from A1 Motors on credit.
4 Bought inventory, $3700, paying by cheque.
5 Paid shop rent, $1000, by standing order.
6 Withdrew cash, $100, to start up an imprest system.
REQUIRED
(a) Complete the following table showing how these transactions were recorded. The first has
been completed as an example.
Debit entry Credit entry
$ $
1 Bank account 8000 Capital account 8000
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18
Answer:
(b) Calculate the balance on Neel’s bank account after these transactions.
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Answer:
16 State the purpose of each of the following business documents.
debit note_____________________________________________________________________
_____________________________________________________________________________
credit note_____________________________________________________________________
_____________________________________________________________________________
statement of account ___________________________________________________________

_____________________________________________________________________________
Answer: Debit note: a document from a customer asking for a reduction in the value of an invoice
received by them.
Credit note: a document sent to the customer showing the reduction of an invoice.
Statement of account: to summarise a customer’s transactions for the month.
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17 The following incomplete statement of account was available on 31 August 2015.
REQUIRED
(a) (i) Calculate the balance due on 31 August.

_________________________________________________________________
_________________________________________________________________
Answer: $316
(ii) State the name of the trader who owes the balance at 31 August.
_________________________________________________________________
_________________________________________________________________
Answer: Mariam Soliman
(b) State the business document and the book of prime (original) entry Shahid Ayub would use
to record the following transactions which appear on the statement of account.
Book of prime (original)

Transaction Document
entry
August 9 Goods ........................................ ......................................
13 Returns ........................................ .....................................
24 Payment ........................................ .....................................
Answer:
20
20
(c) Prepare the account of Shahid Ayub as it would appear in the ledger of Mariam Soliman.
Balance the account and bring down the balance on 1 September 2015.
Mariam Soliman
Shahid Ayub account
Answer:
21
21
18 Kelbrook Limited provided the following information for the year ended 30 September 2015.
$
Credit sales 45 000
Cash sales 5 000
Credit customers are allowed 60 days credit.
REQUIRED
(a) Calculate the collection period for trade receivables. Round up your answer to the next
whole day.
________________________________________________________________________
________________________________________________________________________
(b) Comment on the collection period for trade receivables.

________________________________________________________________________
________________________________________________________________________
Answer: (a)
(b) On average credit customers are taking 9 days more than is allowed.
This may affect the ability of the business to pay current liabilities.
This may affect the ability of the business to take advantage of opportunities when they
arise.
Or other suitable comments based on answer to (a)
Kelbrook Limited is allowed 30 days credit by their credit suppliers. For the year ended 30
September 2015 the payment period was 52 days.
REQUIRED
(c) Comment on the payment period for trade payables.

________________________________________________________________________
________________________________________________________________________
Answer: On average are taking 22 days more than is allowed to pay credit suppliers.
This may be caused by the credit customers taking too long to pay.
May result in further supplies being refused.
Or other suitable points.
19 Paul Chew sells goods on credit terms to Kim Chan.
REQUIRED
Complete the table to name the business document and the books of prime (original) entry for each
of the following transactions.
If the document is not recorded in a book of prime (original) entry write “No entry”. The first
transaction has been completed as an example.
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22
Paul Chew’s book Kim Chan’s book

Document of prime (original) of prime (original)
entry entry
Paul Chew received
Cheque Cash book Cash book
payment from Kim Chan
Paul Chew sold goods on

credit to Kim Chan
Kim Chan notified Paul

Chew of an overcharge
Paul Chew notified Kim

Chan that he agreed the
overcharge
Paul Chew sent Kim Chan

a summary of the month’s
transactions
Answer:
Paul Chew’s Kim Chan’s

book of book of
Document prime prime
(original) (original)
entry entry
Paul Chew sold goods on

Sales Purchases
credit to Kim Chan Invoice
Journal Journal
Kim Chan notified Paul

Chew of an overcharge Debit note No entry No entry
Paul Chew notified Kim Sales

Purchases
Chan that he agreed the Returns
Credit note Returns
overcharge Journal
Journal
Paul Chew sent Kim Chan

a summary of the month’s
Statement of account No entry No entry
transactions
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19 On 1 September 2014 Ishmael Makumbo owed $274 for motor expenses. He paid this by cheque
on 7 September 2014.
On 1 February 2015 Ishmael Makumbo paid $96 in cash for motor expenses.
On 30 August 2015 Ishmael Makumbo received an invoice for motor expenses, $113. He paid this
invoice in September 2015.
REQUIRED
(a) Prepare the motor expenses account for the year ended 31 August 2015. Balance the account
and bring down the balance on 1 September 2015.
Answer:
24
24
During the year ended 31 August 2015 Ishmael Makumbo took goods, cost $300, for his own use.
This was not entered in the accounting records.
The telephone expenses for the year ended 31 August 2015 amounted to $432. It was estimated
that one quarter of this was for Ishmael’s personal use. No adjustment had been made for this.
REQUIRED
(b) Prepare the journal entries Ishmael Makumbo would make to record the above. Narratives are
required.
Answer:
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25
20 (a) State the accounting equation.

_____________________________________________________________________
_____________________________________________________________________
Answer: capital = assets – liabilities,

or
assets = capital + liabilities, or liabilities = assets – capital
(b) State what is meant by the following terms.
Asset____________________________________________________________________
_________________________________________________________________________
Liability___________________________________________________________________
_________________________________________________________________________
Inventory__________________________________________________________________
_________________________________________________________________________
Answer: asset – something a business owns or which is owed to the business (need all)
liability – something which a business owes to a third party
inventory – goods bought for resale not yet sold
(c) Name the accounting principle applied when using the double entry system of book-
keeping.
_____________________________________________________________________
_____________________________________________________________________
Answer: duality
(d) State the double entry needed to record each of the following in the books of Taha, a
trader.
Answer:
26
26
(e) Name the division of Taha’s ledger in which Michael’s account appears.
_____________________________________________________________________
_____________________________________________________________________
Answer: sales (ledger) or Trade receivables (ledger)
(f) Complete the following table, indicating with a tick (✓) if each statement about an increase
in a provision for doubtful debts is true or false. The first one has been completed as an
example.
true false
it will increase the total of the non-current assets ✓
it will increase the total of current assets
it will decrease cash and bank
it will require a credit entry in the provision for

doubtful debts account
it will have no effect on profit for the year
Answer:
true false
it will increase the total of the non-current assets 
it will increase the total of current assets 
it will decrease cash and bank 
it will require a credit entry in the provision for

doubtful debts account 
it will have no effect on profit for the year 
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27
21 Andy sells furniture on credit. Fred is a credit customer.
REQUIRED
(a) Complete the following invoice.
Answer:
(b) State which value from the invoice is recorded in Fred’s account.
__________________________________________________________________________
__________________________________________________________________________
Answer: $1575
(c) Name the document Andy issues if Fred returns any chairs.
__________________________________________________________________________
__________________________________________________________________________
Answer: credit note
(d) State the difference between Andy’s business and a service business.
__________________________________________________________________________
__________________________________________________________________________
Answer: Andy’s business buys or manufactures goods which it then sells.

A service business provides a service to its customers or clients.
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21 Zameer has a financial year end of 28 February.
He extracted the following ledger balances from his books of account on 21 February 2017.
Purchases 67 210 debit
Rent payable 6 600 debit
REQUIRED
State why the purchases account has a debit balance.
__________________________________________________________________________
__________________________________________________________________________
Answer: Because purchases represent costs to the business

Purchases are amounts which reduce profit
Purchases are amounts paid by the business
22 A business provided the following information.
$
Inventory at start of year 4 000
Purchases 76 000
Inventory at end of year 8 000
Mark-up 60%
Answer: A. $115 200
23 Harum is a trader. All goods are bought and sold on credit terms. On 1 March 2017 Kalgi, a credit
customer, owed Harum $520. The following took place during March 2017.
March 4 Harum sold goods on credit to Kalgi, list price $280, less 20% trade discount
10 Kalgi paid the balance due on 1 March by cheque
12 Kalgi returned goods, list price $120, purchased on 4 March
18 The bank returned Kalgi’s cheque received on 10 March because of insufficient

funds in his account.
28 Kalgi paid $600 in cash
30 Harum wrote off the balance on Kalgi’s account
29
29
REQUIRED
(a) Name the source document which Harum would use to record the following:
Document
March 4 Sold goods on credit to Kalgi ….........................................................

12 Kalgi returned goods ….........................................................
Answer: Sales invoice

Credit note
(b) Name the book of prime (original) entry in which Harum would record the following:
March 18 The bank returned Kalgi’s cheque ….........................................................

30 The balance of Kalgi’s account
was written off ….........................................................
Answer: Cash book

General journal
(c) Write up the account of Kalgi as it would appear in the ledger of Harum for the month of March
2017.
Harum
Kalgi account

.......... ................................. .............. .......... ................................. ..............
.......... ................................. .............. .......... ................................. ..............
.......... ................................. .............. .......... ................................. ..............
.......... ................................. .............. .......... ................................. ..............
.......... ................................. .............. .......... ................................. ..............
.......... ................................. .............. .......... ................................. ..............
.......... ................................. .............. .......... ................................. ..............
Answer:
30
30
(d) Suggest two ways in which Harum could reduce the possibility of bad debts.
1. ______________________________________________________________________
2. ______________________________________________________________________
Answer: Reduce credit sales/sell on a cash basis

Obtain references from new credit customers
Fix a credit limit for each customer
Improve credit control
Issue invoices and monthly statements promptly
Refuse further supplies until outstanding balance is paid
Allow cash discount for prompt payment
Charge interest on overdue accounts
24 Waheed is a trader. He maintains a full set of accounting records and prepares control accounts at
the end of each month.
REQUIRED
(a) Name the book of prime (original) entry which Waheed would use to obtain the following
information when preparing his sales ledger control account.
Answer:
(b) State the meaning of a contra entry in connection with control accounts. State why Waheed
may make such an entry.
Meaning___________________________________________________________________
__________________________________________________________________________
Reason___________________________________________________________________
__________________________________________________________________________
Answer: Meaning - A contra entry is one which appears on the debit side of the purchases ledger control
account and the credit side of the sales ledger control account.
Reason - The entry is made when a sales ledger account is set off against a purchases ledger
account of the same person/business.
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31
25 An invoice for $100 sent to Ahmed was entered in the sales journal as $10. What was the double
entry needed to correct this error?
debit entry $ credit entry $
A Ahmed 90 sales 90
B sales 90 Ahmed 90
C sales 90 suspense 90
D suspense 90 sales 90
Answer: A.
26 A disposal account showed the following.
Answer: A.
32
32
27 Jason is a trader. His financial year ends on 31 May.
On 1 May 2017 his ledger included the following balances.
$
Purchases 19 620
Purchases returns 850
Jason’s purchases journal and purchases returns journal for the month of May 2017 were as follows.
Purchases journal
2017 $
May 2 Asnee 400
5 Botan 610
7 Chaitali 388
19 Asnee 190
24 Dae 517
2105
Purchases returns journal

2017 $
May 4 Asnee 105
15 Chaitali 55
160
REQUIRED
(a) Complete the following table, naming the source document used by Jason on each date, and
the person who issued the document.
Date Source document Issued by
May 2
May 4
Answer:
(b) Prepare the following ledger accounts in the books of Jason for the month of May 2017. Show
the transfers to the income statement.
33
33
Answer:
34
34
Jason owed Asnee $480 on 1 May 2017. He paid this balance by cheque on 6 May after deducting
2½% discount.
REQUIRED
(c) Prepare Asnee’s account in Jason’s purchases ledger for the month of May 2017. Include
entries for the relevant transactions recorded in Jason’s journals.
Jason
Asnee account
Answer:
Before preparing the financial statements Jason prepared a trial balance. The totals of the trial
balance did not agree.
REQUIRED
(d) State what is meant by the term ‘trial balance’.

__________________________________________________________________________
__________________________________________________________________________
Answer: A list of account balances at a specific date.
(e) Name and explain two errors which would not affect the balancing of the trial balance.
Error 1
Name_________________________________________________________________
Explanation____________________________________________________________
__________________________________________________________________________
35
35
Error 2
Name_________________________________________________________________
Explanation____________________________________________________________
__________________________________________________________________________
Answer: Any two of:

Omission - transaction totally omitted from the books.
Commission - transaction posted to wrong account of right class.
Principle - transaction posted to account of wrong class.
Original entry - transaction incorrectly recorded in book of prime entry.
Reversal - debit entry posted on credit side and vice versa.
Compensating - errors cancel one another out.
Jason prepared a sales ledger control account and a purchases ledger control account for the year.
REQUIRED
(f) Explain why the preparation of control accounts would have helped Jason discover why the
totals of the trial balance did not agree.
__________________________________________________________________________
__________________________________________________________________________
Answer: By comparing control account totals to the totals of balances of the sales and purchases ledgers,
Jason might be able to locate the error.
28 Ben opened a retail store on 1 April 2017. He introduced the following into the business.
$
Inventory 15 200
Shop
fittings 14 300
17 900 (of which $17 400 was paid into a
Cash business bank account)
On the same day, Ben received a business start-up loan of $15 000 which was paid into the
business bank account. Interest at 5% per annum was payable at six-monthly intervals.
REQUIRED
(a) Prepare the opening journal entry. A narrative is not required.
36
36
Ben
Journal
Debit Credit
$ $
.............................................................................. ....................... .........................
.............................................................................. ....................... .........................
.............................................................................. ....................... .........................
.............................................................................. ....................... .........................
.............................................................................. ....................... .........................
.............................................................................. ....................... .........................
.............................................................................. ....................... .........................
.............................................................................. ....................... .........................
.............................................................................. ....................... .........................
Answer:
The following transactions took place in September 2017.
September 3 Invoice received from EF Limited for office equipment, $1900
28 Goods taken by Ben for personal use, $430
REQUIRED
(b) Prepare journal entries to record these transactions. Narratives are required.
37
37
Answer:
38
38
29 Harry is a trader in farm machinery. He maintains a full set of accounting records. His financial
year ends on 31 March.
Harry made the following entries in his purchases journal and purchases returns journal in March
2018.
Harry made the following payments by cheque.
2018
March 4 AX Limited, $2425, in full settlement of the amount due on that date.
30 FM Limited to settle the amount due on that date. No cash discount was received.
REQUIRED
(a) Enter the transactions for March in the following ledger accounts.
Close the accounts on 31 March 2018 by balancing or by making a transfer to the income
statement.
Some entries have already been made in the accounts during the year.
39
39
40
40
Answer:
41
41
(b) (i) Suggest one reason why AX Limited allowed Harry trade discount on his purchases on 15
March 2018.
__________________________________________________________________________
__________________________________________________________________________
(ii) Calculate the percentage of trade discount AX Limited allowed Harry on his purchases
on 15 March 2018.
__________________________________________________________________________
__________________________________________________________________________
Answer: (i) Buying in bulk/buying large quantity

In the same trade
To enable Harry to make a profit when goods are sold
Loyal / regular customer
Accept other valid points.
Any 1 reason (1)
(ii)
(c) Name the following documents:
(i) the document issued by AX Limited on 15 March 2018

_____________________________________________________________________
(ii) the document issued by Harry on 17 March 2018

_____________________________________________________________________
(iii) the document which AX Limited may issue on 31 March 2018

_____________________________________________________________________
Answer: (i) Sales invoice

(ii) Debit note
(iii) Statement of account
30 Mary keeps a full set of accounting records including books of prime (original) entry.
REQUIRED
(a) State two reasons why Mary uses books of prime (original) entry.
1.................................................................................................................................................
...................................................................................................................................................
2.................................................................................................................................................
...............................................................................................................................................
Answer: 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
42
42
On 1 November 2017 the balance in Mary’s cash book (bank columns) was $838 overdrawn.
Mary banks all cash sales at the end of each week.
Mary had the following transactions during November.
1 Sold goods, $220, for cash
2 Returned goods costing $440, bought on credit from Jane
3 Purchased a motor vehicle on credit, $12 400, including road tax of $300, from Speedy
Motors
4 Received a cheque from Tan, a credit customer, in settlement of an invoice for $400 after
deduction of 2% cash discount
5 Took goods for own use, $120
REQUIRED
(b) Name the book of prime (original) entry where each of the transactions 1, 2 and 3 would be
recorded.
1.................................................................................................................................................
2.................................................................................................................................................
3.................................................................................................................................................
Answer: 1. Cash Book

2. Purchases returns journal
3. General journal or journal
(c) Complete the following table to show how each transaction was recorded by Mary. The first
one has been completed as an example.
Account(s) debited $ Account(s) credited $
1 Cash 220 Sales 220
43
43
Answer:
(d) Calculate the bank balance at 30 November 2017.
...................................................................................................................................................
...................................................................................................................................................
Answer: (838) + 220 + 392 = 226 overdrawn/Cr or / (226)
(e) Name the ledger in which Mary maintains:
(i) Tan’s account

.......................................................................................................................................
(ii) Motor vehicles account

.......................................................................................................................................
Answer: (i) Sales ledger or trade receivables ledger

(ii) General or nominal ledger
31 On 1 March 2017 Nabil started a business buying and selling office supplies on credit.
Nabil opened a business bank account on 1 March 2017 with capital, $155 000 and a loan from AB
Loans, $80 000. On the same day he purchased premises, $200 000, fixtures and fittings, $22 000,
and inventory, $5500, paying by cheque.
REQUIRED
(a) Prepare a journal entry to include all the above information to open the books of the business
on 1 March 2017.
A narrative is required.
44
44
Nabil
Journal
Date Details Debit Credit
2017 $ $
.............. ............................................................. ........................ ........................

.............. ............................................................. ........................ ........................
.............. ............................................................. ........................ ........................
.............. ............................................................. ........................ ........................
.............. ............................................................. ........................ ........................
.............. ............................................................. ........................ ........................
.............. ............................................................. ........................ ........................
.............. ............................................................. ........................ ........................
.............. ............................................................. ........................ ........................
.............. ............................................................. ........................ ........................
.............. ............................................................. ........................ ........................
Answer:
(b) Name two uses of the general journal, apart from opening entries.
1 ................................................................................................................................................
2 ...............................................................................................................................................
Answer: 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
45
45
32 J Smith is a wholesaler. He provided the following incomplete document on 28 February 2018.
REQUIRED
(a) (i) State the name of the document.
.......................................................................................................................................
(ii) Calculate the balance on the document at the end of February 2018.
...........................................................................................................................................
.......................................................................................................................................
(iii) Calculate the percentage of the discount on 28 February.
...........................................................................................................................................
...........................................................................................................................................
.......................................................................................................................................
(iv) Name the type of discount on 28 February.
.......................................................................................................................................
Answer: (i) Statement of account

(ii) $335
(iii)
(iv) Cash discount
46
46
(b) Complete the following table by placing a tick (3) in the correct column to indicate how J Smith
would record the issue of this document in his accounting records.
debit entry in ledger credit entry in ledger

no entry would be made
account of W Jones account of W Jones
(c) Complete the following table relating to the transaction of 11 February.
entries made by W Jones

name of person
document issued
issuing document
account debited account credited
............................... ............................... ............................... ...............................
(d) Name the book of prime (original) entry in which each trader would record the transaction of
19 February.
Answer: (b)
(c)
(d)
47
47
33 In January 2016 the following transactions took place between Ali and Deepa.
January 6 Ali bought goods, list price $1000, after taking a trade discount of 20%.
8 Ali paid by cheque the amount owing on 31 December after deducting 3% cash
discount.
10 Ali returned goods, list price $150, bought on 6 January.
REQUIRED
(a) Prepare Ali’s account in Deepa’s ledger for the month of January 2016. Balance the account
and bring down the balance on 1 February 2016.
Answer:
(b) State one advantage and one disadvantage to a business of reducing its level of inventory.
Advantage ................................................................................................................................
...................................................................................................................................................
Disadvantage ............................................................................................................................
...............................................................................................................................................
48
48
(c) Name the section of the statement of financial position where inventory is shown.
...............................................................................................................................................
(d) Name one item which might appear in the non-current liabilities section of a statement of
financial position.
...............................................................................................................................................
Answer: (b) Advantage

Money can be used elsewhere
Cash is not tied up
Reduces risk of theft/deterioration/obsolescence/damage
Reduces inventory holding cost e.g. insurances
Disadvantage
If buying in smaller quantity risk of losing quantity discounts
Risk of inventory running out
Risk of not meeting customer demand
(c) Current assets
(d) Long term loan/debt OR debentures OR mortgage
34 Lewis had the following transactions.
1 Bought goods, $1000, on credit from Pamela.

2 Bought delivery van, $17 000, from AM Motors, paying $12 000 by cheque with the balance to
be paid after six months.
3 Paid wages, $250, by cheque.
4 Sold goods, cost $600, for $960 on credit to Ali.
5 Withdrew $110 cash from the business bank account to increase cash in hand.
REQUIRED
(a) Complete the following table showing how each of these transactions was recorded in Lewis’s
books of account. The first has been completed as an example.
Account(s) debited $ Account(s) credited $
1 Purchases 1000 Pamela 1000
49
49
Answer:
(b) Identify the transaction which decreased Lewis’s capital.
Transaction number .......................
(c) Identify the transaction which increased Lewis’s capital. State the amount by which it was
increased.
Amount ..........................................
(d) Identify the transaction which would be classified as a contra.
(e) State how capital employed is calculated.
...............................................................................................................................................
(f) Name the book of prime (original) entry used when a trader brings cash into the business as
capital introduced.
...............................................................................................................................................
(g) Name the book of prime (original) entry used when a trader transfers his private vehicle to
the business.
...............................................................................................................................................
Answer: (b) Transaction 3

(c) Transaction 4, $360
(d) Transaction 5
(e) capital employed = owner’s capital + non-current liabilities
OR
capital employed = total assets – current liabilities
(f) cash book
(g) general journal
50
50
IGCSE
Accounting
Cash Book
& Petty Cash
Book
51
1
(a) A bank statement showed a credit balance of $300 on 31 March. On that date unpresented
cheques amounted to $120.
What was the cash book balance on 31 March?
Answer: B. $180 debit
(b) Pedro spent $8410 buying a new vehicle. The invoice showed
$
Vehicle 8000
Number plates 50
Insurance for 24 months 360
How much was the capital expenditure?
A $8050
B $8180
C $8230
D $8360
Answer: A. $8050
(c) Samuel buys a new computer and pays the following amounts.
$
Computer system 8000
Ink cartridges 350
5 year maintenance contract 1200
Delivery cost 70
52
2
Answer: A. $8070
1 Kuda Maposa maintains a petty cash book using the imprest system.
REQUIRED
(a) State one advantage of the imprest system of petty cash.
_____________________________________________________________________________
_____________________________________________________________________________
Answer: Control/limit/keep track of petty cash expenditure

The cash remaining and the vouchers received should equal the imprest
Can help to reduce fraud
Or other suitable advantage
On 1 March 2015 the balance of Kuda Maposa’s petty cash book was $100 which was equal to the
amount of the imprest.
Her transactions for the month of March 2015 were as follows.
$
March 6 Paid for postage costs 13
11 Bought tea and coffee 5
14 Purchased stationery 27
18 Paid T Masuka, a credit supplier 15
21 Received refund for damaged stationery 10
26 Paid window cleaner 12
29 Paid P Zhonga, a credit supplier 16
REQUIRED
(b) Enter these transactions in Kuda Maposa’s petty cash book on the page opposite.
Balance the petty cash book and bring down the balance on 1 April 2015.
53
3
54
4
Answer:
(c) (i) State the amount required to restore the imprest on 1 April 2015.
___________________________________________________________________
Answer: $78
(ii) Name the account which would be credited with this amount.
__________________________________________________________________
Answer: Bank (or Cash)
(iii) Name the ledger account in which the transaction of 21 March would be recorded.
__________________________________________________________________
Answer: Stationery
55
5
2 On 31 January 2015 David Jones balanced his cash book and brought down a debit balance of
$114 on 1 February. The bank statement showed a credit balance of $154 on 31 January 2015.
A comparison of the cash book and the bank statement revealed the following.
$
1 Items appearing only in the cash book
Cash from sales paid into the bank on 28 January 235
Cheque paid to M Sharp, a credit supplier 490
2 Items appearing only on the bank statement
Bank charges 62
Cheque received from K Taylor, a credit customer, dishonoured 143
Insurance premium paid by standing order 40
Interest on deposit account paid directly into the bank 130
3 The total of the debit side of the cash book had been overcast 100
REQUIRED
(a) Update the cash book of David Jones. Bring down the updated bank balance on 1
February 2015.
David Jones
Cash book (bank columns only)
56
6
Answer:
(b) Prepare a bank reconciliation statement for David Jones at 31 January 2015.
57
7
Answer:
(c) (i) State whether the cash book balance or the bank statement balance should be shown in
David Jones’ statement of financial position at 31 January 2015.
________________________________________________________________________
________________________________________________________________________
Answer: Cash book balance
(ii) Give a reason for your answer in (i).
________________________________________________________________________
________________________________________________________________________
Answer: (ii) Either

The statement of financial position would not balance if the bank statement balance was included
Or
Only balances on the books of the business can be included in the statement of financial
position of the business
(d) State two reasons why David Jones’ bank manager would be interested in his financial
statements.
1_________________________________________________________________________
______________________________________________________________________________
2_________________________________________________________________________
______________________________________________________________________________
Answer: Assess prospects of any requested loan/overdraft being repaid when due Assess prospects of
any interest on loan/overdraft being paid when due Assess security available to cover any loan/overdraft
Or other acceptable reason
58
8
3 John is a trader. On 1 February his bank account had a debit balance of $450. The following
transactions then took place.
February 1 Bought goods, $600, on credit from Abdul.

2 Made cash sales of goods, $150, cost $90.
3 Paid cash, $100, into the bank.
4 Took drawings, $50, in cash.
5 Sold goods, cost $300, on credit to Sara for $510.
6 Paid Abdul in full by cheque.
(a) Prepare John’s cash book (bank columns only) for the first week of February. Balance the
cash book and bring down the balance on 8 February.
John
Cash book (bank columns)
Answer:
(b) Identify the transaction which reduced John’s capital.
_____________________________________________________________________
_____________________________________________________________________
Answer: Drawings
59
9
4 Paul Chew is a trader. He made the following entries in his cash book in September 2015.
REQUIRED
(a) (i) Suggest one reason why the cheque on 4 September was dishonoured.
____________________________________________________________________
____________________________________________________________________
Answer: Lack of funds No signature

Amount in words and figures differ
No date
Or other suitable reason
(ii) Explain the entry on 11 September.

____________________________________________________________________
____________________________________________________________________
Answer: This is a contra entry

Cash has been withdrawn from the bank for business use
(iii) Explain the entry on 27 September.

____________________________________________________________________
____________________________________________________________________
Answer: Money received from sales: some retained in cash and some paid into the bank
(iv) Calculate the percentage of the discount on 24 September.

____________________________________________________________________
____________________________________________________________________
Answer:
(v) State how the total of the discount column on the debit side of the cash book would be
entered in the ledger on 30 September.
____________________________________________________________________
____________________________________________________________________
Answer: Debited to the discount allowed account
60
10
(vi) Calculate the bank balance on 30 September.

____________________________________________________________________
____________________________________________________________________
Answer: 944 – 667 = 277
On 30 September 2015 Paul Chew’s bank statement showed an overdrawn balance of $43.
On comparing the bank statement and the cash book it was found that the bank had not recorded the
transactions shown in the cash book on the following dates:
24 September
27 September
30 September
REQUIRED
(b) Prepare a bank reconciliation statement at 30 September 2015.
Paul Chew
Bank Reconciliation Statement at 30 September 2015
Answer:
61
11
4 Shahid Ayub is a trader who maintains a full set of accounting records including a three column
cash book.
On 1 August 2015 Shahid Ayub had the following balances in his cash book:
$
Cash 50
Bank overdraft 7150
Shahid Ayub’s transactions for August 2015 included the following.
REQUIRED
(a) Complete Shahid Ayub’s cash book on the page opposite.
Balance the cash book and bring down the balances on 1 September 2015.
62
12
63
13
Answer:
5 Elliott started a business selling machinery on 1 May 2015. He opened a business bank account
with $12 000 of his own money and transferred his own vehicle to be retained and used in the business
at a valuation of $1800.
He provided the following summary of the transactions in the first month of trading.
Paid $3000 by standing order for three months’ rent.
Bought 6 machines at $300 each and 8 machines at $400 each, paying by credit transfer.
Sold 5 of the cheaper machines for $450 each in cash.
Sold 6 of the more expensive machines for $700 each receiving the funds by cheque.
Withdrew $3600 from the bank as drawings.
Paid sundry expenses, $150, in cash.
Paid cash, $2000, into the bank.
Used, but did not pay for, electricity, $80.
REQUIRED
(a) Prepare Elliott’s cash book for May 2015. Balance the cash book and bring down the
balances on 1 June 2015. The cash book is on the opposite page.
64
14
65
15
Answer:
(b) Calculate the following for May 2015.
Cost of sales___________________________________________________________
_____________________________________________________________________
Expenses_____________________________________________________________
_____________________________________________________________________
Profit for the month_____________________________________________________

_____________________________________________________________________
Answer: Cost of sales Purchases 5000 – closing inventory 1100 = 3900

OR (5 × 300) + (6 × 400) = 3900
Expenses Rent 1000 + other expenses (150 + 80) = 1230
Profit for the month Sales 6450 – (3900 + 1230) = 1320
66
16
(c) Prepare Elliott’s statement of financial position at the end of the first month of trading.
Elliott
Statement of Financial Position at 31 May 2015
67
17
Answer:
(d) Suggest one reason, based on your answer to (c), why Elliott might face financial difficulties
in the future.
_________________________________________________________________________
_________________________________________________________________________
Answer: Elliott’s drawings are greater than his profit
6 Give one example of each of the following.
(a) An item in the cash book not in the bank statement
__________________________________________________________________________
__________________________________________________________________________
(b) An item in the bank statement not in the cash book.
__________________________________________________________________________
__________________________________________________________________________
Answer: (a) Unpresented cheque/uncredited deposit/book-keeper error

(b) Bank charges/bank interest/dishonoured cheque/standing order/credit transfer/direct
debit/bank error/dishonoured cheque
68
18
7 The total of the discount received column of the cash book, $80, was posted in error to the credit
side of the discount allowed account.
Which entries correct this error?
Answer: A.
8 Zameer’s purchases journal for the week ended 28 February 2017 was as follows:
Zameer
Purchases Journal
Zameer’s cash book recorded a payment, $1800, made on 25 February by credit transfer. This
payment was for rent for the three months ending 30 April 2017.
REQUIRED
(a) Name the type of book of which the cash book and the purchases journal are examples.
_______________________________________________________________________
_______________________________________________________________________
Answer: Book of prime (original) entry
(b) Prepare the following ledger accounts in the books of Zameer. Balance the accounts and
where necessary show any balance brought down on 1 March 2017.
69
19
Answer:
70
20
(c) State whether Zameer’s payments were capital expenditure or revenue expenditure.
Purchases__________________________________________________________
Rent_______________________________________________________________
Answer: Revenue,
Revenue
(d) (i) Give one example of a revenue receipt.

_______________________________________________________________
_______________________________________________________________
(ii) Give one example of a capital receipt.

_______________________________________________________________
_______________________________________________________________
Answer: (i) sales

commission received
rent received
interest received
(ii) capital introduced

proceeds of sale of non-current asset
receipt of loan
9 Yeo is a trader. On 30 April 2017 his cash book showed cash in the bank, $2890. When he compared
this with the bank statement balance at the same date he found the following.
a) A credit transfer for $340, paid by Yeo, had been recorded in his cash book as $430.
b) Bank charges, $50, were shown on the bank statement but had not been recorded in the
cash book.
c) A cheque to a supplier, $400, had not been presented.
d) A cheque paid into the bank, $180, had not yet been credited.
e) A cheque, $200, received from a customer, had been dishonoured.
These items accounted for the difference between the cash book balance and the bank statement
balance.
REQUIRED
(a) State what is meant by a bank statement.
____________________________________________________________________________
____________________________________________________________________________
Answer: A copy of the customer’s account as it appears in the books of the bank.
71
21
(b) State which two items 1 to 5 resulted from timing differences.
____________________________________________________________________________
____________________________________________________________________________
Answer: 3 and 4
(c) Calculate the bank balance in the cash book after it had been updated.
____________________________________________________________________________
____________________________________________________________________________
Answer:
(d) Prepare Yeo’s bank reconciliation statement at 30 April 2017.
Yeo
Bank Reconciliation Statement at 30 April 2017
Answer:
(e) State the amount for bank which would appear in Yeo’s statement of financial position at 30
April 2017. Name the section of the statement of financial position in which it would be shown.
Amount $__________________________________________________________________
Section____________________________________________________________________
Answer: $2730
current assets
72
22
(f) State one reason why a cheque may be dishonoured.
____________________________________________________________________________
____________________________________________________________________________
Answer: insufficient funds in account

no signature on cheque
wrong signature
no date
words and figures do not agree
cheque is out of date
(g) Name one method, other than preparing a bank reconciliation statement, which Yeo
could use to check for errors in his books of account.
____________________________________________________________________________
____________________________________________________________________________
Answer: preparing of trial balance OR preparing of control account
10 Amjad is a furniture wholesaler. He maintains a three column cash book.
On 1 March the bank column of his cash book showed a debit balance brought down of $2750. On
the same day the bank statement showed a credit balance of $2750.
REQUIRED
(a) State why the bank statement balance is on the opposite side to that shown in the cash book.
__________________________________________________________________________
__________________________________________________________________________
Answer: 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,
The bank account in the cash book is prepared from the viewpoint of the business.
The following transactions took place in March 2017.
March 6Paid $950 by cheque. This included $790 for a new computer system, and the balance was
for repairs to existing office equipment
13 Received a cheque from XY Limited for $196 to settle its account after deducting 2% cash
discount
21 Paid Furniture Store a cheque for $351 in full settlement of the balance owing of $360
29 Made cash sales, $2148
30 Paid cash into bank, $2000
Amjad received his bank statement for March 2017.
The following items appeared on the bank statement but had not been recorded in his accounting
records.
$
Bank charges 29
Insurance paid directly by the bank 50
A credit customer, Idris, had paid his account by credit transfer 474
73
23
The bank had not yet recorded the transactions which took place on 21 March and 30 March.
REQUIRED
(b) Complete Amjad’s cash book.
Balance the cash book and bring down the balances on 1 April 2017.
Answer:
74
24
(c) Prepare a bank reconciliation statement for Amjad at 31 March 2017 to determine the
balance on the bank statement.
Answer:
Amjad wishes to compare his financial statements with those of another furniture wholesaler.
He has been told that financial statements have limitations and will not reveal everything about the
other business.
REQUIRED
(d) Explain why Amjad should consider the following when he is looking at the financial
statements of the other business.
(i) Historical cost__________________________________________________________

_________________________________________________________________________
(ii) Non-financial aspects____________________________________________________

_________________________________________________________________________
75
25
Answer: (i) The financial transactions are recorded at the actual cost.
Because of this it is difficult to compare transactions taking place at different times.
(ii) The accounting records only show information which can be expressed in monetary
terms/non-monetary items cannot be recorded.
There are many other factors which affect the performance of the business.
11 Shiromi is a trader in office equipment. She maintains a full set of accounting records. Shiromi
made the following entries in her cash book, purchases journal and purchases returns journal in
April 2017.
REQUIRED
(a) Enter the transactions for April in the following ledger accounts. It is not necessary to
balance or total any of the accounts.
76
26
77
27
Answer:
78
28
11 A trader compared his cash book (bank column), which had a debit balance of $70, with his bank
statement. He found that bank charges, $10, had not been recorded in his books, and that a
cheque for $18 which he had issued had not been presented.
What was the balance on his bank statement?
Answer: C. $78 credit
12 On 1 February 2017 Simran had the following transactions.
1 Took cash, $100, as drawings.

2 Paid remaining cash into the bank.
3 Transferred her private motor vehicle, value $2500, to the business.
4 Sent a cheque, $48, to Neel, a credit supplier. Simran received 4% cash discount when
making this payment.
5 Paid wages, $350, for January 2017, by credit transfer.
REQUIRED
(a) Complete the following table stating the double entry needed to record each transaction. The
first has been completed as an example.
account debited $ account credited $
1 drawings 100 cash 100
79
29
Answer:
(b) Identify the following:
(i) the transaction which increased profit and Simran’s capital

Transaction number______________
(ii) the transaction which increased Simran’s capital but not profit
(iii) the transaction which increased working capital.

Answer: (i) Transaction number 4

(ii) Transaction number 3
(iii) Transaction number 4
(c) State where the wages owed at 31 January 2017 were shown in the statement of financial
position. Name the item and the section.
Item____________________________________________________________________
Section__________________________________________________________________
Answer: item – other payables

section – current liabilities
(d) Prepare the bank column of the cash book on 1 February 2017. Bring down the balance on 2
February.
80
30
Answer:
13 Mandeep is a trader who maintains a full set of accounting records including a three column cash
book.
His transactions for December 2016 included the following:
December 4 Paid $387 by cheque for repairs to office equipment
11 Received a cheque from Jabin to settle his account of $300 less 2% cash discount
15 Paid a cheque, $702, to Rama, after deducting a cash discount of 2½%
27 Made cash sales, $6795
29 Withdrew cash, $5000, for personal use
31 Paid all the cash into the bank except $200
REQUIRED
(a) Complete Mandeep’s cash book on the page opposite.
Balance the cash book and bring down the balances on 1 January 2017.
81
31
Answer:
14 The bank columns of Kang-Dae’s cash book had a debit balance brought down of $1310 on
1 June 2017. The bank statement at the same date showed a credit balance of $790. When
Kang-Dae compared the cash book with the bank statement he found the following.
Items on the bank statement not in the cash book bank charges,
$60
credit transfer, $540, from Nigel, a credit customer standing order
for rent payable, $1000
direct debit paid to electricity company, $400
Items in the cash book not on the bank statement cheque to

Hachiro, a supplier, $700
cash paid in, $620
Kang-Dae also discovered that a payment, $320, for insurance had been entered in the cash book
twice in error.
REQUIRED
(a) State what is meant by a ‘bank statement’.
________________________________________________________________________
________________________________________________________________________
Answer: A bank statement is a copy of the customer’s account as it appears in the books of the bank.
(b) Update the bank columns of Kang-Dae’s cash book on 1 June 2017. Balance the cash book
and bring down the balance.
82
32
Answer:
83
33
Answer:
(d) State two differences between a bank overdraft and a bank loan.
1_________________________________________________________________________
______________________________________________________________________________
2_________________________________________________________________________
______________________________________________________________________________
Answer: A loan is of fixed amount but an overdraft is of varying amount.

A loan is for a fixed term but an overdraft may be paid back at any time.
A loan may require security but an overdraft may be unsecured.
A loan may have a fixed rate of interest but an overdraft will have a variable rate.
(e) Name the section of the statement of financial position where a 5-year bank loan would
appear.
_________________________________________________________________________
_________________________________________________________________________
Answer: Non-current liabilities
84
34
15 Saffie is a trader. She maintains a three column cash book and also a petty cash book. The
imprest amount is $150. All payments below $100 are made from petty cash.
Saffie had the following transactions in September 2017.
September 1 Petty cash imprest restored from the business bank account
3 Paid taxi fare, $12
7 Paid $461 by cheque for repairs to office machinery
11 Purchased office stationery, $64
15 A cheque for $210 received from SL Stores in August was dishonoured
by the bank
21 Paid Faariqa, a credit supplier, $29
26 Received a cheque from Thushari, $392, in settlement of the amount due
less 2% cash discount
24 Cash sales, $4840, of which $4800 was immediately paid into the bank
25 Paid Sopitha’s account of $480 after deducting a cash discount of
2½%
26 Paid postage, $22
REQUIRED
(a) Record the above transactions in the following books which appear on the next page.
Balance each book and bring down the balances on 1 October 2017.
(i) Petty cash book

(ii) Cash book
85
35
86
36
Answer:
On 30 September 2017 Saffie’s bank statement showed an overdraft of $4649. She compared the
cash book with her bank statement and found that the bank had not recorded the transactions shown
in the cash book on the following dates.
September 26
28
29
In addition, the bank had debited Saffie’s business bank account with $50 which should have been
debited to her personal bank account.
REQUIRED
(b) Prepare a bank reconciliation statement at 30 September 2017.
87
37
Answer:
88
38
16 Meena is a trader. On 31 December 2017 Meena’s cash book (bank columns) showed an overdrawn
balance of $2450. The balance on the bank statement at the same date was $2623 debit. Meena checked
the cash book against the bank statement and discovered the following differences.
1 Cash sales, $362, paid into the bank on 31 December, did not appear on the bank statement.
2 Interest charged by the bank, $20, had not been recorded in the cash book.
3 A cheque for $94 from a customer, Anjana, had been paid into the bank but had been returned as
dishonoured.
4 The bank had received $140 by credit transfer from Rohan, a customer, which had been omitted
from the cash book.
5 Cheques totalling $198, issued by Meena, had not been presented for payment.
6 The bank had paid a standing order, $35, to a supplier on 30 December by mistake.
REQUIRED
(a) Update Meena’s cash book (bank columns) at 31 December 2017. Bring down the updated
balance on 1 January 2018.
Answer:
89
39
(b) Prepare a bank reconciliation statement at 31 December 2017.
Answer:
90
40
(c) State the amount which will be shown as the bank balance in the statement of financial
position at 31 December 2017 and the section in which it will be shown.
Amount $_____________________________________________________________
Section of statement of financial position_____________________________________
Answer: $2424
Current liabilities
(d) State what is meant by a ‘dishonoured cheque’. Suggest two possible reasons why a cheque
might be dishonoured.
Meaning_____________________________________________________________
____________________________________________________________________
Reasons_____________________________________________________________
____________________________________________________________________
1___________________________________________________________________
____________________________________________________________________
2___________________________________________________________________
____________________________________________________________________
Answer: Meaning - A cheque which has been returned unpaid by the bank
Reasons - Drawer has insufficient funds in the account
Incomplete details on the cheque (e.g. missing date, signature)
Cheque is out of date/stale
Cheque may be post-dated
Inconsistent details on the cheque (e.g. signature does not match that on file,
amount in figures does not agree with amount in words)
Meena maintains a petty cash book using the imprest system. The amount of the imprest is $200.
During the month of December Meena paid the following expenses from petty cash.
$
Stationery 18
Taxi fares 5
Office tea and biscuits 4
REQUIRED
(e) Explain the meaning of the ‘imprest system’.
__________________________________________________________________________
__________________________________________________________________________
Answer: At any time the amount paid out from the float (represented by vouchers/receipts) plus
remaining cash must equal the fixed amount of the float.
91
41
(f) State the double entry to record the reimbursement to the petty cash imprest on 1 January
2018.
Answer:
17 Amira owns an advertising agency. Her financial year ends on 30 April.
On 1 April 2018 she decided to use a petty cash book with a monthly imprest of $80 which
would be restored on the first day of each month.
REQUIRED
(a) State one reason for using a petty cash book.
__________________________________________________________________
__________________________________________________________________
Answer: Reduces the number of entries in the main cash book

Removes the small cash payments from 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 junior staff members
(b) State one advantage of the imprest system of petty cash.
__________________________________________________________________
__________________________________________________________________
Answer: Control/limit petty cash expenditure

The cash remaining and the vouchers received should equal the imprest
Can help to reduce fraud
92
42
On 1 April 2018 Amira put $80 cash in the petty cash box.
Her transactions for the month of April 2018 were as follows.
$
April 4 Bought stamps 3
7 Purchased printing paper 8
11 Purchased ink cartridges 12
19 Paid window cleaner 10
22 Paid KK Limited, a trade payable 35
29 Purchased flowers for reception desk 7
REQUIRED
(c) Enter these transactions in Amira’s petty cash book.
Balance the petty cash book and bring down the balance on 1 May 2018.
93
43
Answer:
(d) Complete the following table to show the double entry to restore the petty cash imprest on 1
May 2018.
Answer:
(e) Show the entry which would be made in the computer supplies account in April 2018. It is not
necessary to close or balance the account.
Answer:
94
44
Amira balanced her cash book on 30 April 2018. The bank column showed that she had $17 620
in the bank.
On the same date the bank statement showed a different balance.
REQUIRED
(f) State two reasons for preparing a bank reconciliation statement.
Reasons_____________________________________________________________
____________________________________________________________________
1___________________________________________________________________
____________________________________________________________________
2___________________________________________________________________
____________________________________________________________________
Answer: Obtain the correct bank balance

Identify errors in the bank account
Identify errors on the bank statement
Assist/helps in discovering fraud and embezzlement
Identify amounts not credited
Identify cheques not presented
Identify any stale cheques or dishonoured cheques
A comparison of the cash book and the bank statement revealed the following.
REQUIRED
(g) Update the cash book of Amira found on the next page.
Bring down the updated balance on 1 May 2018.
95
45
Answer:
(h) Prepare a bank reconciliation statement for Amira at 30 April 2018 to determine the balance
shown on the bank statement.
96
46
Answer:
(i) State the bank balance which would appear in the statement of financial position on 30 April
2018. Name the section in which it would appear.
Amount of bank balance $____________________________________________________

Section of statement of financial position ________________________________________
Answer: $17 444

Current assets
(j) Suggest two possible reasons why the cheque from Jabir was dishonoured.
1_______________________________________________________________________
2_______________________________________________________________________
Answer: Not enough money in account

Cheque unsigned
Amount in words and figures disagree
Takes account into unauthorised overdraft
97
47
18 Sophia maintains a full set of books of prime (original) entry including a three column cash book.
REQUIRED
(a) Explain why Sophia’s cash book is both a book of prime (original) entry and also part of the
ledger.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Answer: It is a book of prime (original) entry because it is written up from business documents
It is part of the double entry system as it acts as ledger accounts for cash and bank
The bank columns of Sophia’s cash book for the month of April 2018 were as follows.
The following errors were discovered.
1 Sophia had brought down the cash book balance on 1 April 2018 incorrectly. It should have
been $850.
2 The bank had incorrectly entered a standing order for insurance in Sophia’s business bank
account instead of her personal bank account.
REQUIRED
(b) Select the items required to update Sophia’s cash book on 30 April 2018 and write these
items in the table.
Indicate how each item would be entered in the cash book. The first one has been completed as
an example.
98
48
Answer:
Sophia prepared a bank reconciliation statement on 30 April 2018. She started with the credit
balance shown on the bank statement at that date.
REQUIRED
(c) Select the items which would be entered in Sophia’s bank reconciliation statement on 30
April 2018 and write these items in the table.
Place a tick (3) in the correct column to indicate how each item would be recorded in the bank
reconciliation statement.
99
49
Answer:
19 Carol is a trader. She maintains a three column cash book and also a petty cash book. The
imprest amount is $100. All payments below $50 are made from petty cash.
REQUIRED
(a) State two reasons for maintaining a petty cash book.

1_________________________________________________________________________
______________________________________________________________________________
2_________________________________________________________________________
______________________________________________________________________________
Answer: Reduce the number of entries in the main cash book

Removes the small cash payments from 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 junior staff members
Carol had the following transactions during April 2016.
100
50
REQUIRED
(b) Record the above transactions in the following books.
(i) Petty cash book

(ii) Three column cash book
Balance each book and bring down the balances on 1 May 2016.
101
51
Answer: (i)
(ii)
20 Sue’s cash book for the month of April 2016 was as follows.
REQUIRED
(a) (i) State the significance of each of the balances on 1 April 2016.
Balance in cash column________________________________________________

___________________________________________________________________
102
52
Balance in bank column________________________________________________

___________________________________________________________________
Answer: Cash represents the cash the trader possesses

Bank represents an overdraft/what the trader owes the bank
(ii) Suggest two possible reasons why the cheque from J Foy was dishonoured on 9 April.
1____________________________________________________________________
2____________________________________________________________________
Answer: Not enough money in the account Cheque unsigned

Amount in words and figures disagree Cheque undated/out of date
Takes account into unauthorised overdraft Or other acceptable reason
(iii) State whether Sue allowed or received the discount on 14 April.
_____________________________________________________________________
_____________________________________________________________________
Answer: Received
(iv) Calculate the percentage the discount on 14 April represents correct to two decimal
places.
_____________________________________________________________________
_____________________________________________________________________
Answer:
(v) Explain the entries on 29 April.
_____________________________________________________________________
_____________________________________________________________________
Answer: This is a contra entry

Money was transferred from the cash into the bank
(vi) State whether the total of the discount column on the debit side of the cash book is
debited or credited to the discount account on 30 April.
_____________________________________________________________________
_____________________________________________________________________
Answer: Debited
103
53
(vii) Calculate the balances which would appear in the cash book on 1 May 2016. State
whether they would be debit or credit balances.
Balance in cash column on 1 May $.....................
Type of balance ....................... (debit or credit)
Balance in bank column on 1 May $.....................
Type of balance ....................... (debit or credit)
Answer: Cash balance $2 debit

Bank balance $638 debit
21 A trader’s cash book had a debit balance of $50. When the bank statement arrived he saw that a
customer’s cheque for $80 had been dishonoured, and that the bank had charged him $10 in bank
charges.
What was the balance on the cash book when it had been updated?
Answer: B. $40 credit
22 Jolindi is a trader who maintains a full set of accounting records including a three column cash
book.
Her transactions for September 2016 included the following.
September 5 Cash sales, $515, of which $400 was paid directly into the bank
10 A cheque received in August for $190 from C Barnes was dishonoured
27 Received a cheque from H Magagula to settle her debt of $480, less 2½% cash
discount
27 Paid $324 by cheque, for new office equipment, $280, and repairs to existing
office equipment, $44
28 Paid all the cash into the bank except $50
REQUIRED
(a) Complete Jolindi’s cash book on the page opposite.
Balance the cash book and bring down the balances on 1 October 2016.
104
54
Answer:
(b) State why it is not possible for Jolindi to have a credit balance in the cash column of her
cash book.
________________________________________________________________________
________________________________________________________________________
Answer: It is not possible to take out more cash than is in the cash box
105
55
Jolindi decided to compare the bank column of her cash book with her bank statement and to
prepare a bank reconciliation statement.
REQUIRED
(c) State two reasons for preparing a bank reconciliation statement.
1_________________________________________________________________________
______________________________________________________________________________
2_________________________________________________________________________
______________________________________________________________________________
Answer: Obtain the correct bank balance Identify errors in the bank account Identify errors on the
bank statement.
Assist in discovering fraud and embezzlement Identify cheques not credited by the bank
Identify cheques not presented.
Identify any stale cheques
Understand/reconcile the differences between cash book and bank statement
(d) Suggest two items which may appear in the cash book but not on the bank statement.
1____________________________________________________________________
__________________________________________________________________________
2____________________________________________________________________
__________________________________________________________________________
Answer: Cheques not presented

Cheques not credited
Cash book errors
106
56
IGCSE
Accounting
Club
Accounts
107
1
1 (a) A successful club prepares a trading account and an income and expenditure account.
Which statement is true?
Answer: C. The trading account shows a profit and the income and expenditure account shows a
surplus.
(b) The activities of the Wilhelm Archery club include the running of an equipment shop. On 1
January the accumulated fund of the club amounted to $16 200 and on 31 December $18 000.
What does this increase mean?
Answer: B. There was a surplus for the year of $1800.
(c) Why does a sports club prepare the trading account section of an income statement?
Answer: B. it operates a café
108
2
2 The treasurer of the Hills Road Youth Club provided the following information at the end of the
financial year on 31 October 2015.
There were no sales of equipment during the year.
REQUIRED
(a) Calculate the subscriptions for the year ended 31 October 2015.
Answer:
109
3
(b) Prepare the refreshments income statement for the year ended 31 October 2015.
Answer:
(c) Prepare the income and expenditure account for the year ended 31 October 2015.
Please see next page.
110
4
Hills Road Youth Club

Income and Expenditure Account for the year ended 31 October 2015
Answer:
(d) Suggest two reasons why the surplus or deficit shown in the income and expenditure
account is not equal to the bank balance.
1___________________________________________________________________
2___________________________________________________________________
Answer: Income and expenditure account includes non-monetary items

Income and expenditure account has adjustments for accruals and prepayments
Income and expenditure account includes only revenue items
111
5
(e) Explain why a club does not distribute a surplus to its members.
______________________________________________________________________
______________________________________________________________________
Answer: The members of the club have not invested any capital so there can be no dividends/profit
share which represent a return on capital invested.
(f) State how a club’s accumulated fund arises.

______________________________________________________________________
______________________________________________________________________
Answer: Accumulated fund arises from the surpluses the club has made.
3 Hi-Jump is a sports club which also runs a shop for the use of members only. It provided
the following information.
REQUIRED
(a) State what the balance of $395 on 1 January 2017 represents.

_____________________________________________________________________
_____________________________________________________________________
Answer: Subscriptions paid in advance at the year-end
112
6
The receipts and payments account of the club was as follows:
The following additional information was also available.
REQUIRED
(b) Complete the following table to show the values of the current assets and current liabilities
which would appear in the statement of financial position of the club on 31 December 2016.
113
7
Answer:
(c) Calculate the loss made by the shop in the year ended 31 December 2016.
Answer:
(d) Prepare the club’s income and expenditure account for the year ended 31 December 2016.
See next page.
114
8
Hi-Jump
Income and Expenditure Account for the year ended 31 December 2016
Answer:
(e) Suggest two reasons why the managing committee continues to run the shop despite it
making a loss.
1____________________________________________________________________
2____________________________________________________________________
Answer: to provide a service to members

because the club can still make a surplus
because the loss is small in relation to subscriptions
because it encourages members to join this club rather than another one
because the rent would still be payable even if the shop closed
115
9
(f) Explain how the financial statements of the club would be affected if the managing
committee decided not to charge the shop with its share of the rent.
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
Answer: the surplus would not change

plus development
the shop’s loss would decrease
OR rent in the income and expenditure account would increase
4 A sports club charges its members an annual fee of $100. Its subscriptions account for the year
was as follows.
Answer: D. The club had 120 members during the year.
116
10
5 The A1 Sports Club was formed some years ago.
The club has 100 members. The annual subscription is $70.
A few years ago the club borrowed $3000 from a member at 3% per annum interest.
In addition to providing sporting facilities, the club also has a café for members.
All supplies for the café are purchased on credit terms, and all sales are made for cash.
The following information was available for the year ended 30 April 2017.
REQUIRED
(a) Prepare the receipts and payments account for the year ended 30 April 2017. Insert a figure
for receipts from café sales.
Balance the account and bring down the balance on 1 May 2017. See next page.
117
11
Answer:
118
12
(b) Prepare the café income statement for the year ended 30 April 2017.
Answer:
(c) State the amount of subscriptions which will appear in the income and expenditure account
for the year ended 30 April 2017. Give a reason for your answer.
Amount $________________________________________________________________
Reason_________________________________________________________________
Answer: $7000
This is the amount of subscriptions which relates to this financial year
119
13
(d) List five items included in the receipts and payments account which will not appear in the
income and expenditure account for the year ended 30 April 2017.
1_____________________________________________________________________
2_____________________________________________________________________
3_____________________________________________________________________
4_____________________________________________________________________
5_____________________________________________________________________
Answer: Opening bank balance/closing bank balance

Purchase of equipment
Proceeds of sale of equipment
Repayment of loan
Café sales
Payments to café suppliers
Café wages
Subscriptions accrued at the start of the year
6 A group of friends set up LMN Chess Club, on 1 January 2016.
The club hosts chess tournaments, and organises trips for members to attend tournaments
elsewhere.
The annual subscription is $100.
A member made an interest-free loan of $1000 to the club when it started. Before the end of the
first year the treasurer was able to repay half of the loan.
The treasurer provided the following additional information.
120
14
REQUIRED
(a) Prepare the receipts and payments account for the year ended 31 December 2016.
Balance the account and bring down the balance on 1 January 2017.
LMN Chess Club

Receipts and Payments Account for the year ended 31 December 2016
121
15
Answer:
(b) Prepare the subscriptions account for the year ended 31 December 2016. Balance the
account and bring down the balance on 1 January 2017.
Answer:
122
16
(c) Prepare the income and expenditure account for the year ended 31 December 2016.
LMN Chess Club

Income and Expenditure Account for the year ended 31 December 2016
Answer:
(d) State two reasons why the closing balance in the receipts and payments account is different
from the final figure in the income and expenditure account. For each reason give one
example taken from the question.
Reason 1_______________________________________________________________
_______________________________________________________________________
123
17
Example_______________________________________________________________
_______________________________________________________________________
Reason 2_______________________________________________________________
_______________________________________________________________________
Example_______________________________________________________________
_______________________________________________________________________
Answer:
8 The financial year of the AS Sports Club ends on 30 September.
In addition to providing sporting facilities, the club also sells sportswear to members.
No inventory is held as all goods are bought and sold to order, on a cash basis.
The treasurer provided the following information. At 1 October 2016:
124
18
REQUIRED
(a) Calculate the subscriptions for the year ended 30 September 2017.
Answer:
(b) Prepare the income and expenditure account for the year ended 30 September 2017.
125
19
Answer:
(c) Prepare the statement of financial position at 30 September 2017.
126
20
Answer:
(d) Explain why the outstanding loan interest should not be credited to the loan account.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Answer: Loan interest is an expense account/any accrued interest is a current liability

The loan is a non-current liability
9 The following is the subscriptions account of a club.
127
21
Answer: A. Subscriptions in advance at 1 January 2018 were $50.
10 Which term in club or society accounts means the same as capital?
Answer: A. accumulated fund
11 The ND Sports Club was formed on 1 January 2017.
As well as providing sporting facilities for members the club also has a café for members
and guests. Café supplies are purchased on credit and all café sales are made on cash
terms.
The treasurer provided the following information on 31 December 2017.
Additional information
1 At 31 December 2017
Café inventory was valued at $970. Café suppliers were owed $130.
Café assistant’s wages accrued amounted to $160.
2 The payment for rent and insurance included $1200 for 12 months to 31 January 2018.
128
22
3 One quarter of the rent and insurance is to be allocated to the café.
4 The club has 300 members. The annual subscription is $50. On 31 December 2017
subscriptions were outstanding from 10 members and 7 members had already paid their
subscription for 2018.
5 Sports equipment and café fixtures and fittings are to be depreciated by 20% on cost.
REQUIRED
(a) Prepare the café income statement for the year ended 31 December 2017.
Answer:
129
23
(b) Prepare the income and expenditure account for the year ended 31 December 2017.
Answer:
(c) State one item in the list of receipts and payments which does not appear in the income
and expenditure account. Give a reason for your answer.
Item__________________________________________________________________
Reason_______________________________________________________________
_____________________________________________________________________
130
24
Answer: Item - Receipts from café sales
Café suppliers
Wages of café assistant
Interest-free loan
Sports equipment
Café fixtures and fittings
Reason: For any of first three items –

It relates to the café and appears in the café income statement
Reason: For any of the last three items –
It is an asset/liability and appears in the statement of financial position
(d) State one item in the income and expenditure account which does not appear in the list of
receipts and payments. Give a reason for your answer.
Item____________________________________________________________________
Reason_________________________________________________________________
_______________________________________________________________________
Answer: Depreciation of sports equipment

Subscriptions accrued
Loss on café
Surplus/deficit
Reason –
The depreciation is a non-monetary expense
No money was received in respect of the subscriptions accrued
The loss on the café was calculated in the income statement
The surplus/deficit was calculated in the income and expenditure account
A member of the club has suggested that any surplus made by the club should be distributed among
the members.
REQUIRED
(e) Comment on this suggestion.

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Answer: The members of the club have not invested any capital/are not owners/are not shareholders
so there can be no dividends/profit share which represent a return on the amount invested.
131
25
The owner of the premises rented by the club has offered to sell them to the club for $90 000.
A decision has to be made by 31 August 2018.
A member of the committee has suggested increasing subscriptions and holding fund-raising
events in order to raise the necessary finance.
REQUIRED
(f) State why the member’s suggestions are not suitable methods of raising the
necessary finance.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Answer: These would not raise the required amount within the time limit
(g) Suggest one way in which the club could raise the necessary finance.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Answer: Long-term loan

Mortgage
Sponsorship
Grants
Donations
Or other suitable source of long term funds
12 WB Sports Club has 250 members. The annual subscription is $20. The club provided the
following information.
REQUIRED
(a) Prepare the subscriptions account for the year ended 31 March 2018. Balance the
account and bring down the balance on 1 April 2018. See next page.
132
26
Answer:
133
27
REQUIRED
(b) Prepare the receipts and payments account for the year ended 31 March 2018. Balance the
account and bring down the balance on 1 April 2018.
Answer:
WB Sports Club calculated a surplus for the year of $1568.
The following additional information was provided at 31 March 2018.
134
28
REQUIRED
(c) Prepare the statement of financial position of WB Sports Club at 31 March 2018.
Answer:
135
29
(d) State how the accumulated fund of WB Sports Club has arisen.
_____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Answer: It is the total of all the surpluses made by the club less all the deficits since the start of the
club.
13 The Lodi Sports Club was formed some years ago.
The club has 150 members. The annual subscription is $100. The club rents a sports centre at a
monthly rent of $300.
A few years ago the club took out a bank loan of $5000 at 4% per annum interest.
The amounts received and paid during the year ended 31 January 2016 were as follows.
REQUIRED
(a) Prepare the receipts and payments account for the year ended 31 January 2016. Balance
the account and bring down the balance on 1 February 2016. See next page.
136
30
Lodi Sports Club
Receipts and Payments Account for the year ended 31 January 2016
Answer:
(b) Calculate the total subscriptions which will appear in the income and expenditure account
for the year ended 31 January 2016.
...................................................................................................................................................
...............................................................................................................................................
137
31
Answer:
(c) Complete the following table to show the entries in the statement of financial position on 31
January 2016.
Answer:
14 The Cambridge Club is a football club which also runs a shop for members. It provided t he
following information.
138
32
REQUIRED
(a) Calculate the closing balance on the receipts and payments account for the year ended 31
March 2016.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Answer:
(b) Prepare the subscriptions account for the year ended 31 March 2016. Bring down the balance
on 1 April 2016.
Cambridge Club
Subscriptions account

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..
...……. …………………........……. ….......….. ...……. …………………........……. ….......…..
...……. …………………........……. ….......….. ...……. …………………........……. ….......…..
...……. …………………........……. ….......….. ...……. …………………........……. ….......…..
...……. …………………........……. ….......….. ...……. …………………........……. ….......…..
...……. …………………........……. ….......….. ...……. …………………........……. ….......…..
Answer:
139
33
(c) Calculate the shop profit for the year ended 31 March 2016.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Answer:
(d) Prepare the income and expenditure account for the year ended 31 March 2016.
140
34
Answer:
The committee of the Cambridge Club were disappointed with the profit earned by the shop.
REQUIRED
(e) Suggest two ways in which the shop profit could be increased.
..................................................................................................................................................
..................................................................................................................................................
..................................................................................................................................................
Answer: Increase the selling price

Buy cheaper goods
Other valid points acceptable
15 The financial year of the Hillcrest Athletics Club ends on 30 April.
In addition to providing training facilities for members, the club also runs a café for members and
visitors.
The treasurer provided the following information.
141
35
During the year, all the equipment was sold and was replaced by new equipment. At the date of
sale, the net book value of equipment was $956.
Equipment is depreciated by 15% per annum on the cost of equipment held at the end of each
year. No deprecation is charged in the year of disposal.
REQUIRED
(a) Prepare the income statement for the café for the year ended 30 April 2016.
Answer:
(b) Calculate the subscriptions for the year ended 30 April 2016.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
142
36
Answer:
(c) Prepare the income and expenditure account for the year ended 30 April 2016.
Answer:
143
37
16 A club has 200 members paying an annual subscription of $50. It provided the following
information.
Answer: D. $870
17 The Chess Club also runs a shop for its members. Its receipts and payments account for
the year ended 31 December 2015 is as follows.
REQUIRED
(a) Prepare the shop income statement for the year ended 31 December 2015. See next
page.
144
38
Answer:
145
39
(b) Prepare the club’s income and expenditure account for the year ended 31 December
2015.
Answer:
(c) Calculate, to two decimal places, the mark-up being applied on the sale of goods in
the shop.
...........................................................................................................................................
..........................................................................................................................................
146
40
Answer:
A member of the committee has suggested hiring a computerised system for use in the shop.
This would cost $500 a year. This would enable the shop staff to ensure that all goods were sold
at a standard mark-up of 40%. If this was implemented, staff would no longer be paid a set wage
but instead earn a commission of 20% of sales value.
REQUIRED
(d) Calculate the profit or loss which would be earned in the shop if the committee went
ahead with this suggestion. Assume sales volume is unchanged.
Answer:
147
41
(e) Suggest two other ways in which the committee might try to improve the financial
position of the club.
1 ...............................................................................................................................................
2 ...............................................................................................................................................
Answer: Increase subscription rate

Increase membership
Increase selling price in shop
Reduce cost of sales in shop
Reduce expenses in shop
Sell off unused equipment
Obtain a loan
Start fundraising
Seek donations
Sponsorship
Or other acceptable suggestions
(f) Explain why club members are not entitled to drawings.
..................................................................................................................................................
Answer: Members have not invested capital in the organisation and therefore cannot earn a return
on their investment.
Any surplus is retained in the organisation.
148
42
18 The Bolton Road Music Club was formed on 1 September 2015. The club has 60 members and
the annual subscription is $100. The club provides musical instruments for members to use. In
addition the club also has a shop selling CDs.
The treasurer provided the following information for the year ended 31 August 2016.
REQUIRED
(a) State the meaning of the following terms. Subscriptions

..................................................................................................................................................
...................................................................................................................................................
Accumulated fund
...................................................................................................................................................
...................................................................................................................................................
Receipts and payments account

...................................................................................................................................................
..............................................................................................................................................
149
43
Answer: Subscriptions - Amount paid by members of a club to use the facilities provided by the club
Accumulated fund - Surpluses which accumulate over the years/equivalent to capital of a
business
Receipts and payments account - Account summarising the money received and paid by a
club during a financial year
(b) Prepare the shop income statement for the year ended 31 August 2016.
Answer:
150
44
(c) Prepare the income and expenditure account for the year ended 31 August 2016.
Bolton Road Music Club

Income and Expenditure Account for the year ended 31 August 2016
Answer:
151
45
IGCSE
Accounting
Control
Accounts
152 1
1 Vijay Singh maintains a full set of accounting records and prepares control accounts at the
end of each month.
He provided the following information.
REQUIRED
(a) Select the relevant figures and prepare Vijay Singh’s sales ledger control account for
the month ended 30 April 2015.
Vijay Singh
Sales ledger control account
153 2
Answer:
(b) Explain the contra entry to the purchases ledger.
Answer: This is when the balance of an account in the purchases ledger is set against the balance of
an account of the same person in the sales ledger.
It is used when a trader both buys
goods from and sells goods to another business.
(c) Suggest why Vijay Singh charged a credit customer interest.
Answer: The customer had not paid the balance owed by the end of the period of credit allowed.
(d) State one reason why Vijay Singh prepares a monthly sales ledger control account.
Answer: To assist in the location of errors

To provide an instant total of trade receivables
To prove the arithmetical accuracy of the sales ledger
To enable a statement of financial position to be prepared quickly To provide a summary of
154 3
transactions relating to trade receivables To help reduce fraud
(e) State two reasons why Vijay Singh does not use the information contained in the sales
ledger to prepare the sales ledger control account.
Answer: An error in the sales ledger would not be revealed

Any fraud would not be revealed
Or other relevant point
2 (a) Where is discount received shown?
Answer: B. debit side of the purchases ledger control account
(b) Why is inventory valued at net realisable value when this is lower than cost?
Answer: D. to recognise losses as soon as they are incurred
155 4
3 Kriti provided the following information.
REQUIRED
(a) Calculate Kriti’s purchases for the year.

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Answer: Total sales = 165 600 + 44 400 = 210 000

Cost of sales = 210 000 × 2/3 = 140 000
Purchases = 140 000 – 21 600 + 28 800 = 147 200
(b) Prepare the sales ledger control account for the year ended 31 December 2014. Balance
the account and bring down the balance on 1 January 2015. See next page.
156 5
Kriti
Sales ledger control account
Answer:
(c) State two reasons why Kriti maintains a sales ledger control account.
1___________________________________________________________________
____________________________________________________________________
2___________________________________________________________________
____________________________________________________________________
157 6
Answer: Check for errors in sales ledger
May reduce fraud
Provides quick total of trade receivables
Provides summary of trade receivables transactions
(d) State one reason why a credit balance on a sales ledger control account can arise.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Answer: Customer overpays

Customer returns goods after payment
Customer did not deduct discount before payment
(e) State why a sales ledger control account does not contain an entry for a provision for
doubtful debts.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Answer: A provision for doubtful debts does not affect an individual debtor’s account
4 Esme provided the following information.
At 1 January 2014 $
Trade payables 7 000

Trade receivables 9 500
For the year ended 31 December 2014
Sales (all credit) 95 100

Sales returns 1 050
Purchases (all credit) 63 600
Purchases returns 1 950
Receipts from credit customers 92 750
Payments to credit suppliers 59 000
Refund to credit customer 450
Discount allowed 2 100
Discount received 850
Bad debt written off 300
Additional information at 31 December 2014
1 Esme owed $100 to a supplier who also owed $180 to Esme. It was agreed to record
this as a setoff in the control accounts.
158 7
2 Esme owed $50 to a credit customer who had overpaid.
REQUIRED
(a) Prepare the sales ledger control account and the purchases ledger control account for
the year. Balance the accounts and bring down the balances on 1 January 2015. See next
page.
159 8
Answer:
160 9
(b) State one reason why Esme maintains a sales ledger control account.
______________________________________________________________
______________________________________________________________
______________________________________________________________
Answer: Provide total of trade receivables

Check for the arithmetical accuracy of the sales ledger
Reduce fraud
To check for errors or fraud
Provide summary of transactions involving debtors Enable financial statements to be
prepared quickly
(c) State why the discount allowed was given.

______________________________________________________________
______________________________________________________________
______________________________________________________________
Answer: Payment before specified date.
5 The sales journal for March 2017 was destroyed, but Waheed was able to provide the following
information.
REQUIRED
(a) Select the relevant figures and prepare the sales ledger control account for the month of
March 2017. Insert a figure for credit sales.
Balance the account and bring down the balances on 1 April 2017. See next page.
161 10
Answer:
162 11
(b) Suggest two reasons why the sales ledger control account had a credit balance on 1
April 2017.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
..............................................................................................................................................
Answer: Overpayment by customer

Payment made by customer without deducting cash discount
Goods returned by customer after payment of balance due
Payment made in advance by customer
6 Simran had further transactions in the period 2 February to 28 February 2017. These were as
follows:
163 12
Answer:
164 13
7 Which item would be recorded as a credit entry in a purchases ledger control account?
Answer: D. interest charged on late payment
8 Kumu purchases goods for resale on both cash and credit terms.
Kumu’s credit suppliers allow 30 days for payment of invoices.
Kumu provided the following information for the year ended 30 April 2018.
REQUIRED
(a) Select the relevant items and prepare the purchases ledger control account for the year
ended 30 April 2018. Insert the amount paid to credit suppliers. See next page.
165 14
Kumu
Purchases ledger control account
Answer:
(b) State the formula for calculating the trade payables payment period.
...................................................................................................................................................
...............................................................................................................................................
Answer:
166 15
(c) Calculate the trade payables payment period for the year ended 30 April 2018. Round up
your answer to the next whole day.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
....................................................................................................................................................
Answer:
(d) State whether Kumu’s suppliers would be satisfied with her trade payables payment period.
Satisfied? ...................................................................................................................................
Reason ......................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................
Answer: Not satisfied.

The payment period is longer than the standard terms allowed.
(e) State two problems Kumu may face if her trade payables payment period is unsatisfactory.
1.................................................................................................................................................
...................................................................................................................................................
2.................................................................................................................................................
...............................................................................................................................................
167 16
Answer: An unsatisfactory payment period might make it difficult to obtain credit in the future
Might get a poor credit rating/reputation
Could affect the ability to make purchases from chosen suppliers
If unable to make purchases may not be able to satisfy own customers
May be charged interest for late payment
Can’t take advantage of cash discounts/discount received
May refuse to supply
9 Which item appears on the debit side of a sales ledger control account?
Answer: A. discount received
10 Where are bad debts recorded in the control accounts?
Answer: B. on the credit side of the sales ledger control account
11 Jared buys goods from Winston. On 1 August 2016 Jared owed Winston $300.
During August 2016 the following took place.
REQUIRED
(a) Prepare Jared’s account in Winston’s sales ledger for the month of August 2016. Balance
the account and bring down the balance on 1 September 2016.
168 17
Answer:
Winston also buys goods from Jared and on 31 August 2016 he owed Jared $40. Winston decided
to make a contra entry on 1 September 2016 to set off the accounts in the sales and purchases
ledgers.
REQUIRED
(b) State the double entry needed to set off the accounts.
169 18
Answer:
(c) Name the accounting term Winston uses for his partially finished products.
..............................................................................................................................................
Answer: work in progress
(d) Complete the following table, indicating with a tick (✓) where each item would appear in
Winston’s financial statements. The first has been completed as an example.
Answer:
170 19
12 Amira’s financial year ends on 30 September. She buys and sells on both cash and credit terms
and maintains a full set of accounting records.
Control accounts are prepared at the end of each month.
REQUIRED
(a) Name the book of prime (original) entry which Amira would use to obtain the following
information when preparing her sales ledger control account.
Answer:
(b) State two reasons why Amira prepares a purchases ledger control account.
1 ...........................................................................................................................................
...................................................................................................................................................
2 ...........................................................................................................................................
..............................................................................................................................................
Answer: To assist in the location of errors

To provide instant total of trade payables
To prove the arithmetical accuracy of the purchases ledger
To enable a statement of financial position to be prepared quickly
To provide a summary of transactions relating to trade payables
To help reduce fraud
171 20
Amira provided the following information for September 2016.
REQUIRED
(c) Select the relevant figures and prepare the purchases ledger control account for the month of
September. Balance the account and bring down the balances on 1 October 2016. See next page.
172 21
Answer:
173 22
(d) Suggest one advantage of paying credit suppliers before the due date.
...................................................................................................................................................
..............................................................................................................................................
Answer: May be able to take advantage of cash discount Improve the relationship with suppliers
Avoid paying interest
Or other suitable comment
(e) Suggest one disadvantage of paying credit suppliers before the due date.
...................................................................................................................................................
..............................................................................................................................................
Answer: The business is deprived of the use of the money earlier than necessary
13 Which statement is true about a sales ledger control account?
Answer: B. $720 understated
14 How do discount received and sales ledger contras appear in a purchases ledger control
account?
Answer: D
174 23
15 Paul is a trader. He maintains a full set of accounting records. His ledger is divided into a sales
ledger, a purchases ledger and a nominal (general) ledger.
REQUIRED
(a) State one advantage of dividing the ledger into these three sections.
...................................................................................................................................................
...............................................................................................................................................
Answer: Work can be shared amongst several people

Easier for reference as same types of account are kept together
Easier to introduce checking procedures
Reduce the possibility of fraud
(b) Name the ledger in which each of the following accounts would appear.
(i) J Smithson, a credit supplier, account ...............................................ledger

(ii) Sales returns account................................................ ledger
(iii) Discount allowed account................................................ledger
Answer: (i) Purchases ledger

(ii) Nominal (general) ledger
(iii) Nominal (general) ledger
175 24
IGCSE
Accounting
Depreciation
176 1
1 Peter bought a non-current asset for $5000 and depreciated it at 10% per annum on the straight
line basis. At the end of year 2 he sold it for $4100.
What was the profit or loss on disposal?
Answer: D. $100 profit
2 Safir bought a machine for $10 000 and depreciated it at the rate of 30% per annum on the
reducing (diminishing) balance basis.
What was the net book value at the end of year 2?
Answer: B. $4900
3 Why is depreciation provided?
Answer: D. to spread the cost of an asset over its useful life
177 2
4 On 1 January 2014 Alex had a motor vehicle with an original cost of $17000 on which depreciation
of $6800 had been provided.
On 1 April 2014 he bought a new vehicle, costing $24 000. He sold the old one and received a
cheque for $9400.
Alex provides depreciation on motor vehicles at the rate of 40% per annum on the reducing
(diminishing) balance basis. He allows a full year’s depreciation in the year of purchase and none
in the year of disposal.
REQUIRED
(a) Prepare the following ledger accounts for the year ended 31 December 2014. Balance the
account(s) where necessary and bring down the balance(s) on 1 January 2015.
178 3
Answer:
(b) Prepare an extract from the statement of financial position at 31 December 2014 showing the
entries for motor vehicles.
Alex
Statement of Financial Position (extract) at 31 December 2014
Answer:
179 4
(c) Calculate the depreciation which will be provided on the new vehicle in the year ending 31
December 2015.
Answer: 14 400 × 40% = 5 760
(d) Name the two books of prime entry used in preparing the disposal account.
Answer: 1. general journal

2. cash book
(e) State the meaning of the term revenue expenditure. Give one example.
Answer: Money spent on day to day running expenses

Suitable example
5 (a) State two causes of depreciation of non-current assets.
Answer: Physical deterioration

Economic reasons
Passage of time
Depletion
(b) Explain the straight line method of depreciation.
180 5
Answer: The depreciation is calculated on the net cost price and the same amount is written off each
year.
(c) Explain the reducing (diminishing) balance method of depreciation.
Answer: The same percentage is written off each year but it is calculated on the net book value of the
asset.
(d) Explain how charging depreciation is an example of the application of the principle of
prudence.
Answer: Ensures that non-current assets are shown at more realistic values.
Ensures that the profit for the year is not overstated.
(e) Name one other accounting principle which is applied when charging depreciation.
Answer: Accruals (matching).
6 On 1 October 2013 Natasha Salim started a business altering and mending clothes. On that date
she purchased a machine, $4000, paying by cheque.
On 1 January 2014 she purchased another machine, $6000, on credit from ABC Machines.
She decided to depreciate the machines using the reducing (diminishing) balance method at
20% per annum. A whole year’s depreciation was to be charged in the year of purchase, but no
depreciation in the year of sale.
On 1 February 2015 Natasha Salim decided that the machine purchased on 1 October 2013 was
no longer required. She sold it for $2100, cash.
REQUIRED
(a) Prepare the following accounts in the ledger of Natasha Salim for each of the two years
ended 30 September 2014 and 30 September 2015.
Balance the accounts and bring down the balances on 1 October 2014 and 1 October 2015. See
next page.
181 6
Natasha Salim
Machinery account
Provision for depreciation of machinery account
182 7
Answer:
(b) Calculate the profit or loss on the disposal of the machine on 1 February 2015.
Answer: Proceeds of Sale

Provision for depreciation
Less Cost Price
Profit/Loss on disposal
183 8
7 Asma bought a motor vehicle for $10 000. She depreciated it at the rate of 10% per annum on
cost, calculated monthly.
After 18 months she sold the motor vehicle for $9200.
What was the profit on disposal?
Answer: C. $700
8 The directors of the company know that the factory machinery is very old and they are considering
replacing it at a cost of $100 000. They provide the following information.
1 The old machinery was being depreciated at $6000 per annum. This machinery would be
sold at net book value.
2 The new machinery would be depreciated in equal instalments over ten years.
3 The purchase of the new machinery would be financed by a loan on which annual interest of
8% would be paid.
4 The cost of raw material used would decrease by 4% if the new machinery was purchased.
5 Machinery repairs would be reduced by $9000 a year if the new machinery was purchased.
REQUIRED
(a) Complete the following table to calculate the change in profit for the year if the new machinery
was purchased.
184 9
Answer:
9 Bradley is a wholesaler. His financial year ends on 31 December.
On 1 January 2015 Bradley had a delivery vehicle A which had cost $35 000 and had been
depreciated by $13 125.
On 1 October 2015 he purchased delivery vehicle B for $40 000 by cheque.
On 1 July 2016 he purchased delivery vehicle C on credit from XZ Motors for $28 000.
All the delivery vehicles are depreciated by 25% per annum on cost calculated from the date of
purchase.
REQUIRED
(a) Prepare the following accounts for each of the years ended 31 December 2015 and 31
December 2016.
Balance the accounts and bring down the balances on 1 January 2016 and 1 January 2017.
See next page.
185 10
Bradley
Delivery vehicles account
186 11
Provision for depreciation of delivery vehicles account
187 12
Answer:
On 1 January 2017 it was decided that delivery vehicle C (purchased on 1 July 2016) was
unsuitable. The delivery vehicle was sold on credit to DDE Transport for $25 500.
REQUIRED
(b) Prepare journal entries on 1 January 2017 to record the disposal of delivery vehicle. See
next page.
C. Narratives are not required.
188 13
Bradley Journal
Answer:
10 The financial year of Doshi Manufacturing Company ends on 31 January. The following trial
balance was extracted from the books on 31 January 2017.
189 14
REQUIRED
(a) Select the relevant figures and prepare the manufacturing account for the year ended 31
January 2017. See next page.
190 15
Doshi Manufacturing Company

Manufacturing Account for the year ended 31 January 2017
(b) Select the relevant figures and prepare the income statement for the 31 January 2017.
See next page.
191 16
Doshi Manufacturing Company

Income Statement for the year ended 31 January 2017
Answer:
192 17
(c) Suggest one reason why the loose tools are revalued at the end of each financial year rather
than by using the straight line (equal instalment) or reducing (diminishing) balance method of
depreciation.
Answer: Low value items which are not easy to depreciate separately/Not practical to keep detailed
records of such assets/other.
11 Sonia started her business on 1 January 2015. She decided on the following depreciation policy.
Motor vehicles were to be depreciated at the rate of 25% per annum using the reducing
(diminishing) balance method.
Equipment was to be depreciated at the rate of 10% per annum using the straight line (equal
instalment) method.
A full year’s depreciation was to be provided in the year of purchase.
Sonia provided the following information about her purchases of assets.
193 18
REQUIRED
(a) Complete the following table. Indicate with a tick (3) in which column of a trial balance each
ledger account balance would appear.
Answer:
(b) Complete the following table showing the depreciation charges, the accumulated
depreciation and the net book values of the different assets on the dates shown. A space is
provided for your workings. See next page.
194 19
Answer:
195 20
(c) Prepare the extract from the statement of financial position at 31 December 2016 showing
full details of the value of motor vehicles and equipment.
Sonia
Statement of Financial Position (extract) at 31 December 2016
Answer:
(d) Name the section of the statement of financial position where motor vehicles and
equipment appear.
Answer: Non-current assets.
12 Bayani depreciates his fixtures and fittings using the straight line (equal instalment) method of
depreciation. He provides a full year’s depreciation in the year of purchase and none in the year
of disposal. He provided the following information.
196 21
REQUIRED
(a) Calculate the rate of depreciation Bayani is applying.
Answer:
On 1 May 2015 Bayani bought new fixtures and fittings, cost $12 000, paying by cheque.
On 1 August 2016 he sold old fixtures and fittings, which had cost $10 000 and on which four
years’ depreciation had been provided. The purchaser paid Bayani in cash.
REQUIRED
(b) Name the books of prime (original) entry used on 1 May 2015 and 1 August 2016.
1 May 2015
1 August 2016
Answer: 1 May 2015: Cash book

1 August 2016: 1. Nominal (general) journal
2. Cash book
197 22
(c) Complete the following table by inserting the amounts to be shown in the financial statements.
Show your workings in the spaces provided.
workings $
fixtures and fittings at cost on

31 December 2015
fixtures and fittings at cost on

31 December 2016
depreciation charge for the

year
ended 31 December 2015
accumulated depreciation at
31 December 2015
depreciation charge for the

year
ended 31 December 2016
accumulated depreciation at
31 December 2016
Answer:
(d) State the double entry needed to record the depreciation charge for the year ended 31
December 2015.
Answer:
198 23
(e) State the double entry needed to eliminate the accumulated depreciation on the fixtures and
fittings sold on 1 August 2016.
Answer:
(f) Name one method of depreciation, other than the straight line (equal instalment) method, and
explain how it is calculated.
Name of method .......................................................................................................................
Method of calculation ................................................................................................................
...................................................................................................................................................
...............................................................................................................................................
Answer: Reducing (diminishing) balance method.

Annual percentage rate is applied to the net book value of the asset.
OR
Revaluation method.
The difference between the opening and closing valuations is taken and adjusted for any
purchases or disposals.
Bayani also bought a motor vehicle. The costs relating to the purchase were as follows:
REQUIRED
(g) Complete the following table, indicating with a tick (3) whether each item is a capital
expenditure or a revenue expenditure.
199 24
Answer:
(h) Give one example of a capital receipt.
..............................................................................................................................................
Answer: Capital introduced

Receipt of loan
Proceeds of sale of non-current asset
13 Dipak is a manufacturer. His financial year ends on 30 November. Dipak depreciates all his non-
current assets at the end of each year.
REQUIRED
(a) Explain how providing for depreciation of non-current assets is an application of the principle
of prudence.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................
Answer: Ensures that the profit for the year is not overstated in the income statement.
Ensures that the non-current assets are not overstated in the statement of financial position.
200 25
Dipak depreciates his motor vehicles using the reducing (diminishing) balance method at 20% per
annum on all motor vehicles held at the end of each financial year. No depreciation is charged in
the year of disposal.
On 1 December 2015 Dipak owned motor vehicle A, which had cost $40 000 and had been
depreciated by $14 400.
On 1 August 2016 Dipak purchased motor vehicle B on credit from ZY Motors for $50 000.
REQUIRED
(b) Prepare a journal entry to record the purchase of motor vehicle B. A narrative is not required.
Answer:
(c) Calculate the depreciation on motor vehicle A for each of the two years ended
30 November 2016 and 30 November 2017.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
201 26
Answer:
(d) Calculate the depreciation on motor vehicle B for each of the two
years ended 30 November 2016 and 30 November 2017.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Answer:
(e) Prepare a journal entry to record the transfer to the income statement of the total depreciation
on motor vehicles for the year ended 30 November 2017.
A narrative is not required.
202 27
Dipak sold motor vehicle A on 31 December 2017.
REQUIRED
(f) Calculate the total depreciation provided on motor vehicle A up to the date of disposal.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Answer:
(g) Prepare journal entries to record the following:
1 the transfer of the original cost of motor vehicle A from the asset account
2 the transfer of the accumulated depreciation on motor vehicle A from the provision for
depreciation account.
Narratives are required. See next page.
203 28
Answer:
14 Jamil started a business on 1 January 2014. He considered using the straight line (equal
instalment) method to depreciate all his non-current assets.
REQUIRED
(a) Name one other method Jamil could use to depreciate his non-current assets.
...............................................................................................................................................
204 29
Answer: Reducing (diminishing) balance method

Revaluation method
(b) Suggest two reasons why the straight line (equal instalment) method would not be a suitable
method of depreciation to apply to the hand tools used in Jamil’s factory.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...............................................................................................................................................
Answer: Principle of materiality – not practical/too many items/too difficult/too costly to depreciate each
item separately .
Do not depreciate by an equal amount each year.
May be certain amount of loss of tools each year.
Jamil decided to depreciate his office machinery at 20% per annum using the straight line (equal
instalment) method calculated on a month-by-month basis from the date of purchase to the date
of disposal.
He provided the following information.
REQUIRED
(c) Calculate the depreciation on office machinery for the year ended 31 December 2016. Show
your calculations and insert your answers in the spaces provided. See next page
205 30
Calculation of depreciation for the year ended 31 December 2016
Answer:
(d) Calculate the depreciation on office machinery for the year ended 31 December 2017. Show
your calculations and insert your answers in the spaces provided.
206 31
Answer:
(e) Prepare the following accounts in the ledger of Jamil for each of the two years ended 31
December 2016 and 31 December 2017.
Balance the accounts and bring down the balances on 1 January 2017 and 1 January 2018.
Jamil
Office machinery account
207 32
Provision for depreciation of office machinery account
Answer:
208 33
(f) Calculate the profit or loss on the disposal of office machine A.
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...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Answer:
209 34
15 Agatha depreciates her fixtures and fittings at the rate of 10% per annum.
On 1 January 2015 she bought new fixtures and fittings costing $800. In error she debited the
repairs account with the purchase.
What was the effect of this error on the profit for the year ended 31 December 2015?
16 Mohan is a trader. His financial year ends on 31 December.
Mohan depreciates his motor vehicles at 20% per annum on cost, calculated from the date of
purchase.
The following information was available on 1 January 2014.
REQUIRED
(a) Prepare the following accounts for each of the two years ended 31 December 2014 and 31
December 2015.
Balance the accounts and bring down the balances on 1 January 2015 and 1 January 2016. See
next page.
210 35
211 36
Provision for depreciation of motor vehicles account
2014
........... ............................... ............... Jan 1 Balance b/d
A – 7200
........... ............................... ............... B – 3900 11 100
........... ............................... ............... ........... ............................... ...............

........... ............................... ............... ........... ............................... ...............
........... ............................... ............... ........... ............................... ...............

........... ............................... ............... ........... ............................... ...............
........... ............................... ............... ........... ............................... ...............

........... ............................... ............... ........... ............................... ...............
........... ............................... .............. ........... ............................... ..............
........... ............................... ............... ........... ............................... ...............

........... ............................... ............... ........... ............................... ...............
........... ............................... ............... ........... ............................... ...............

........... ............................... ............... ........... ............................... ...............
........... ............................... ............... ........... ............................... ...............
........... ............................... ............... ........... ............................... ...............

........... ............................... ............... ........... ............................... ...............
........... ............................... ............... ........... ............................... ...............

........... ............................... ............... ........... ............................... ...............
........... ............................... ............... ........... ............................... ...............
Answer:
212 37
On 1 January 2016 Motor vehicle B was sold for $2900, cash.
REQUIRED
(b) Calculate the depreciation on Motor vehicle B up to the date of disposal.
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................
Answer:
213 38
Answer:
17 A club records its equipment at valuation.
How does it calculate its depreciation?
Answer: C. value at start of year + equipment purchased – value at end of year
214 39
18 David and Harold are in partnership. The partnership agreement states that David is to receive
an annual salary of $12 000 and that profits and losses are to be shared in the ratio 2:1.
The following balances were extracted from the partnership books on 31 March 2016.
1 Other operating expenses included $500 for insurance which was paid in advance at 31
March 2016.
2 Inventory on 31 March 2016 amounted to $26 800.
3 Fixtures and fittings are depreciated at the rate of 10% per annum on the straight line basis.
A full year’s depreciation is provided in the year of purchase. The current year’s depreciation has
not yet been provided.
4 All the fixtures and fittings were purchased when the partnership was formed.
REQUIRED
(a) Calculate how many years’ depreciation had been charged.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................
215 40
Answer:
(b) Prepare the income statement for the year ended 31 March 2016.
$ $
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216 41
Answer:
(c) Prepare the appropriation account for the year ended 31 March 2016.
David and Harold

Appropriation Account for the year ended 31 March 2016
$ $
........................................................................... ......................... .........................
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Answer:
217 42
19 Virginia depreciates motor vehicles at the rate of 25% per annum using the reducing (diminishing)
balance method. She provides a full year’s depreciation in the year of purchase and none in the
year of disposal. Her accounting year end is 31 December.
She purchased a motor vehicle, cost $10 000, on 1 April 2013, and sold it on 28 May 2015 for
$7210 cash. On the same date she bought a new motor vehicle for $17 000, paying by cheque.
REQUIRED
(a) Calculate the depreciation which had been provided on the old motor vehicle at the date of
disposal.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................
Answer:
218 43
Answer:
219 44
(c) Name the financial statement in which the provision for depreciation appears. State in
which section it appears.
Name of financial statement .....................................................................................................

Section ..................................................................................................................................
Answer: Statement of financial position

Non-current assets
(d) State how providing depreciation is an application of the accounting principle of accruals
(matching).
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................
Answer: The cost of the non-current asset and the revenues arising from its use are matched in an
accounting period.
OR
The cost of the non-current asset is spread over its useful life.
220 45
(e) Name one other accounting principle which is applied when depreciation is provided.
...............................................................................................................................................
Answer: Prudence.
(f) State the type of asset for which the revaluation method of depreciation is suitable.
...............................................................................................................................................
Answer: Small items of equipment e.g. loose tools.
20 Tom’s financial year ends on 31 July. He depreciates his non-current assets using the reducing
(diminishing) balance method.
REQUIRED
(a) Name one other method of depreciation which Tom could apply.
.............................................................................................................................................
Answer: Straight line/fixed instalment

Revaluation
(b) Explain how providing for depreciation of non-current assets is an application of the
principle of accruals (matching).
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
.............................................................................................................................................
Answer: The loss in value of the non-current asset during the year is set against the revenue for the
same period.
OR
The cost of the non-current asset is spread over the years which benefit from
the use of that asset.
221 46
(c) Name one other accounting principle which is applied when providing for depreciation of
non-current assets.
.............................................................................................................................................
Answer: Prudence
Tom depreciates his machinery using the reducing (diminishing) balance method at 20% per
annum on all machinery held at the end of the year. No depreciation is charged in the year of
disposal.
On 1 August 2014 he owned one machine (Machine A) which had cost $3000, and which had
been depreciated by $600.
On 1 January 2015 Tom purchased another machine (Machine B) for $3500, paying by cheque.
REQUIRED
(d) (i) Calculate the depreciation of Machine A for each of the years ended 31 July 2015 and
31 July 2016.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Answer:
222 47
(ii) Calculate the depreciation of Machine B for each of the years ended 31 July 2015 and 31
July 2016.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Answer:
(e) Prepare the following accounts in the ledger of Tom.
(i) Machinery account
Balance the account on 31 July 2015 and bring down the balance on 1 August 2015.
Tom
Machinery account
223 48
(ii) Provision for depreciation of machinery account
Balance the account at the end of each year and bring down the balance on 1 August
2015 and 1 August 2016.
Answer:
224 49
225 50
IGCSE
Accounting
Errors

1
226
1 Dylan Kelly is a trader. After the preparation of his draft income statement for the year ended 28
February 2015 some errors were discovered.
REQUIRED
(a) Complete the following table to show by how much correcting each of the errors would affect
the profit for the year.
Answer:
After the correction of the errors on 28 February 2015, Dylan Kelly provided the following information.
(b) Calculate the quick ratio. The calculation should be correct to two decimal places.
________________________________________________________________
________________________________________________________________
________________________________________________________________
Answer: (7350 + 1120) : ((6870 + 5000)

8470 : 11 870
0.71 : 1
2
227
(c) Comment on your answer to (b).

________________________________________________________________
________________________________________________________________
________________________________________________________________
Answer: Liquid assets are less than the current liabilities.

Cannot meet the immediate liabilities from the immediate assets Is dependent on selling
inventory to meet the current liabilities.
Is below the generally accepted “benchmark”/is inadequate/unsatisfactory Or other suitable
comment based on the answer to (b).
(d) State how the calculation of the quick ratio differs from the calculation of the current ratio.
________________________________________________________________
________________________________________________________________
________________________________________________________________
Answer: Excludes the inventory from the calculation.
2 Carriage outwards, $600, was posted as $400 to the debit side of the carriage inwards account.
Which effect did the correction of this error have on the draft profit for the year?
Answer: A. decrease $200
3 Abdoulaye received a cheque from Pierre which was subsequently dishonoured.
REQUIRED
(a) State what is meant by a dishonoured cheque.

__________________________________________________________________
__________________________________________________________________
Answer: The debtor’s bank refused payment.
3
228
(b) State how Abdoulaye recorded the dishonouring of the cheque.
Answer:
(c) Name the statement prepared by Abdoulaye to ensure that his bank account is free
from error.
__________________________________________________________________
__________________________________________________________________
Answer: Bank reconciliation statement
4 Sally Rickard is a trader. Despite having little knowledge of book-keeping, she decided to prepare
a trial balance at the end of her financial year on 31 October 2015. The trial balance she prepared
was as follows.
In addition to the obvious errors in the trial balance, the following errors were also discovered.
1 General expenses paid in cash, $150, had not been recorded.
2 Motor expenses, $430, had been debited to the motor vehicles account.
3 A cheque, $260, received from a credit customer had been credited to the bank account
4
229
and debited to the customer’s account.
REQUIRED
(a) For each of the items 1-3 state the type of error that was made.
Error 1_______________________________________________________________________
Error 2_______________________________________________________________________
Error 3_______________________________________________________________________
Answer: Error 1 – Error of omission

Error 2 – Error of principle
Error 3 – Error of reversal
(b) Prepare a corrected trial balance at 31 October 2015.

Sally Rickard
Corrected Trial Balance at 31 October 2015
Debit Credit
$ $
Revenue
…………….. ……………..
Purchases
…………….. ……………..
Wages
…………….. ……………..
Motor expenses
…………….. ……………..
General expenses
…………….. ……………..
Premises at cost
…………….. ……………..
Equipment and fixtures at cost
…………….. ……………..
Motor vehicle at cost
…………….. ……………..
Provision for depreciation of equipment and fixtures …………….. ……………..

Provision for depreciation of motor vehicle
…………….. ……………..
Trade receivables
…………….. ……………..
Provision for doubtful debts
…………….. ……………..
Trade payables
…………….. ……………..
Cash
…………….. ……………..
Bank overdraft
…………….. ……………..
Loan from AB Loans
…………….. ……………..
Drawings
…………….. ……………..
Capital
…………….. ……………..
…………………………….. …………….. ……………..
…………………………….. …………….. ……………..
5
230
Answer:
After the trial balance was corrected, Sally Rickard attempted to prepare an income statement to
calculate her profit for the year, but made some errors.
REQUIRED
(c) Complete
each of the following errors would affect the profit for the year.
Name the accounting principle being applied. The first one has been completed as an example.
6
231
Answer:
5 A receipt of $800 from Jamal, a credit customer, was recorded as a receipt of $880 in the
account of James.
Which entries are needed to correct this error?
7
232
Answer: C.
6 Financial statements must be free from error and bias. Which accounting policy is being applied?
Answer: C. reliability
7 Leroy prepared a trial balance on 30 September 2015 which failed to balance. He opened a
suspense account. He then discovered the following errors.
1 Discount allowed, $30, had been posted to the credit side of the discount received account.
2 Receipt of cash, $85, from Yolanda, a credit customer, had been credited to the account of
Joanie.
3 The total of the sales returns journal, $110, had been posted as $100.
4 An invoice totalling $1000 for computer equipment and supplies had included a charge of
$150 for stationery. The total amount had been posted to the office equipment account.
REQUIRED
(a) State which two of these errors did not affect the balancing of the trial balance and in each
case name the type of error which had occurred.
Error_________________________________________________________________________
Name________________________________________________________________________
Error_________________________________________________________________________
Name________________________________________________________________________
Answer:
8
233
(b) Prepare journal entries to correct all four errors. Narratives are required.
Answer:
9
234
(c) Prepare the suspense account, showing the original difference on the trial balance.
Answer:
8 Leroy had a draft profit for the year of $5170 before the errors were corrected.
REQUIRED
Complete the following table to calculate the correct profit for the year. Where an error has no
effect on profit, place a tick ( ) in the No Effect column.
10
235
Answer:
9 The totals of Harum’s trial balance prepared on 31 March 2017 did not agree. Harum recorded the
difference in a suspense account.
On checking the accounting records various errors were discovered.
REQUIRED
(a) Complete the following table to show the entries required to correct each error. The first one
has been completed as an example.
11
236
Answer:
Harum knows that he should consider four objectives when selecting accounting policies.
REQUIRED
(b) Name four objectives Harum should apply. The first one has been completed as an example.
1 Relevance
2 ….................................................
3….................................................
4….................................................
Anwer: Comparability
Reliability
Understandability
10 Heng discovered that the following errors had been made in his accounting records.
1 Repairs to office equipment, $281, had been correctly entered in the cash book, but had been
entered in the office equipment account.
2 A sales invoice issued to AB Stores had been overcast by $100.
3 The balance of the petty cash book, $150, had not been entered in the trial balance.
4 General expenses, $1120, had been correctly entered in the cash book, but had been entered
in the general expenses account as $1210.
12
237
5 The total of the discount allowed column in the cash book, $1024, had not been transferred
to the discount allowed account in the ledger.
6 A cheque, $2060, paid to AK Suppliers, had been debited in the cash book (which had a
positive balance) and credited to the account of AK Suppliers.
7 The total of the purchases returns account, $454, had not been entered in the trial balance.
REQUIRED
(a) Prepare the suspense account in Heng’s ledger to show the required entries. The account
should be balanced or totalled as necessary.
Answer:
(b) State whether all the errors in Heng’s books have been discovered. Give a reason for your
answer.
Have all errors been discovered? .......................................
Reason .....................................................................................................................................
..................................................................................................................................................
13
238
Answer: Either
All the errors have not been found
There is still a balance on the suspense account
Or – if the suspense account in (c) is closed –
All the errors have been discovered
There is no balance remaining on the suspense account
(c) Complete the table to show the effect of each of the errors. Where an error has no effect,
write ‘No effect’.
The first one has been completed as an example.
Answer:
14
239
11 Amina is a trader. Her financial year ends on 31 December.
The totals of her trial balance on 31 December 2016 did not agree. Amina entered the difference
in a suspense account and prepared draft financial statements.
The following errors were later discovered.
1 One page of the sales journal had been undercast by $1000.
2 Repairs to office equipment, $484, had been treated as capital expenditure.
3 The total of the sales returns journal, $960, had been credited to the purchases returns account
in the ledger.
4 The bank balance, $1500, had been treated as a bank overdraft in the trial balance.
5 A credit note received from AK Stores for $210 had been correctly entered in the purchases
returns journal but had been credited to the account of the supplier as $120.
REQUIRED
(a) Prepare the journal entries to correct errors 3–5. Narratives are not required.
Amina
Journal
15
240
Answer:
(b) Complete the following table to show the effect, if any, that correcting each error would
have on the draft profit. Where an error has no effec
column.
Answer:
16
241
12 Satish has a financial year end of 30 June. On 30 June 2017 he prepared the following trial
balance.
REQUIRED
(a) Prepare the suspense account, showing the opening balance and the entries correcting the
errors. See next page.
17
242
Answer:
(b) (i) Complete the following statement to calculate the correct gross profit for the year. Where
an error has no effect on gross profit, place a tick (3) in the No Effect column.
18
243
Answer:
(ii) Calculate the profit for the year ended 30 June 2017.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Answer:
19
244
(c) Prepare Satish’s statement of financial position at 30 June 2017.
Answer:
20
245
13 On 30 September 2017 Ben calculated his profit for his first six months of trading. The following
errors were then discovered.
Answer:
14 Narinder made a short-term loan to Seema. Narinder’s draft statement of financial position
showed this loan as a current liability.
What was the effect of this error?
21
246
Answer: A. current assets understated
15 Sanjay, a trader, prepared his trial balance on 31 January 2018. The totals of the trial balance
did not agree. Sanjay entered the difference, a credit balance of $1110, in a suspense account.
REQUIRED
(a) State two purposes of a trial balance.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
..................................................................................................................................................
Answer: Useful as a basis for preparing financial statements

Check arithmetical accuracy of the double entry
(b) Name the type of error made in 3, 4 and 5.
Error 3 .......................................................................................................................................
Error 4 .......................................................................................................................................
Error 5 .......................................................................................................................................
22
247
Answer: Error 3 commission
Error 4 omission
Error 5 principle
(c) Prepare the suspense account making the necessary entries to correct errors. Balance or
total the account as required.
Answer:
(d) State whether all errors in Sanjay’s accounts have been discovered. Give your reason.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Answer: Yes/no
Errors affecting the trial balance have all been discovered as the suspense account has
been cleared
23
248
Sanjay’s draft profit for the year ended 31 January 2018 was $24 250 before any errors were
corrected.
REQUIRED
(e) Complete the statement to show the corrected profit for the year ended 31 January 2018. If
an error has no effect on profit place a tick (3) in the ‘No Effect’ column.
Statement of corrected profit for the year ended 31 January 2018
Answer:
24
249
16 Amaira is an office equipment wholesaler. Her financial year ends on 31 January.
Amaira has little knowledge of accounting but attempted to prepare financial statements on 31
January 2018.
The statement of financial position (containing errors) which Amaira prepared on 31 January
2018 was as follows.
REQUIRED
(a) Prepare a corrected statement of financial position at 31 January 2018.
The calculation of the corrected profit for the year should be shown with in the statement
or as a separate calculation.
See next page.
25
250
Amira Corrected Statement of Financial Position at 31 January 2018
$ $ $
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................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
................................................................. ........................ ........................ ........................
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................................................................. ........................ ........................ ........................
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26
251
Answer:
REQUIRED
(b) Prepare Amaira’s capital account for the year ended 31 January 2018. Balance the account
and bring down the balance on 1 February 2018.
27
252
Answer:
(c) Suggest two reasons why Amaira’s employees would be interested in Amaira’s financial
statements.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
..................................................................................................................................................
Answer: To see if the business is likely to continue operating

To assess job security
To assess likelihood of wage increases
28
253
(d) Suggest two additional reasons why the manager of Amaira’s business would be interested
in Amaira’s financial statements.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
Answer: Any points listed in (c) above provided not awarded in that section
To compare results with previous years
To compare results with other businesses
To assess past performance
To see where improvements can be made/take remedial action
To compare with budgets and forecasts
17 Mai is a trader. At the end of her financial year on 31 March 2018 she opened a suspense
account with a debit balance of $650.
REQUIRED
(a) State two reasons why it was necessary for Mai to open a suspense account.
1.................................................................................................................................................
...................................................................................................................................................
2.................................................................................................................................................
..................................................................................................................................................
Answer: To balance the trial balance

Because there are errors on the trial balance
To allow draft financial statements to be prepared
Mai discovered that some errors had been made in her accounting records.
REQUIRED
(b) Complete the following table to show the entries required to correct each error. The first one
has been completed as an example. See next page.
29
254
Answer:
(c) State whether all the errors in Mai’s books have been discovered.
Have all the errors been discovered?........................................................................................
Reason..............................................................................................................................................
..........................................................................................................................................................
30
255
Answer: All errors have not been discovered
The suspense account will not be closed
($650 + $180 on debit and $1000 on credit)
(d) Complete the statement to show the effect on the profit for the year of correcting errors 1–4.
Where the error does not affect the profit write “no effect”.
Answer:
31
256
18 Chandra calculated a draft profit of $8760 for the year ended 31 January 2018. The following
errors were later discovered.
1 Advertising expenses owing at the year-end had been overstated by $100.
2 Interest payable on a 6% bank loan of $10 000 had been omitted. The loan was taken on 1
February 2017.
3 Cost of petrol, $89, for Chandra’s personal use had been recorded as a business expense.
4 Motor vehicle repairs, $210, had been recorded as motor insurance.
REQUIRED
(a) Complete the statement to show the corrected profit for the year ended 31 January 2018. If
an error has no effect on profit place a tick (✓) in the No Effect column.
Answer:
32
257
(b) Name the accounting principle being applied when correctly dealing with the transaction in
error 3. Give a reason for your answer.
Accounting principle ..................................................................................................................
Reason ......................................................................................................................................
...................................................................................................................................................
Answer: Business entity

Owner’s transactions should be kept separate from those of the business
19 Despite having little knowledge of book-keeping, Nabil decided to prepare a trial balance at the
end of his financial year on 28 February 2018.
The trial balance he prepared, which contains errors, was as follows.
REQUIRED
(a) Prepare a corrected trial balance at 28 February 2018. See next page.
33
258
Nabil
Corrected Trial Balance at 28 February 2018
Debit Credit
$ $
Revenue ........................ ........................
Purchases ........................ ........................
Capital ........................ ........................
Loan – AB Loans ........................ ........................
Premises ........................ ........................
Fixtures and fittings ........................ ........................
Trade receivables ........................ ........................
Trade payables ........................ ........................
Bank overdraft ........................ ........................
Wages ........................ ........................
General expenses ........................ ........................
Inventory .......................... ........................ ........................
.......................................... ........................ ........................
.......................................... ........................ ........................
.......................................... ........................ ........................
.......................................... ........................ ........................
.......................................... ........................ ........................
.......................................... ........................ ........................
Answer:
34
259
20 After calculating her profit for the year ended 31 March 2018, Sophia discovered some errors
had been made in her accounting records.
Error 1 Rent received from a tenant had been credited to the premises account.
Error 2 Legal costs on the purchase of a new warehouse had been debited to the general
expenses account.
Error 3 Roof repairs to the existing warehouse had been debited to the premises account.
Error 4 Capital introduced had been included in the cash sales.
REQUIRED
(a) Complete the following table by placing a tick (3) in the correct column to indicate the effect
of each of the errors.
effect on profit for the year effect on closing capital

error
overstated understated overstated understated no effect
error 1 3 3
error 2
error 3
error 4
Answer:
35
260
21 A trader compared his bank statement with his cash book. He found that the bank statement had
included the bank charges twice in error and that one deposit had not yet been credited.
How are these items treated in a bank reconciliation statement which starts with the cash book
balance?
Answer: D.
22 Agatha depreciates her fixtures and fittings at the rate of 10% per annum.
On 1 January 2015 she bought new fixtures and fittings costing $800. In error she debited the
repairs account with the purchase.
What was the effect of this error on the profit for the year ended 31 December 2015?
23 Akira, a trader in engine components, prepared his draft financial statements. He then found the
following errors.
1 A sale on credit, $3000, to Leonardo, was completely omitted from the books of account.
2 A receipt, $1500, from J Jones, a credit customer, was posted to the account of D Bones,
another credit customer.
3 Bank charges, $110, were entered in the cash book as $11.
4 A purchase of stationery, $35, was debited in the petty cash book and credited in the
stationery account.
36
261
5 The transfer of Akira’s private vehicle, value $2500, to the business had not been recorded.
REQUIRED
(a) Complete the following table showing how the correction of each error affected the working
capital and the owner’s capital. Where a correction has no effect, write No Effect. The first has
been completed as an example.
error working capital owner’s capital
1 Increase $3000 Increase $3000
Answer:
(b) Name the type of error in each of the errors 2 to 5.
Error 2 ..................................................
Error 3 ..................................................
Error 4 ..................................................
Error 5 ..................................................
Answer: Error 2 commission

Error 3 original entry
Error 4 reversal
Error 5 omission
(c) Prepare journal entries to correct each of the errors 2 to 5. Narratives are not required. See
next page
37
262
Akira
Journal
Error Details Debit Credit

number $ $
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Answer:
24 Wasim is a trader. His financial year ends on 31 March.
The totals of his trial balance on 31 March 2016 did not agree. The difference was a shortage on
the debit side of $495. This was entered in a suspense account.
38
263
REQUIRED
(a) Prepare the suspense account. Start with the balance arising from the difference on the trial
balance. The account should be balanced or totalled as necessary.
39
264
Answer:
(b) Prepare journal entries to correct two of the errors which do not require correcting by
means of the suspense account. Narratives are required.
Answer:
40
265
(c) Name the type of error made in Error 2.
...............................................................................................................................................
Answer: Error of commission
Wasim prepared draft financial statements for the year.

REQUIRED
(d) Complete the following table by placing a tick (✓) in the correct column to indicate
whether the profit for the year would be affected by each of the errors.
error number affects profit for the does not affect the
year profit for the year
1 ✓
2
3
4
5
6
7
Answer:
41
266
25 David is a trader. The totals of his trial balance prepared on 31 January 2016 did not balance.
The difference was entered in a suspense account and draft financial statements were prepared.
The following information was extracted from the draft income statement for the year ended 31
January 2016.
$
Cost of sales 59 600
Gross profit 15 800
Profit for the year 3 500
1 No record had been made of office expenses paid in cash, $114.
2 A page total in the sales journal, $45 400, had been incorrectly carried forward as $44 500.
3 Discount allowed, $300, was incorrectly recorded as discount received.
4 Sales returns, $814, had been correctly recorded in the customer’s account, but credited to the
purchases returns account.
5 The provision for doubtful debts of $120 should have been increased to $144.
REQUIRED
(a) Prepare journal entries to correct errors 1 and 2. Narratives are required.
David Journal
42
267
Answer:
(b) Complete the following statement to show the effect on the profit for the year of correcting
errors 1–5. Calculate the corrected profit for the year.
The first correction has been completed as an example.
43
268
Answer:
26 After the preparation of the draft financial statements for the year ended 31 July 2016 the
following errors were discovered.
REQUIRED
Complete the following statement to show the effect on the draft profit for the year of
correcting errors 1–5. Calculate the corrected profit for the year.
The first correction has been completed as an example. See next page.
44
269
Daniel
Statement of corrected profit for the year ended 31 July 2016
Answer:
45
270
27 Hamza is a trader who does not maintain a full set of accounting records. His financial year ends
on 31 August.
In December 2015 it was discovered that some errors had been made in the financial statements
for the year ended 31 August 2015.
REQUIRED
Complete the following table to indicate the effect of correcting each error on the profit for the
year.

Effect on profit of correcting error
increase decrease
$ $
Purchases returns, $2000, had not

been recorded. 2000
Wages owing at 31 August 2015, $450,

were not recorded.
Discount allowed, $115, had been

recorded as discount received.
The provision for doubtful debts, $950,

should have been adjusted to 2½% of
trade receivables, who owed $36 000.
Inventory at 1 September 2014 had

been valued at net realisable value,
$16 700, instead of at cost, $15 300.
Answer:
46
271
IGCSE
Accounting
Limited Liability
Company
272
1 At 1 February 2014, Green Meadow Limited had the following shares and debentures.
See next page.
273
Green Meadow Limited

Statement of Financial Position at 31 January 2015
$
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274
Answer:
275
Answer:
Answer:
276
Answer:
Answer: To compare with other businesses.

To compare with rate of finance cost on debentures etc.
Answer: To avoid dilution of control/because debentures don’t have voting rights.

Ensure existing owners retain control of business.
Answer: C. decreases the retained earnings
277
278
Answer:
279
(b) Prepare the manufacturing account for the year ended 30 April 2015.
Quik Flo Limited

Manufacturing Account for the year ended 30 April 2015
$ $
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280
Answer:
(c) Prepare the income statement for the year ended 30 April 2015.
Quik Flo Limited

Income Statement for the year ended 30 April 2015
$ $
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10
281
Answer:
Answer: Units of production which have been started but which have not been completed.
Answer: Increase in costs of raw materials (higher prices) direct labour (higher rates).
Increase in level of production.
11
282
Answer: A. profits after dividends and after transfers to general reserve
Answer:
12
283
Answer: Decrease in selling price

Increase in trade discount allowed to customers
Selling at lower mark-up
Increase in cost price
Reduction in trade discount allowed by suppliers
Not taking advantage of bulk buying
Answer:
Answer: C. $15 000
13
284
Answer:
14
285
Answer: C.
15
286
Answer:
Answer:
16
287
Answer: To distribute profit to shareholders.

OR
To reward shareholders for their investment.
Answer: Because insufficient cash was available to pay more.

To retain cash/profits for investment in the business.
Answer:
17
288
Answer: Profit has fallen

Selling price has decreased
Worse control of expenses
Worsening credit control/increased bad debts
Poorer control of inventory
Capital employed has increased/non-current liability created
Answer: It may not be easy to sell the shares.

There will be loss of control by existing shareholders.
Dividends payable may increase.
If the interest rate is variable interest payable could increase.
The company would have to pay interest irrespective of profit made.
The bank may require security.
18
289
10
Answer: D. retained earnings
11
Answer:
19
290
Answer:
20
291
Answer: (c)
(d)
21
292
Answer:
22
293
Answer: (f) Long term loans

Debenture holders are not members of the company
Do not carry voting rights
Carry a fixed rate of interest
Interest is not dependent on the company's profit
Are often secured on the assets of the company's
Debenture holders are repaid before the shareholders in a winding-up
(g) Carry a fixed rate of dividend

Dividend may not be paid if there is not enough profit
Dividend is paid before ordinary share dividend
Preference shareholders are members of the company
Do not usually carry voting rights
Capital is repaid before ordinary share capital in a winding-up
Are not secured on the assets of the company
Answer:
23
294
12
24
295
25
296
Answer: (b) Increase in gross profit

Decrease in expenses/better control of expenses
Increase in other income
Different type of expenses
(c) 2017
In 2016 the percentage of expenses to revenue was 20%: in 2017 the percentage of
expenses to revenue was 16%
Answer:
26
297
Answer: The company had to wait longer to receive the money from the trade receivables.
Delay in receiving the money may be the reason why company took longer to pay trade
payables.
Company would not qualify for cash discount in 2017.
Company would not have to allow cash discount in 2017.
Company may be charged interest on late payments in 2017.
Company may charge interest on late receipts in 2017.
In both years the company was paying the trade payables before receiving money from
the trade receivables.
27
298
Answer: (f)
Offer cash discount for prompt payment
Invoice discounting and debt factoring
(g)
Reduce credit sales/sell for cash only
Offer cash discount for prompt payment
28
299
Answer: (h)
Have to wait longer for the money
Increased risk of bad debts
Or other suitable disadvantage
(i)
Do not have to allow cash discount
May charge interest on overdue accounts
Or other suitable advantage
(j)
The profit earned for every $100 used in the business
29
300
Answer:
30
301
13
Answer: B. $232 500
14
31
302
Answer: (a)
(b) Transfers made in the statement of changes of equity from the retained earnings.
Answer: In situations where there is not enough cash to pay a dividend

To retain cash within the business rather than using it for dividends
To use in future when the profits may be low/there may be a loss
Or other acceptable comments
32
303
Answer:
33
304
15
Answer: B. $70 800
16
Answer: (a) Separate legal identity from its owner.

Limited liability.
Can issue shares to raise capital.
May find it easier to obtain loans/issue debentures.
Continuity.
Other reasonable answers acceptable
34
305
(b)
35
306
Answer:
36
307
$ $
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37
308
Answer:
38
309
Answer: (e)
To reduce the overdraft
To fund an increase in inventory
To purchase new non-current assets
Growth/expansion
(f)
39
310
Answer: Liquidity is poor.

Both ratios appear low.
There is insufficient cash to meet current liabilities as they fall due.
Current assets do exceed current liabilities.
There is already a bank overdraft.
Too high a proportion of current assets is made up of inventory.
Trade payables are much higher than trade receivables.
Overdraft facilities could be withdrawn at any time.
Relationship with credit suppliers could be damaged.
17
40
311
Answer:
41
312
Ordinary General Retained Total

share reserve earnings
capital
$ $ $ $
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Answer:
Nyeko Limited
Statement of Changes in Equity for the year ended 29 February 2016
42
313
Answer:
43
314
Answer:
Answer: Reduction in profit available for ordinary shareholders

Prior claim on the profits of the company
Prior claim on the assets of the company in the event of a winding-up
18
See next page.
44
315
Answer:
45
316
$ $ $
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46
317
Answer:
47
318
IGCSE
Accounting
Multiple
Choice
319
1 What is the purpose of accounting?
Answer: C. to prepare the financial statements of the business
Answer: A. when it can be compared with information for other periods
Answer: D. to record the financial transactions of the business
320
Answer: A. $50
Answer: A. to calculate Arjun’s trade payables payment period
Answer: B. debit note
Answer: A. credit entry of $1600
321
Answer: C. debit side of the purchases ledger control account
Answer: D. $2300
10
322
Answer: A. $24 000
11
Answer: C. reliability
12
Answer: A. It checks the arithmetical accuracy of the double entry.
13
Answer: C. It is prepared to look for errors in the cash book and the bank statement.
323
14
Answer: C. $17
15
Answer: B. They carry a fixed rate of interest.
16
Answer: C. sales ledger control account
324
17
Answer: C. $700
18
Answer: D. $18 000
19
Answer: D. its shareholders
325
20
Answer: A.
21
Answer: A. gross profit measured as a percentage of cost of sales
22
Answer: B. to check if the trader would be able to repay a loan
326
23
Answer: A. commission
24
Answer: C.
25
327
Answer: B. 1 and 3
26
Answer: B. $476 000
27
Answer: C. original entry
10
328
28
Answer: B. Bad debts are deducted from trade receivables before the provision for doubtful debts is
calculated.
29
Answer: A. $102
30
Answer: A. to account for the revenues and costs of a period
11
329
31
Answer: C. $2350
32
Answer: B.
12
330
33
Answer: D. $17 350
34
Answer: D. $2300
13
331
35
Answer: D. to provide a calculation of profit
36
Answer: C. $700
37
Answer: C. on the debit side of the purchases ledger control account
14
332
38
Answer: C. 2 and 3
39
Answer: C.
40
15
333
Answer: A. profit is overstated
41
Answer: D. retained earnings
42
Answer: B. $3900
16
334
43
Answer: B. $4286
44
Answer: A. when it affects business decisions
45
Answer: C. a cheque which Jack has issued to a supplier who has not banked it
17
335
46
Answer: D. $8100
47
Answer: A. $979
48
18
336
Answer: A.
49
Answer: B. $11 500
50
Answer: B. closing trade receivables + cash received + discount allowed
19
337
51
Answer: B. Harpreet has overpaid his account.
52
Answer: D. 3 only
53
20
338
Answer: C. $10 300
54
Answer: C. going concern
55
Answer: D. 45.00%
56
21
339
Answer: B. relevance
57
Answer: D. interest charged on late payment
58
Answer: B. Fewer entries are needed in the sales and purchases accounts.
59
Answer: B discount received
22
340
60
Answer: D. understated $240
23
341
IGCSE
Accounting
Partnerships

1
342
1 State two advantages in going into partnership with business.

_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Answer: Increase in finance

Additional knowledge/skills/expertise
Share risks
Sharing of tasks and responsibilities
Can discuss decision-making
Losses can be shared between partners
2 David and Edward are in partnership.

Where are Edward’s interest on drawings and interest on capital recorded in his current account?
Answer: C.
3 State two advantages of being a partner rather than a sole trader.

1______________________________________________________________________________
_______________________________________________________________________________
2______________________________________________________________________________
_______________________________________________________________________________
Answer: Additional finance is available

Additional knowledge, skills and experience are available
The risks are shared
The losses are shared
The responsibilities are shared
Discussions can take place before decisions are taken
343
4 State one reason why a partnership agreement should be drawn up when a partnership is
formed.
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Answer: To avoid misunderstandings and disagreements in the future.
5 Ben and Tom Panesar formed a partnership on 1 February 2014.
The following information is available.
1 On 1 February 2014 Ben contributed $90 000 capital and Tom contributed $60 000. On 1
August 2014 Ben contributed a further $10 000 capital.
Interest on capital is allowed at the rate of 3% per annum.
2 Tom was to be entitled to an annual salary of $9000 per annum for the first four months of
the first financial year. After that date the salary was to increase to $12 000 per annum.
3 During the year ended 31 January 2015 Ben’s drawings amounted to $9800 and Tom’s
drawings amounted to $20 800.
4 Interest on drawings for the year ended 31 January 2015 amounted to $490 for Ben and
$1040 for Tom.
5 Profits and losses are shared 2/3 to Ben and 1/3 to Tom.
6 On 1 February 2014 Tom made a loan of $15 000 to the business. The loan is repayable on
31 January 2020.
Loan interest of 4% per annum is to be credited to Tom’s current account.
7 The profit for the year ended 31 January 2015 (after loan interest) was $27 920.
344
REQUIRED
(a) Prepare the profit and loss appropriation account for the year ended 31 January 2015.
Ben and Tom Panesar

Profit and Loss Appropriation Account for the year ended 31 January 2015
Answer:
345
Ben and Tom Panesar provided the following information on 31 January 2015.
$
Premises at book value 95 000
Machinery and equipment at
book value 46 500
Inventory 28 750
Other payables 1 390
Bank 5 870 debit
REQUIRED
(b) Prepare the statement of financial position at 31 January 2015.
The calculation of the current account balances may be shown within the statement of
financial position or as separate calculations in the space provided below.
346
Ben and Tom Panesar
Statement of Financial Position at 31 January 2015
Answer:
347
5 Where do interest on capital and interest on partners’ loans appear?
Answer: B
7
348
6 Sanchi and Syed Mirza are in partnership, sharing profits and losses equally.
Their summarised income statement for the year ended 31 July 2015 was as follows.
$ $
Revenue 45 000
Cost of sales
Opening inventory 5 500
Purchases 33 500
39 000
Closing inventory 6 500 32 500
Gross profit 12 500
Expenses 3 500
Profit for the year 9 000
REQUIRED
(a) (i) State the formula for the calculation of the rate of inventory turnover.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
(ii) Calculate the rate of inventory turnover.
The calculation should be correct to two decimal places.

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
(iii) Suggest two reasons why the rate of inventory turnover is lower than it was in the
previous year.
1_________________________________________________________________
__________________________________________________________________
2_________________________________________________________________
__________________________________________________________________
Answer:
349
(b) (i) State the basis on which inventory should be valued.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
(ii) Name the accounting principle which is being applied when inventory is valued on
this basis.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Answer: (i) Lower of cost and net realisable value

(ii) Prudence
After the preparation of the appropriation account for the year ended 31 July 2015, Sanchi
and Syed Mirza updated their capital and current accounts.
At 31 July 2015 the partners’ accounts were as follows.

Capital accounts
REQUIRED
(c) Prepare an extract from the statement of financial position at 31 July 2015 to show the total
funds provided by the partners. See next page.
350
Extract from Statement of Financial Position at 31 July 2015
Answer:
(d) (i) Suggest two reasons why Syed Mirza would like to have interest on capital included in the
partnership agreement.
1_________________________________________________________________________
__________________________________________________________________________
2_________________________________________________________________________
__________________________________________________________________________
(ii) Suggest one reason why Syed Mirza would like to have interest on drawings included in
the partnership agreement.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
(iii) Suggest one reason why Sanchi Mirza would like to have partner’s salary included in the
partnership agreement.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Answer: (i) To compensate him for investing the most capital

To encourage Sanchi to invest more
(ii) To penalise Sanchi for making more drawings

To discourage Sanchi from making excessive drawings Or other suitable reason
(iii) To compensate Sanchi for extra workload

To reward Sanchi for extra skills
10
351
6 Moses and Tobias Iyambo are in partnership. Their financial year ends on 31 October. They share
profits and losses equally. A capital and a current account are maintained for each partner.
Despite having little accounting knowledge, Tobias prepared the following statement of financial
position on 31 October 2015.
REQUIRED
(a) Prepare a corrected statement of financial position at 31 October 2015 showing the different
types of assets and liabilities, and the capital and current accounts of each partner.
The calculation of the current account balances may be shown within the statement of financial
position or as separate calculations in the space provided on the next page.
13
11
352
Moses and Tobias

Corrected Statement of Financial Position at 31 October 2015
$ $ $
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12
353
Answer:
13
354
(b) State two items which Moses and Tobias Iyambo could have included in their partnership
agreement in addition to profit-sharing ratios.
1_________________________________________________________________________
__________________________________________________________________________
2_________________________________________________________________________
__________________________________________________________________________
Answer: Introduce more capital

Obtain long-term loan
Mortgage premises
Or other suitable way
(c) State two ways in which Moses and Tobias Iyambo could obtain long-term funds to finance
expansion of the business.
1_________________________________________________________________________
__________________________________________________________________________
2_________________________________________________________________________
__________________________________________________________________________
Answer: Introduce more capital

Mortgage premises
Or other suitable way
(d) Complete the following table by placing a tick ( ) in the correct column to show how each of the
following transactions would affect the working capital of Moses and Tobias Iyambo.
Answer:
14
355
7 Why does a partnership prepare an appropriation account?
Answer: A. to allocate profit for the year to each partner
8 A and B were in partnership. Their current accounts for the year were as follows.
Answer: C. $17 000
9 Ann and Bindu have been in partnership for some years. Previously they had both been sole
traders.
REQUIRED
Answer: more capital introduced to business

more expertise available
responsibilities are shared e.g. holidays, sickness
risk is shared
losses are shared
15
356
On 1 March 2016 the balances on their current accounts were as follows.
Answer: (i) To record the difference between the amounts earned from the partnership and the
amounts withdrawn from the partnership.
To show the retained profit of each partner.
To make it easier to calculate interest on capital.
To reveal excess drawings.
(ii) Ann owes money to the partnership.

The partnership owes money to Bindu.
16
357
Answer:
17
358
Answer:
18
359
Answer:
10 Meena and Rafah are in partnership. Their financial year ends on 30 April.
REQUIRED
(a) Prepare the profit and loss appropriation account for the year ended 30 April 2017. See next
page.
19
360
Meena and Rafah
Profit and Loss Appropriation Account for the year ended 30 April 2017
Answer:
20
361
(b) Prepare the current account of Meena for the year ended 30 April 2017. Balance the account
and bring down the balance on 1 May 2017.
Meena
Current account
Answer:
21
362
11 Amina and Samara are in partnership. Their partnership agreement states that interest on capital
is paid at the rate of 10% per annum and that profits and losses are shared in the ratio of 3:2
respectively.
Answer: A business in which two or more people work together as owners.
22
363
Answer:
23
364
Answer:
24
365
Answer: Profit for the year would be lower by the amount of the loan interest.
Interest on capital would be lower by the interest on the additional capital.
Shares of profit might be higher or lower depending on rate of loan interest.
12 Eli and Sumit are in partnership.
25
366
Answer: To keep a separate record of capital introduced/be able to calculate interest on capital.
To allow easy comparison of drawings and total profit share/see if partner has overdrawn on
profit allocation.
Answer: The amount that Sumit owes the partnership.
Answer: To discourage partners from taking drawings/to reduce the level of drawings.
(d) Prepare the partnership appropriation account for the year ended 31 October 2017. See
next page.
26
367
Eli and Sumit
Appropriation Account for the year ended 31 October 2017
Answer:
27
368
(e) Prepare an extract from the statement of financial position of Eli and Sumit at 31 October 2017
showing the partners’ capital accounts and full details of the partners’ current accounts.
Eli and Sumit

Extract from Statement of Financial Position at 31 October 2017
$ $ $
Eli Sumit Total
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Answer:
28
369
13 Beth and Carla are in partnership, sharing profits and losses 3:2. They provided the following
information at 31 January 2018.
Answer: C. $29 000
14 Sumit and Theo have been in partnership for some years running a manufacturing business.
Answer:
29
370
Answer: Advantage
– more capital introduced to business
– more expertise available
– responsibilities are shared e.g. holidays, sickness
– risk is shared
– losses are shared
Disadvantage
– profits must be shared
– decision making may be more difficult
– disagreements may occur
Answer: To avoid disagreements in the future
Answer: Interest on capital – to reward partners who invest more.

Interest on drawings – to discourage drawings.
30
371
31
372
Answer:
Answer:
32
373
15 David and Harold are in partnership. The partnership agreement states that David is to receive
an annual salary of $12 000 and that profits and losses are to be shared in the ratio 2:1.
The following balances were extracted from the partnership books on 31 March 2016.
33
374
REQUIRED
Answer:
34
375
Answer: Interest on drawings might encourage partners to reduce drawings.
16
Answer: D. $31 000
17
35
376
Answer: (a) Share losses

Share responsibilities
Share risks
Share decision-making
Additional finance may be available
Additional skills and experience are available
(b) 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
(c) Greater security than capital

Repaid before capital in a winding-up
Extra funds may be required for a limited period only
(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 if obtaining supplies/services on credit
36
377
37
378
Abid and Faiz

Statement of Financial Position at 31 March 2016
$ $ $
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38
379
Answer:
39
380
18
40
381
REQUIRED
(a) Prepare the cash book (bank columns only) for the month of January 2016. Bring down the
balance on 1 February 2016.
Answer:
41
382
Answer:
42
383
19
Answer: D. $31 000
20
43
384
Answer: (a) to access additional capital
for additional expertise/more ideas
to share responsibilities/cover sickness and holidays to shares losses/risks
(b) to avoid disagreements in the future
(c) capital contribution by each partner profit sharing ratio interest on capital interest on
drawings partners’ salaries interest on partners’ loans
21
44
385
REQUIRED
(a) Prepare the partnership’s trial balance at 31 July 2016.
Friedrich and Graham

Trial Balance at 31 July 2016
$ $
Bank........................ ........................
Cash........................ ........................
Fees received........................ ........................
Rent paid........................ ........................
Wages........................ ........................
Administration costs........................ ........................
Drawings – Friedrich........................ ........................
– Graham........................ ........................
Equipment........................ ........................
Provision for depreciation........................ ........................
Trade receivables........................ ........................
Other payables........................ ........................
Capital account – Friedrich........................ ........................
– Graham........................ ........................
Current account – Friedrich........................ ........................
– Graham........................ ........................
45
386
Answer:
46
387
IGCSE
Accounting
Prepayments
and Accruals
388 1
Answer: (a) Accruals (matching)

Costs and revenues should be matched within an accounting period.
Any suitable example.
(b) Business entity

The business is treated as being separate from the owner. The business records are from
the viewpoint of the business.
Any suitable example.
389 2
Answer:
Answer: A. credit entry of $1600
390 3
Answer:
Answer: (a) Below/after gross profit/after trading account/(on credit side) as other income.
Profit and loss section/(debit side) as an expense
(b) Accruals/matching
Prudence
391 4
$ $
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392 5
Answer:
Answer:
393 6
Answer: Revenue for the year is matched against the costs of the same period
Example -
Either Insurance prepaid at year-end was deducted
Or Commission receivable outstanding at year-end was added
Or Amount owing from clients at year-end was added
Answer: The business is treated as being separate from the owner

Example
The proportion of rates and insurance relating to the owner’s flat was excluded from the
business expenses (1)
Answer: Accruals (matching)
394 7
Answer: The cost of the non-current asset and the revenues arising from its use are matched in an
accounting period.
OR
The cost of the non-current asset is spread over its useful life.
Answer: The loss arising from the damage is recorded in the same year as the damage occurred.
10
395 8
$ $ $
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396 9
Answer:
Answer: Either --The expenses of the year were matched against the revenue of the same period.
Or
Only the expenses for the year were included in the income statement.
Example – Either Commission receivable outstanding was added.
Or Loan interest outstanding was added.
Or Depreciation for the year was included.
397 10
11
Answer:
Answer: The profit for the year is not overstated.

The trade receivables (current assets) are not overstated.
398 11
Answer: Either ---

The sales for which a business is unlikely to be paid are regarded as an expense of the year
in which those sales are made.
The provision for doubtful debts is an expense those debts are incurred.
12
399 12
$ $ $
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400 13
401 14
Answer: (a)
(b) Revenue for the year is matched against the costs of the same period.
Example:
Either -- The loan interest was adjusted for the outstanding amount.
Or -- The loss in value of non-current assets in the year was included.
Or -- A provision for doubtful debts was created.
(c) The business is treated as being separate from the owner.

Example --
Rates and insurance for personal use were excluded.
(d) Should compare with a business in the same trade.

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 apply 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.
402 15
13
Answer: C. going concern
14
Answer: D. understated $240
403 16
IGCSE
Accounting
Ratios

1
404
1 Joda Limited provided the following information at 31 January 2015.

$
Inventory 18 150
Bank overdraft 7 150
Petty cash 120
REQUIRED
(a) Calculate the current ratio. The calculation should be correct to two decimal places.
Answer: (18 150 + 15 300 + 120) : (10 960 + 7 150)

= 33 570 : 18 110 (whole formula)
= 1.85 : 1
(b) Comment on your answer to (d).
Answer: Current assets almost twice the current liabilities

Can meet the current liabilities from the current assets
Slightly lower than the “benchmark” of 2:1
Appears to be adequate
Comments to be based on answer to (a)
(c) Calculate the quick ratio. The calculation should be correct to two decimal places.
Answer: (15 300 + 120) : (10 960 + 7 150)

= 15 420 : 18 110 (whole formula)
= 0.85: 1
(d) Suggest one reason why the quick ratio is lower than it was in the previous financial years.
405
Answer: Increase in bank overdraft/change from debit to credit bank balance Purchase of non-current
assets
Repayment of long-term loan
Increase in inventory
Increase in dividends paid
406
Answer:
407
Answer: Ratio has fallen

Current assets only just cover the current liabilities
May have problems in meeting debts when they fall due Is below the generally-accepted
“benchmark”
Or other suitable comments based on answer to (b)
Answer: Change from positive bank balance to overdraft/increase in overdraft/reduction in bank

balance
Increased expenditure on inventory/increase in inventory
Purchase of non-current assets
Repayment of long-term loan Increase in current liabilities
Decrease in trade receivables
Answer: Increase the profit

Reduce the capital employed
REQUIRED
(a) Explain why the partners calculated the quick (acid test) ratio as well as the current ratio.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
408
Answer: Inventory is not included in the calculation of the quick ratio.

Either 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.
OR Shows the ability of the business to pay immediate / current liabilities from immediate/
liquid assets.
(b) Suggest two reasons for the change in the current ratio.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
Answer: Change from positive bank balance to overdraft

Increased level of inventory
Purchases of non-current assets
Increase in current liabilities/increase in trade payables/increase in bank overdraft
Increase in drawings
The partners later discovered that no entry had been made for a cheque received from a credit
customer for $1800.
REQUIRED
(c) Calculate the current ratio after this transaction had been recorded in the accounting records.
The calculation should be correct to two decimal places.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Answer: (19 400 + 15 100) : (17 350 + 2300 + 100)

34 500 : 19 750
1.75 : 1
409
(d) Suggest two possible problems the partners may encounter if the working capital is
inadequate.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...............................................................................................................................................
Answer: Cannot meet debts when they fall due

Cannot take advantage of cash discounts
Cannot take advantage of business opportunities as they arise
May have difficulty in obtaining further supplies on credit/cannot replace inventory
Cannot meet day-to-day expenses
May not be able to take cash drawings
(e) Suggest two ways in which the partners could increase the working capital.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...............................................................................................................................................
Answer: Introduce more cash as capital/admit another partner

Reduce drawings
Sell surplus non-current assets
Increase profit
REQUIRED
(a) Suggest two reasons for the change in the current ratio.
1 ................................................................................................................................................
410
...................................................................................................................................................
2 ................................................................................................................................................
..................................................................................................................................................
Answer: Decrease in inventory

Decrease in bank/cash balance or increase in overdraft
Increase in trade payables
Increase in short term loans
Increase in other payables
Decrease in other receivables
Repayment of long term liabilities
(b) Suggest two problems Shiromi may encounter because her working capital is inadequate.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
Answer: May not be able to pay debts when they fall due
May not be able to take advantage of cash discounts
May not be able to take advantage of business opportunities as they arise
May have difficulty in obtaining further supplies
May not be able to take drawings
May not have sufficient funds to pay for day to day expenses
5 The accountant calculated the following ratios for Vinita’s business on 31 December 2016.
Current ratio 3.62 : 1

Quick ratio 0.59 : 1
REQUIRED
(a) Comment on Vinita’s current ratio.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
411
Answer: The current assets are more than three times the current liabilities/it is much higher than the
“benchmark” of 2 : 1
The current liabilities can easily be paid from the current assets
Funds are not being used very effectively
(b) Explain why the quick ratio is a better measure of liquidity than the current ratio.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Answer: Inventory is excluded from the calculation of the quick ratio.

Inventory is not regarded as a liquid asset.
The ratio shows whether the business would have surplus liquid funds if the current liabilities
were paid immediately from the liquid assets.
(c) Suggest two actions Vinita could take to increase her quick ratio.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
Answer: Introduce more cash as capital

Obtain long term loans
Reduce drawings
Reduce inventory level
6 Tyler had the following assets and liabilities on 31 July 2017.
Tyler was concerned about his working capital position.
412
REQUIRED
(a) State how working capital is calculated.
...............................................................................................................................................
Answer: Current assets minus current liabilities
(b) Calculate (to two decimal places) the current ratio on 31 July 2017.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
..................................................................................................................................................
Answer: 5600 : 4400 = 1.27 : 1
(c) Name one other ratio which would help Tyler to assess his liquidity position.
..................................................................................................................................................
Answer: Quick ratio/acid test/liquid ratio

Trade receivables collection period
Trade payables payment period
(Rate of) inventory turnover
(d) Explain two reasons why Tyler is right to be concerned about his working capital position.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Answer: He may not be able to meet liabilities as they fall due.

He may not be able to pay day to day running expenses.
He may not be able to take advantage of discounts.
He has a lot of cash tied up in inventory.
10
413
Inventory makes up more than half of his current assets.

His trade payables are greater than his trade receivables.
He has a bank overdraft.
7 Hanif’s financial year ends on 31 July. He provided the following information on 31 July 2017.
REQUIRED
(a) Calculate the current ratio. The calculation should be correct to two decimal places.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................…
Answer: (87 500 + 56 200 + 100) : (81 500 + 17 100)

= 143 800 : 98 600 whole formula
= 1.46 : 1
(b) Comment on your answer to (a).
...................................................................................................................................................
...................................................................................................................................................
..................................................................................................................................................
..................................................................................................................................................
Answer: Current assets only approximately 1½ times the current liabilities

Lower than the “benchmark” of 2:1
Can meet the current liabilities from the current assets
Do not have a lot of surplus current assets available after paying current
liabilities
Seems to be a little inadequate (depending on the type of business)
(c) Calculate the quick ratio. The calculation should be correct to two decimal places.
...................................................................................................................................................
11
414
...................................................................................................................................................
...................................................................................................................................................
..................................................................................................................................................
Answer: (56 200 + 100) : (81 500 + 17 100)

= 56 300 : 98 600 whole formula
= 0.57 : 1
(d) Suggest two reasons why the quick ratio is lower than it was at the end of the previous
financial year.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
..................................................................................................................................................
Answer: Increased expenditure on inventory

Increase in bank overdraft/change from positive bank balance to overdraft
Increase in current liabilities/increase in trade payables
Decrease in cash
(e) Suggest two problems Hanif may encounter if his working capital is inadequate.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
..................................................................................................................................................
Answer: Unable to pay debts when they fall due

Unable to take advantage of cash discounts
Unable to take advantage of business opportunities when they arise
May have difficulty in obtaining further supplies
May not be able to take drawings
12
415
(f) Complete the table by placing a tick ( ) in the correct column to show how each of the
following transactions would affect the current ratio and the quick ratio.
current ratio quick ratio
increase decrease no effect increase decrease no effect
introduce $20 000

 
additional capital
obtain short-term
bank loan $10 000
sell half the

inventory at cost
price
Answer:
8 Nikita’s brother, Sunil, provided the following information about his business at 31 January 2018.
13
416
REQUIRED
(a) State what is measured by the current ratio.
...................................................................................................................................................
..................................................................................................................................................
Answer: It measures the excess of current assets over current liabilities /measures liquidity.
It measures the margin of safety between current assets and current liabilities.
(b) Calculate the current ratio for Sunil’s business at 31 January 2018. The calculation should be
correct to two decimal places.
...................................................................................................................................................
...................................................................................................................................................
..................................................................................................................................................
Answer: (6800 + 12 500 +1010) /15 200 = 1.34:1
(c) Suggest two reasons why Nikita cannot compare her current ratio with that of Sunil.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
..................................................................................................................................................
Answer: different accounting policies

different size of business
different type of business
different locations
different capital structures
different type of goods sold
non-monetary items
other reasonable answer
(d) Suggest two ways in which Nikita might improve her working capital position.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
..................................................................................................................................................
14
417
Answer: Introduce additional capital

Reduce cash drawings
The current ratio of CD Limited on 30 April 2018 was 1.55 : 1.
The company is anxious to increase this ratio and several proposals are being considered.
REQUIRED
(a) State the formula for the calculation of the current ratio.
...............................................................................................................................................
Answer: Current assets : current liabilities
(b)
current ratio of each proposal.
The first one has been completed as an example. See next page.
15
418
Increase Decrease No effect
Sell surplus non-current assets for


cash
Sell goods on cash terms only
Obtain a further long-term loan
Buy additional non-current assets on

credit rather than paying immediately
Persuade trade receivables to pay

half of their debts immediately in
return for 3% cash discount
Pay trade payables after 2 months

instead of after 1 month
Answer:
10 Aretta opened a clothes store on 1 April 2018.
She invested $12 800 as capital. Her father gave her a loan of $7200, repayable on 1 October
2018. Interest of 5% per annum was to be paid on the loan at the end of each month.
The credit side of Aretta’s cash book for April 2018 was as follows.
$
April 1 Shop fixtures and fittings 9 500
Credit suppliers 15 000
Rent of premises for 6 months 2 400
Insurance for 12 months 3 600
April 30 Operating expenses 980
16
419
Wages 1 900
Drawings 1 500
1 All purchases were made on credit terms and all sales were made for cash.
2 Aretta’s gross profit margin was 25%.
3 No record was made of cash sales.
4 Aretta decided to depreciate the shop fixtures and fittings at 12% per annum using the
straight line (equal instalment) method.
5 On 30 April 2018 inventory was valued at $4080 and $810 was owed to credit suppliers.
On 30 April 2018 Aretta was concerned that her quick (acid test) ratio was very low. She
considered six proposals to improve the ratio.
REQUIRED
(a) State the formula for the calculation of the quick (acid test) ratio.
...................................................................................................................................................
...................................................................................................................................................
Answer: Current assets – inventory : current liabilities
(b) Complete the following table by placing a tick (3) in the correct column to indicate the effect
of each proposal on Aretta’s quick (acid test) ratio.
The first one has been completed as an example. See next page.
17
420
effect on quick ratio
proposal
increase decrease no effect
1 purchase a motor vehicle on credit 3
pay credit suppliers early to receive cash

2
discount
obtain a bank overdraft and repay the loan

3
immediately
4 arrange for the loan to be extended to 2 years
5 sell on credit terms rather than on cash terms
6 reduce inventory by selling half at cost price
Answer:
18
421
(c) State which proposal would affect the quick (acid test) ratio but not affect the current ratio.
Explain the reason for your answer.
Proposal number .............................
Reason .....................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Answer: Proposal number 6

Current Ratio
Total of current assets remains unchanged
OR inventory decreases and cash/bank increases by same amount
Quick (acid test) Ratio

Total of current assets excluding inventory increases
OR Inventory is excluded from the calculation but cash/bank increases
11 Annie is a wholesaler of ladies’ clothing, selling to retail stores on credit terms. She provided the
following information at the end of her second year of trading on 31 December 2015.
Annie decided to compare her results with those of her two brothers, Mark and Tony, who formed
a partnership six years ago to operate a wholesale food business.
REQUIRED
(a) Complete the table on the opposite page to show the ratios for Annie’s business for the year
ended 31 December 2015.
You may use the space below for your workings. See next page.
19
422
Workings
20
423
Answer:
(b) Explain one reason for the difference between the percentages of gross profit to revenue of
Annie and her brothers.
...................................................................................................................................................
...................................................................................................................................................
..................................................................................................................................................
Answer: Different type of goods

EITHER
Food has a lower gross profit margin than clothing
OR The food store is cutting prices to sell more goods
(c) Comment on the possible effects of Annie increasing the selling price of her goods.
...................................................................................................................................................
...................................................................................................................................................
..................................................................................................................................................
21
424
Answer: Total revenue from sales may increase so profit may increase
Customers may look for cheaper suppliers, so profits may actually fall
(d) State whose business had better control over its expenses. Give a reason for your answer.
Business ...............................................................
Reason .....................................................................................................................................
..................................................................................................................................................
Answer: Mark and Tony

Annie’s expenses/revenue is 14.25%: Mark and Tony’s ratio is 5.15%
(e) Explain one reason for the difference in the rate of inventory turnover.
...................................................................................................................................................
...................................................................................................................................................
..................................................................................................................................................
Answer: Different type of goods

EITHER Food sells more quickly than clothing
OR Food is in greater demand than clothing
OR Food store will probably have a lower value of inventory
OR Food is cheaper than clothing
Annie has a bank overdraft but believes that her current ratio could be improved. She is
considering four courses of action.
REQUIRED
(f) Complete the following table by placing a tick (✓) in the correct column to show how each of
the courses of action would affect Annie’s current ratio.
22
425
Answer:
12
Answer: B. 1 and 4
13 Malorie provided the following information.
23
426
REQUIRED
Calculate:
(i) Malorie’s current ratio at 30 June 2015 (to one decimal place)
...........................................................................................................................................
...........................................................................................................................................
..........................................................................................................................................
Answer: 135 480 9.51times

14250
(ii) Malorie’s inventory at 30 June 2016
...........................................................................................................................................
...........................................................................................................................................
..........................................................................................................................................
Answer: [(1300 + 700) × 1.2] – 1400 = 1000
14 Joey is a trader. His financial year ends on 30 September. He provided the following information
for the year ended 30 September 2016.
24
427
You may use the space below for your workings.
Answer:
25
428
IGCSE
Accounting
Short Answer
Questions

1
429
Answer: Bad debts

Amounts owing to a business which will not be paid by the credit customer.
Bad debts recovered

Amounts received from a credit customer after the amount was written off as a bad debt
Provision for doubtful debts

An estimate of the amount which a business will lose because of bad debts
430
Answer: Reduce credit sales/sell on a cash basis

Answer: A provision for doubtful debts ensures that the profit for the year is not overstated the trade
receivables are not overstated.
Answer: An income statement shows incomes and expenses and is prepared for a period of time.
A statement of financial position shows assets and liabilities and is prepared at a particular
date.
431
Answer:
Answer: Income statement $1500

Statement of financial position $4500
432
Answer: accounts of the same type can be kept together

helps to locate errors
allows tasks to be divided between different people
deters fraud
allows checking procedures to be introduced
Answer: (i) Sales ledger – accounts of individual credit customers

Purchases ledger – accounts of individual credit suppliers
(ii) any suitable example for e.g. sales, purchases, insurance
Answer: cash book

petty cash book
sales journal
sales returns journal
purchases journal
purchases returns journal
general (nominal) journal
(any two)
433
10
Answer: False
11 Pich sold goods, $5000, on credit to Roger.
Answer: (a) (i)
434
(ii)
(b) Invoice
Pich (1)
Answer: (c)
(d) (i) discount received account

(ii) income statement
12
435
Answer: A credit note is issued by the supplier when goods are returned.
A debit note may be issued by the customer when goods are returned.
13
Answer:
436
14
Answer:
437
15
Answer: Satisfied
Credit customers are now paying earlier/within credit period allowed/other valid answer.
16
10
438
Answer: Advantage - Do not have to allow Waheed cash discount

May charge interest on overdue account
Disadvantage - Have to wait longer for payment/Adversely affects liquidity position

Increase risk of bad debt
Comment - Waheed has the use of the funds for other purposes for 17 days
Waheed does not need to use his existing liquid funds to pay suppliers
Improved liquidity position
17
Answer: Person issuing - Amitav

Person receiving - Barry
Answer: If goods are returned

If goods are reported faulty
If there has been an overcharge on an invoice
Answer: Purchases returns journal
11
439
Answer: To record business transactions

To be able to prepare financial statements
To know balances of credit customers and suppliers or bank
Answer: Every transaction has a two-fold aspect
Answer: An expense account usually has a DEBIT balance. At the end of the financial year the
expense for the year is transferred to the INCOME STATEMENT. This transfer is recorded
with an entry on the CREDIT side of the expense account. Any balance remaining on
the account is included in the STATEMENT OF FINANCIAL POSITION.
Answer: A financial report must be capable of being understood by the users of that report.
Answer: By narrowing areas of difference in financial statements
12
440
Answer:
18
13
441
Answer: (a) (i) A statement in which the profit or loss for the year is calculated
(ii) A statement showing the assets and liabilities of a business on a certain date
(iii) Assets which are purchased for use not for resale
Assets whose values do not fluctuate frequently
Assets which will be kept by the business for more than 12 months
Assets which are acquired to aid the business earn revenue
(iv) Liabilities which are not due for repayment within 12 months
(v) Either The amount the business owes the owner of that business
Or Any resources provided for a business by the owner of that business
(b) Goodwill/patents/trademarks/other suitable example
14
442
19
Answer: (a) The amount owed by the business to the owner.

The funds put into the business/contributed by the owner (plus profits net of drawings).
(b)
(c) Nominal (general) ledger

(d) (Limited) company
(e) Items which a business owns or which are owed to the business are known as ASSETS.
15
443
20
Answer:
21
Answer:
16
444
22
17
445
Answer: (a) duality
(b)
(c) An adjustment for a prepayment reduces expenses and increases profit.
(d) To monitor progress

To prepare financial statements
For decision making
(e)
18
446
(f) In the income statement as an addition to gross profit / as an item of income/credit.
(g) An income statement deals with revenues and costs, whilst a statement of financial
position deals with assets and liabilities.
OR
An income statement covers a period of time, whilst a statement of financial position is
for a specified date.
(h) Trade payable

Club member
Committee member
Bank
Accept other valid answers
(i) Historic cost

Difficulties of definition
Non-financial aspects
23
Answer: (a) To reduce the number of entries in the ledger

To allow book-keeping duties to be shared
As an aid for posting to the ledger
To summarise accounting information
To help in the preparation of control accounts
To group together similar types of transactions
To make it easier to check for errors
Accept other valid answers.
(b) Cash book
19
447
24
20
448
Answer: (a)
(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.
(ii) It is made when a sales ledger account is set off against a purchases ledger
account of the same person/business.
(d) Overpayment of the amount owing

Failure to deduct cash discount due
Goods returned after account settled
Payment made in advance
21
449
25
22
450
23
451
Answer: (a)
(b) Issued by the customer to request a reduction in an invoice.
(c) Sales returns journal
(d) Sales ledger
(e) Trade discount
(f) Recorded on the invoice to the customer or in sales journal

No entry made in ledger
(g) (i) Sales returns account

(ii) Individual debtor accounts
(h) Money measurement

An accounting transaction should only be recorded if it can be expressed in terms of
money.
(i) CAPITAL equals assets minus LIABILITIES
(j)
26 Kamika is a clothing wholesaler who buys and sells on both cash and credit terms. She maintains
a full set of accounting records and prepares monthly control accounts.
REQUIRED
(a) State two advantages to Kamika of preparing a monthly sales ledger control account.
1................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
..................................................................................................................................................
24
452
(b) State two reasons why it is possible for Kamika to have a credit balance on her sales ledger
control account.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
..................................................................................................................................................
(c) Complete the following table. Place a tick (3) to show where each item would appear in Kamika’s
purchases ledger control account. If the item would not appear, place a tick (3) in the no entry
column.
Kamika applies all the accounting principles when maintaining accounting records and preparing
financial statements.
REQUIRED
(d) Name the accounting principle applied in each of the following situations.
25
453
Answer: (a) Assist in the location of errors

Provide an instant total of trade receivables
Prove the arithmetical accuracy of the sales ledger
Enable a statement of financial position to be prepared quickly
Provide a summary of transactions relating to trade receivables
Help reduce fraud
(b) Overpayment by a credit customer of the amount owing

Credit customer failing to deduct available cash discount
Credit customer returning goods after settling account
Credit customer making payment in advance
(c)
(d)
26
454
27
Answer: (a)(i) Statement of account
(ii) $335
(iii)
(iv) Cash discount
27
455
Answer: (b)
(c)
(d)
28
456
IGCSE
Accounting
Sole Trader

1
457
1 Rani is a sole trader. On 31 December 2013 her statement of financial position was as follows.
458
Answer:
Answer:
459
Answer: Drawings are included. Change in net assets is adjusted by the drawings to arrive at net profit.
Answer: Gross profit margin

Net profit margin
Inventory turnover
460
Answer: Prudence – a business should not overstate profits/assets and so should value inventory at
the lower of cost and net realisable value.
Realisation – a business should not account for profit until it is realised and should use cost
price rather than selling price for inventory valuation.
Answer:
461
4 All sales and purchases were made on credit.
462
Answer:
463
(c) Prepare Nzita’s income statement for the year ended 31 January 2015.
Nzita
Income Statement for the year ended 31 January 2015
Answer:
464
Answer:
Answer: 16 550/29100 × 100 = 56.87%
465
Answer: Lower selling prices

Introduction of trade discount
Sales promotions
Higher purchases prices not passed on to customers
Change in mix of goods sold
Higher cost of sales
Answer: B. $3330
Answer: D. the introduction of capital by the owner

10
466
11
467
Answer:
Answer:
12
468
Answer: (c) It shows the profit earned for each $100 used in the business
Or
It shows how efficiently the capital is being employed
Profit received as a % of capital employed
(d)
(e)
13
469
Answer: (f) Siegfried started charging depreciation on non-current assets

Siegfried wrote off more bad debts this year
Increase in other expenses
Decrease in other income
(g) Easier/quicker/used to prepare financial statements/calculate profit

Helps to check accuracy/arithmetic errors or detect/locate errors
Helps to prevent fraud
Easy reference
Balances are more easily available
More detail available in income statement
Easier to calculate accounting ratios/measure performance
Cheaper accountancy fees
Maintains the principle of duality
14
470
IGCSE
Accounting
Stock Control
and NRV
471 1
472 2
Answer:
473 3
Answer:
Answer: To set prices OR to compare the cost of manufacturing with the cost of buying the goods in.
Answer: 4200 + 1800 + 5500 = 11 500
474 4
Answer: A. $24 000
475 5
Answer: (a) Raw materials; work in progress; finished goods/purchased finished goods
(b) Lower of cost and net realisable value
(c)
(d) Business entity
(e) To check for errors and omissions in his books of account

To check the errors in the bank statement
To identify stale cheques
To identify unpresented cheques
To identify amounts not credited
To calculate the correct bank balance in his cash book
To verify the balance in his cash book
To correct/amend his cash book
476 6
Answer: D. $192 000
477 7
Answer: (a) Any two e.g. plant and equipment, factory premises, office premises, delivery vehicle
(b)
(c) Amount received when a non-current asset is sold

Receipt of a loan
Share issue/capital introduced
(d)
(e) Disposal
(f) Consistency
(g) Historical/only deals with the past

Difficulties of definition
Non-financial aspects
Unable to predict future
Doesn’t identify the cause of a problem
478 8
479 9
Answer:
480 10
Answer:
Answer: 30 270/227 000 × 100 = 13.33%

OR
15 270 / 227 000 × 100 = 6.73%
481 11
Answer: Neighbouring shop may sell different mix of goods with a higher gross profit margin.
Neighbouring shop may have different policies for instance for depreciation.
Illustration with figures e.g. if depreciation rate was 10% then net profit margin would be
3.8% higher.
Neighbouring shop controls expenses better.
Neighbouring shop may own premises and avoid rent payment. Illustration with figures e.g.
rent accounts for 10.57% of revenue.
If using profit after interest also allow Neighbouring shop may have more equity/capital and
not have the interest cost.
Illustration with figures e.g. interest amounts to 6.6% of sales.
Answer: Increase selling prices/increase gross profit margin/reduce cost of sales

Reduce expenses/rent cheaper premises
Find cheaper lenders of finance to reduce interest charges
Review depreciation rate – do fixtures only have a life of 3 to 4 years
Turn overdrafts and short term loans into long term loans to reduce interest rate
482 12
483 13
Answer: (a)
(b) Any reasonable answer e.g. Theft, pilferage, damage, obsolescence, more/higher sales
activity.
484 14
485 15
Answer: (a) (i) Cost is the purchase price of the goods plus any additional costs incurred in
bringing the inventory to its present condition and position.
(ii) Net realisable value is the estimated receipts from the sale of the inventory less
any costs of completing or selling the goods.
(b) Inventory should always be valued at the lower of cost and net realisable value
This is an application of the principle of prudence
Over-valuing the inventory causes the profit for the year to be overstated
Over-valuing the inventory causes the current assets to be overstated
486 16
(c)
(d)
(e) Unsatisfied
Or OF based on answer to (d) (ii)
Not selling goods as quickly as previously

OR OF based on answer to (d) (ii)
(f) Reduce inventory levels

Increase sales activity
Only replace inventory when necessary
487 17
488 18
Answer: (a)
(b) This is an application of the principle of prudence

Over-valuing the inventory causes the profit for the year to be overstated
Over-valuing the inventory causes the current assets to be overstated
(c)
489 19
10
Answer:
490 20
11
491 21
Answer: (a) Prudence
(b)
(c) Increase selling price

Reduce trade discount allowed to customers
Reduce purchase price
Find cheaper supplier
Obtain better trade discount
12
Answer: A. carriage inwards
492 22

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All questions are the copyright of Cambridge International Examination Board.

How much cash did Abdul introduce?

Which statement is true?

A Agnes receives money from customers sooner than Brian.

B Agnes pays her suppliers sooner than Brian.

C Brian receives money from customers sooner than Agnes.

D Brian pays his suppliers sooner than Agnes.

Answer: A. Agnes receives money from customers sooner than Brian.

(c) The following account appeared in Andrew’s ledger.

Book of prime (original) entry Source document

Cash book Cheque counterfoil

Book of prime (original)

Cash book Cheque counterfoil

Any two of:

Answer: To avoid multiple entries in the ledger (1)

Answer: Discount allowed (1) Discount received (1)

3 Lamoudi has an accounting year end of 31 December.

Date Details $ Date Details $

….…. ……………..…..………. …..…. ……… ………....…………… …..…..

…….. ……………....……… …..…. ….….. ………..…..………… …..….

….…. ……………....……… …..…. …..…. ………..……..……… …..….

….…. ……………....……… …..…. …..…. ………..……..……… …..….

….…. ……………....……… ……... …..…. ………..……..……… …..….

….…. ……………….……… …..…. …..…. ………..……..……… …..….

Date Details $ Date Details $

1 Apr Bank/Cash 1440 Balance c/d 360

Every transaction has a twofold aspect True

Costs must be matched against related income

Revenue can be recorded before it is earned

Staff expertise can be recorded in the financial statements

Every transaction has a twofold aspect True

Costs must be matched against related income True (1)

Revenue can be recorded before it is earned False (1)

Staff expertise can be recorded in the financial statements False (1)

5 Abdoulaye withdrew $200 from the bank for personal use.

State how this is recorded in the books of account.

Account debited Account credited

Account debited Account credited

Drawings (1) Bank (1)

Date Details $ Date Details $

5 January Invoice To inform Farhad of the quantity of goods

Book of prime (original) entry

Ali sold goods, $250, to

Farhad returned half of the

Farhad paid the amount

Book of prime (original) entry

Ali sold goods, $250, to Sales journal

Farhad returned half of the Sales returns journal

Farhad paid the amount Cash book

7 During February 2015 the following transactions took place.

Transaction Account debited $ Account credited $

Transaction Account debited $ Account credited $

1 Bank 10 000 Loan 10 000

2 Motor vehicles 8 000 Bank 8 000

3 Purchases 300 John 300

8 Kuda Maposa had the following transactions on 31 March 2015.

1 Took goods costing $300 for personal use.

1 …………..……………………………………………… …………….. ……………..

…………..…………………………………………….. …………….. ……………..

…………..…………………………………………….. …………….. ……………..

…………..…………………………………………….. …………….. ……………..

…………..…………………………………………….. …………….. ……………..