CAMBRIDGE INTERNATIONAL AS & A LEVEL ACCOUNTING: TEACHER'S RESOURCE

Exam-style questions and sample answers have been written by the authors. In examinations, the way marks are awarded may
be different.

Coursebook answers
Most of the answers are in ‘outline’ form indicating the appropriate points and skills that learners need
to include in their answers. They provide the necessary guidance to allow learners to develop and extend
the points for a fuller answer that contains the relevant skills. In many instances, there may be other valid
approaches to answering the question.

Chapter 10
Accounting in context
A matter of timing?
Learners’ answers may include:
• Not paying the electricity and telephone bills until next year will make absolutely no difference to
the profit figure. The matching concept requires that profit be based on the expense incurred during a
particular period. Whether the business owner pays the bill or not does not alter the fact that electricity
has been consumed and telephone calls made.
• If the business owner had paid for a full year’s insurance, three months before the end of the year, the
effect would be that the bank balance would be worse than if they had paid monthly. However, the
business owner is wrong in thinking that paying for nine months’ worth of insurance in advance has
damaged their profit figure. The matching concept will demand that the profit be adjusted to reflect the
fact that only three months’ worth of that insurance has been used during the year.
• The only benefit the business owner would get from not paying the bills would be that the business’s
bank balance would be better.

Activities
Activity 10.1
Rent account
Debit Credit
$ $
Various Bank 14 200 1 Apr Balance b/d 3 430
31 Mar Balance c/d 2 180 31 Mar Statement of profit or loss 12 950
16 380 16 380
1 Apr Balance b/d 2 180

Cambridge International AS & A Level Accounting – Hopkins, Malpas, Randall & Seagrove
1 © Cambridge University Press 2021
 CAMBRIDGE INTERNATIONAL AS & A LEVEL ACCOUNTING: TEACHER'S RESOURCE

Activity 10.2
Motor expenses account
Debit Credit
$ $
1 Jan Balance b/d 1 180 31 Dec Statement of profit or loss 9 540
Various Bank 7 605
31 Dec Balance c/d 755
9 540 9 540
1 Jan Balance b/d 755

Activity 10.3
2
Situation 1: Prepayment of  3 × $720 = $480 (January and February have been paid early)
1
Situation 2: Accrual of 3 × $1 140 = $380 (December has been paid late)
1
Situation 3: Prepayment of 6 × $2 730 = $455 (January has been paid early)

Activity 10.4
Rent received account
Debit Credit
$ $
30 Jun Statement of profit or loss 7 375 1 Jul Balance b/d 840
30 Jun Balance c/d 1 725 Various Bank 8 260
9 100 9 100
1 Jul Balance b/d 1 725

Commission received account

Debit Credit
$ $
1 Jul Balance b/d 315 Various Bank 5 120
30 Jun Statement of profit or loss 5 165 30 Jun Balance c/d 360
5 480 5 480
1 Jul Balance b/d 360

Exam-style questions
1 C The payment on 13 April covered February, March and April 2020 and so at 31 March, the first
two months were owing.
2 B June was prepaid at 31 May and as $420 covered 3 months, this represents $140
Total paid 1 510 − prepaid expense $140 = $1 370
3 A Accrued expenses are added (to the expenses) and so would reduce profit, which is over-stated.
Current liabilities are under-stated as this one is missing. Accrued expenses have nothing to do
with current assets so these will not change.

Cambridge International AS & A Level Accounting – Hopkins, Malpas, Randall & Seagrove
2 © Cambridge University Press 2021
 CAMBRIDGE INTERNATIONAL AS & A LEVEL ACCOUNTING: TEACHER'S RESOURCE

4 Statement of profit or loss for Xand for the year ended 30 June 2020
$ $ $
Revenue 320 857
Less: Sales returns (1 709)
319 148
Less: Cost of sales
Opening inventory 18 365
Purchases 217 044
Less: Purchase returns (2 243) 214 801
233 166
Less: Closing inventory (20 170) (212 996)
Gross profit 106 152
Rent received (8 712 – 1 450) 7 262
Discount received 2 301
115 715
Less: Expenses
Discounts allowed 1 754
Motor expenses 17 437
Office expenses (26 759 – 1 100) 25 659
Wages and salaries (64 122 + 3 280) 67 402
Total expenses (112 252)
Profit for the year 3 463

Statement of financial position for Xand at 30 June 2020

$ $
Non-current assets:
Premises 160 000
Motor vehicles 25 600
Office equipment 19 240 204 840
Current assets:
Inventory 20 170
Trade receivables 13 444
Other receivables 1 100 34 714
239 554
Capital at 1 Jul 2019 117 640
Add: Profit for the year 3 463
121 103
Less: Drawings (20 000) 101 103
Non-current liabilities:
Mortgage (repayable 2027) 118 467
Current liabilities:
Trade payables 11 066
Bank overdraft 4 188
Other payables (3280 (3) + 1450 (4)) 4 730 19 984
Total capital and liabilities 239 554

Cambridge International AS & A Level Accounting – Hopkins, Malpas, Randall & Seagrove
3 © Cambridge University Press 2021