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UFPP Accounting Paper 1

29 May 2013 - Cambridge & London
MARK SCHEME

STUDENT'S NAME:
c
Time allowed: 2 hours

For this paper you must have:

a calculator

Instructions

Use black ink or ball-point pen.

Answer all questions.
You must answer the questions in the spaces provided. Do not write outside the box around each page.
Extra paper is available if required.
All workings must be shown and clearly labelled; otherwise marks for method maybe lost.
^4ake and state any necessary assumptions.
Do all rough work in this book. Cross through any work you do not want to be marked.
Electronic dictionaries may not be used.

Information
c > The marks for questions are shown in brackets.
> The maximum mark for this paper is 100.
Four of these marks will be awarded for:
Using good English
Organising information clearly
Using specialist vocabulary where appropriate.
For Examiners Use
IQuestion FTotal marks available First Marker ISecond Marker
1 12
12 21
13 26
14 33
5 8
Total
percentage

Grade

4^-y^ /AJ ^M-^ ^

Question 1 Total for this Question: 12 marks

|Paul Smith has recently started a new gardening business. He has invested £15,000 of his|
)wn personal savings, and borrowed a further £12,000 from his bank, in the form of an overdraft]
if £2,000 and a bank loan for the remaining £10,000.

REQUIRED

1 (a) Explain three reasons why Paul should keep accounting records.

1. To record what has happened in the past (1) and to enable the production of an
income statement (profit and loss account) (1) and a balance sheet (1).

2. To enable the production of forecasts for the future (1), using data from previous
year(s) (1) in order to predict likely future outcomes (1).

3. To monitor actual performance (1) comparing actual events with expected events (1)
and to take corrective action where necessary (1).

4. To enable enough information (1) for HM Revenue and Customs (1) to collect all
amounts due to them in respect of taxes (1).

5. To record amounts due from receivables (debtors) (1) and due to payables (creditors)
(1) and take appropriate action (1).

6. To help reduce the risk (1) of fraud (1) by keeping detailed records maintained by
several individuals (1).

Max 2 marks for each reason.

Max 6 marks
 1 (b) Identify three external stakeholders in Paul's business. State the interest they will have in
the accounting records

(1) Bank (1): to ensure that they are repaid amounts due (1).

(2) Suppliers (1): to check that they will be paid amounts due (1).

(3) Customers (1): to check that they will be supplied with orders made (1).

(4) Government (1): to confirm the amount of taxes due (1).

(5) Local Community (1): to provide jobs in the local area (1).

(6) Trade Unions (1): to ensure that Paul is offering his employees good terms and
conditions (1).

(7) Competitors (1): to compare the performance of their business against Paul's (1).
c (8) Potential Investors (1): to check whether the business is worth investing in (1).

Max 2 marks each stakeholder

1 mark for identification, 1 mark for development.
Max 6 marks

0
Question 2 Total for this question: 21 marks

The cash book of Laura Deen shows a bank overdraft of £6592 at 31 May 2012.
The balance shown on the bank statement at that date does not agree with the balance
shown in the cash book.

The following points are discovered.

(1) A direct debit payment of £147 on 27 May 2012 has not yet been entered in the cash
book.

(2) A cheque payment of £2000 on 29 May 2012 for rent has been entered in the cash|
book but has not yet been presented to the bank.

(3) On 31 May 2012, the bank credited the account with interest of £44. This amount has|
not been entered in the cash book.

(4) A cheque received for a rates refund of £72 on 30 May 2012 has been paid into the
bank and entered in the cash book. The transaction is not shown on the bank|
statement.

(5) A cheque paid on 27 May 2012 appears on the bank statement as £515 but has|
been entered in the cash book as £551.

REQUIRED

2 (a) Make the necessary entries in the cash book of Laura Deen and show the updated balance
at 31 May 2012. Dates are not required.

Cash Book
DR CR
Details £ I Details £
Bank interest 441 [1] I Balance c/d 6592l[1]
Repairs adjustment 361 [2] Direct debit 147 [1]
Balance c/d 6659
6739 6739
6659 [1 OF]
!

* Allow 551 DR and 515 Cr (2)

6 marks
 2 (b) Prepare a bank reconciliation statement for Laura Deen that clearly shows the balance on
the bank statement at 31 May 2012.

Laura Deen
Bank reconciliation statement at 31 May 2012

Balance per cash book (6659)1[10F]

Add: Unpresented cheques 2000 [1]
Less: Outstanding lodgements (72) [1]
Balance per bank statement [1] (4731)1[10F]

5 marks
Alternative:

Laura Deen
Bank reconciliation statement at 31 May 2012
c Balance per bank statement [1] (4731)1[10F]
Less: Unpresented cheques (2000)1[1]
Add: Outstanding lodgements 721 [1]
Balance per cash book (6659)1[10F]

5 marks

2 (c) Explain why Laura Deen's bank may require a copy of her year-end financial statements.

Laura Deen's bank account is overdrawn (1). The bank is a stakeholder (1) and will wish to
consider her profitability (1) and liquidity (1) and thus ensure that their investment is safe
(1) from the perspective of the repayment of capital (1) and the payment of interest (1).
Provide evidence to support application for a bank loan (1). So the bank can provide advice
(1) on improving the financial management of the business (1).
c
Max 4 marks
2 (d) Explain three reasons why it is important to prepare bank reconciliation statements.

Enables missing entries in the cash book to be accounted for (1), preventing errors
in the financial statements (1).
Enables errors in the cash book to be corrected (1), preventing errors in the financial
statements (1).
Enables errors on the bank statement to be investigated (1) and notified to the bank
for correction (1).
• Enables out-of-date cheques to be identified (1) and cancelled in the cash book (1).
Acts as a deterrent to fraud (1) due to the bank statement being an independent
accounting record prepared by the bank (1).

1 mark for identification, 1 mark for development (max 2 marks for each point):

Max 6 marks
Question 3 Total marks for this question: 26 marks

The following information has been extracted from the books of account of Rashid Singh|
for the month December 2012.
£

Sales ledger balances at 1 December 2012 34 748

Purchases ledger balances at 1 December 2012 23 240

Cash purchases 2 769

Cash sales 3110

Credit purchases 12942

Credit sates 15758

Returns from credit customers 360

Returns to credit suppliers 874

Discounts received arising from credit transactions 472

Discounts allowed arising from credit transactions 619

Payment to credit suppliers 1 2 348

Receipts from credit customers 1 8 206

Additional Information

(1) Draper Ltd, a credit customer, has ceased trading. The full balance on their
account of £475 must be written off.

(2) A cheque for £300 paid to a credit supplier has been incorrectly posted
to the debit side of the drawings account.

(3) A cheque for £617 paid to Bristow Ltd, a credit supplier, was returned
unpaid by Rashid's bank. The cheque was in full settlement of an invoice
for £660.

(4) John Moore is both a customer and a supplier. A contra entry must be
processed to clear the balance owing to John Moore of £385.
 3 (a) Prepare a sales ledger control account and a purchases ledger control account for th
month of December 2012.

Sales Ledger Control Account

DR CR
Details £ Details £

Balances b/d 34748 [1] Returns inwards 360 [1]

Sales 15758 [1] Discount allowed 619 [1]
Cash/cheque receipts 18206 [1]
Write off balance 475 [1]
Contra 385 [1]
c Balance c/d 30461

50506 50506

Balance b/d 30461 [1 OF]

8 marks

Purchases Ledger Control Account

DR CR
Details £ Details £

Returns 874 [1] Balance b/d 23240 [1]

Discount received 472 [1] Credit purchases 12942 [1]
c Cheque payments 12348 [1] Returned cheque 617 [1]
Transfer drawings 300 [1] Discount received 43 [1]
Contra 385 [1]
Balance c/d 22463

36842 36842

Balance b/d 22463 [10F]

10 marks
3 (b) Write a memorandum to Rashid, explaining how the balance written off the account of
Draper Ltd should be dealt with in Rashid's financial statements (final accounts).

MEMORANDUM

To: Rashid Singh

From: Student

Date: Date of examination

Subject: Bad debt written off and effect on income statement and balance sheet.

The bad debt written off will appear as an expense (1) in the income statement (1).

The effect on the income statement will be that the profit for the year will be reduced
(1) by £475(1).

On the balance sheet, the trade receivables will be reduced (1) and the current assets
and net assets of the business will also be reduced by the same amount £475 (1).

6 marks

QWC

For quality of written communication

For using good English, spelling, punctuation and grammar (1)
For correct heading (1)
2 marks
 Question 4 Total marks for this question: 33 marks

Chris Jones sells computer equipment. The following balances have been extracted
from his books of account as 31 October 2012.

Bank loan account (repayable July 2013) 3900

Bank overdraft 2820
Capital account at 1 November 2011 38230
Carriage inwards 640
Discounts allowed 410
Discounts received 830
Drawings 12440

c General expenses 11 080

Inventory (Stock) at 1 November 2011 42980
Motor expenses 3480
Motor vehicles - cost 28340
- provision for depreciation at 1 November 2011 14560
Purchases 132050
Rent and rates 17620
Return inwards 580
Revenue (Sales) 246 940
Trade payables (creditors) 19680
Trade receivables (debtors) 22860
Wages and salaries 54480
0
Additional Information

1) Inventory (stock) at 31 October 2012 was valued at £48 250

2) Annual rates of £4020 have been paid for the year ending 31 March 2013

3) The motor vehicle is to be depreciated using the straight-line method over six years.
The estimated residual value of the motor vehicle at the end of the sixth year is £6500.

4) On 31 October 2012 Chris Jones transferred £6000 from his personal savings into the
business bank account. The transaction has not yet been accounted for.

5) A bad debt of £290 was to be written off as at 31 October 2012.

6) Wages and salaries of £1430 for the week ended 31 October 2012 have not yet been paid.
4 (a) Prepare an income statement (trading and profit and loss account) for Chris Jones for the
year ended 31 October 2012.
Chris Jones
Income Statement (Trading and profit and loss account)
for the year ended 31 October 2012**
£ £
Revenue (Sales) 246 940
Less: Returns inwards 580
246360l[1]
Cost of sales **
Opening inventory (stock) 42980l[1]
Purchases 132050]}
Carriage inwards 6401 }[1 for both]
175 670 i
Less: closing inventory (stock) 48250l[1] 127 420!L
Gross profit ** 118940 [1 OF]
Add: Discount received 830 [1]
119770
Less: expenses
Discounts allowed 410l[1]
General expenses 11 080 }
Motor expenses 3 4801} [1 for both]
Rents and rates W1 15945l[2]
Wages and salaries W2 55910l[2]
Depreciation W3 3 6401 [2]
Bad debt written off 290 [1] 90755
Profit (net profit) (for the year) ** 29 0151 [10F]

Workinfls

W1 Rents and rates 17 620 (1)-1 675(1) =15 945

W2 Wages and salaries 54480(1)+1 430(1) =55 910
W3 Depreciation (28 340 - 6 500) /6= 3 640 (2 or 0)

QP mark for correct headings, plus two out of three correct labels (**)
16 marks
(for quality of presentation: plus 1 mark)
Markers' Notes

Accept rent and rates £19 295 (1) (based on 17620 + 1 675)
Accept wages and salaries £53 050 (1) (based on 54 480 - 1 430).
Do not reward headings which contain abbreviations.
The cost of sales label could appear immediately before the gross profit. Accept cost of
goods sold instead of cost of sales.
If carriage inward appears in the profit and loss section, treat as an alien and do not reward
net profit figure.
r

4 (b) Prepare a balance sheet for Chris Jones at 31 October 2012.

Chris Jones
Balance Sheet at 31 October 2012
£ £
Non-current (fixed) assets #
Motor vehicle cost 28340l[1]
Less: provision for depreciation 18200 [10F] 10140

Current assets #
Inventory (stock) 48250l[1]
Trade receivables (debtors) W1 22 5701 [20F]
Prepayments 1 675 [10F]
Bank W2 3180l[20F]
I

75675

( Current LiabNitjes #
Trade payables (creditors) 19680l[1]
I
Accruals 1 430 [1]
Bank Loan (repayable July 2013) ** 3900 [1]
25010
Net current assets/working capital # 50665

Net assets 60805

Capital account/ Financed by/ Represented by #

Balance at 1 November 2011 38230i[1]
Capital Introduced 6000i[1]
Profit (net profit) for the year 29015|[10F]
73245
Deduct: drawings 12440l[1]
I
60805

W1 Trade receivables 22 860 (1) - 290 (1) = 22 570

W2 Bank (2820) (1) + 6000 (1) = 3180
(ie 1 mark for showing bank overdraft of £2820)
'* No marks if bank loan is shown as a non-currency liability
Quality of presentation mark for any four (#) correct labels.
f 15 marks} (forciyality of presentation: 1 mark)
Markers' Notes
Capital Introduced should be shown separately. Award 1 mark if capital is shown as
30 440 with no workings; award 2 marks for 30 440 if this is supported by workings.
The figures for accruals/prepayments must be those used in task (a) for own figure marks.
Trade receivables alternative answer; 23 150 (1) (ie 22 860 + 290)
Bank alternative answer: overdraft 8 820 (1) (ie original overdraft 2820 and 6 000)
If two bank accounts shown (ie original overdraft 2820 and a positive bank balance of 6000)
award 1 mark.
Question 5 Total marks for this question: 8 marks

Explain the meaning of the following terms

5 (a) Accrued expenses

Business expenses consumed but unpaid at the end of the financial period (1): shown as a
current liability (1), reduces profit (1)
Max 2 marks

5 (b) Prepaid expenses

An expense that has been paid in advance which relates to the next accounting period (1);
shown as a current asset (1), increases profit (1)
Max 2 marks

5 (c) Non-current (fixed) assets

Resources (assets) held for more than one financial year (1) with a view to generating
profits for the business (1). Resources not purchased primarily for resale (1).

Markers' note

Accept resources purchased to benefit businesses (1).

Accept resources purchased to benefit business or generated profits/income (1) as long as
candidate also clarifies time period (more than one year) (1); if candidate only
mentions the idea of benefit to business/generating profit but does not give the time
period award 0 marks
• No marks awarded for examples
'Things owned by the business' (0)
Do not accept long term in place of more than 1 financial year.

Max 2 marks

5 (d) Current assets

Resources (assets) that are intended to be turned into cash (1) within the next twelve
months (1).
Max 2 marks
Markers' Notes

No marks awarded for examples

'Things owned by the business' (0)
Do not accept short term in place of less than 12 months.
Accept resources purchased to benefit business or generated profits/income (1) as long as
candidate also clarifies time period (less than one year) (1); if candidate only
mentions the idea of benefit to business/generating profit but does not give the time
period award 0 marks.