5

2 Sandbury Products owned two motor vehicles on 1 April 2017: Motor vehicle A and Motor
vehicle B.

The following information relates to the motor vehicles for the year ended 31 March 2018.

$
1 April 2017 Balances
Motor vehicles account (at cost) 30 000
Provision for depreciation motor vehicles account 10 800

30 June 2017 Sale of Motor vehicle B

Cost 14 000
Accumulated depreciation 5 040
Sold on credit to X Garage 9 500

1 July 2017 Purchase of Motor vehicle C

Cost 18 000

Additional information

1 Motor vehicles are depreciated at the rate of 20% per annum using the diminishing (reducing)
balance method.

2 No depreciation is charged in the year of disposal.

3 A full year’s depreciation is charged in the year of purchase.

REQUIRED

(a) Explain the meaning of the term ‘depreciation’.

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

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

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

...............................................................................................................................................[2]

(b) State two causes of depreciation of a motor vehicle.

1 .................................................................................................................................................

2 .................................................................................................................................................
[2]

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 6

(c) Calculate the profit or loss on the sale of Motor vehicle B.

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

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

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

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

...............................................................................................................................................[1]

(d) Prepare journal entries to record the sale of Motor vehicle B. Narratives are not required.

General Journal

Debit Credit
$ $

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

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

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

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

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

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

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

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

[6]

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 7

(e) Calculate the depreciation to be charged on motor vehicles for the year ended
31 March 2018.

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

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

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

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

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

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

...............................................................................................................................................[3]

(f) Complete the table by placing a tick (3) to show whether each of the following is capital
expenditure, a capital receipt, revenue expenditure or a revenue receipt.

capital capital revenue revenue

expenditure receipt expenditure receipt
proceeds from sale of Motor
vehicle B
purchase of Motor vehicle C
insurance for Motor vehicle C
[3]

Sandbury Products owns other types of non-current assets.

REQUIRED

(g) State the method which would be most appropriate for depreciating each of the following.

(i) Buildings

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

(ii) Loose tools

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

(iii) Computers

...........................................................................................................................................
[3]

[Total: 20]

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2 The following information relates to the machines of Crosby Packing.

1 January 2014 Purchased Machine A for $12 000

30 September 2015 Purchased Machine B for $16 000
30 June 2016 Disposed of Machine A and received a cheque for $7500.

Crosby Packing’s depreciation policy is as follows:

(i) Machines are depreciated at the rate of 20% per annum using the straight-line method.
(ii) Depreciation charge in the year of purchase or sale is based on months of ownership.

REQUIRED

(a) State two advantages of the straight-line method.

1 ................................................................................................................................................

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

2 ................................................................................................................................................

...................................................................................................................................................
[2]

(b) Complete the table to show the depreciation charged in each of the two years ended
31 December 2015 and 31 December 2016.

Year ended Machine A Machine B Total for year

$ $ $
31 December 2015

31 December 2016

Workings:

[4]
© UCLES 2017 7110/21/O/N/17 [Turn over
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(c) Prepare the provision for depreciation of machinery account for the years ended
31 December 2015 and 31 December 2016. Start with the total depreciation on 1 January 2015.
Balance the account at the end of each year and bring down the balance on 1 January.

Provision for depreciation of machinery account

Date Details $ Date Details $

[6]

(d) Prepare the disposal account.

Disposal account

Date Details $ Date Details $

[3]
© UCLES 2017 7110/21/O/N/17
 7

(e) Explain the term ‘revenue receipt’.

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

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

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

...............................................................................................................................................[2]

(f) Complete the table by placing a tick (3) to show whether each of the following is capital
expenditure, revenue expenditure, capital receipt or revenue receipt.

Capital Revenue Capital Revenue

expenditure expenditure receipt receipt
1. Received a cheque on
sale of machine

2. Replaced broken
machine part

3. Installed a machine

[3]

[Total: 20]

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2 Zamir is in business providing legal services. Zamir provided the following balances from his
books of account at 31 December 2020.

$
Fee income 151 750
Rent and rates 26 000
Salaries 55 000
Stationery and advertising 6 450
Electricity 8 000
Bank charges 4 100
Office equipment – cost 60 000
Office equipment – provision for depreciation 22 500
Proceeds of disposal of office equipment 1 000
Bank overdraft 7 900
Trade receivables 15 600
Capital 57 000
Drawings 65 000

Additional information

1 The annual rent is $16 000. On 31 December 2020 rent was paid to cover the period from
1 January to 31 March 2021.
There was no accrual or prepayment of rent at 1 January 2020.

2 Rates of $6000 were paid during the year to 31 December 2020. This payment covered the
period 1 January 2020 to 31 October 2020 only. From 1 November 2020 annual rates were
$7560.

3 Depreciation is to be charged on office equipment at 15% per annum using the straight-line
method. No depreciation is charged in the year of disposal.

4 In February 2020 office equipment was sold for $1000. This equipment had been purchased
for $1800 on 1 January 2018. The sales proceeds have been debited to the bank account
and credited to the proceeds of disposal of office equipment account. No other entries have
been made in respect of the disposal.

5 One of Zamir’s clients has become bankrupt. The client owed $1885. Zamir does not expect
to recover this amount.

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REQUIRED

(a) Prepare Zamir’s income statement for the year ended 31 December 2020.

Zamir
Income Statement for the year ended 31 December 2020
$ $

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

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

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

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

[10]

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(b) Prepare the assets section of Zamir’s statement of financial position at 31 December 2020.

Zamir
Statement of Financial Position (assets section) at 31 December 2020

$ $ $

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

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

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

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[3]

(c) Suggest two possible reasons why Zamir required a bank overdraft.

1 ................................................................................................................................................

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

2 ................................................................................................................................................

...................................................................................................................................................
[2]

© UCLES 2021 0452/22/F/M/21

 9

Zamir employs Sharif, who is another lawyer. Sharif also keeps the books of account for the
business. Zamir would like to ensure that Sharif does not leave to start work for a rival legal
business.

REQUIRED

(d) Advise Zamir whether he should offer Sharif an increase in salary or invite him to become a
partner in the business. Justify your answer with two advantages of each course of action.

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

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

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

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

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

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

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

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

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

............................................................................................................................................. [5]

[Total: 20]

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3 Sadia runs a secretarial agency. Her financial year ends on 30 September.

She provided the following information.

$
At 1 October 2017

Office equipment at cost 26 000

Provision for depreciation of office equipment 9 360
Office furniture at valuation 11 100
Rent prepaid to 30 November 2017 190
Fees owing from clients 2 880
Provision for doubtful debts 144

During the year ended 30 September 2018

Receipts
Fees from clients 42 100

Payments
Wages 29 800
Advertising for 15 months to 31 December 2018 3 150
Rent for 12 months to 30 November 2018 1 200
General expenses 1 775
Office furniture 1 450

Additional information

1 At 30 September 2018 fees owing by clients amounted to $3120.

2 Office equipment is depreciated at 20% per annum using the reducing (diminishing) balance
method.

3 Office furniture is depreciated using the revaluation method. The office furniture was valued
at $11 400 on 30 September 2018.

4 The provision for doubtful debts is to be maintained at the same rate as the previous year.

5 Cash, $3500, taken by Sadia during the year for personal use, was debited to the wages
account.

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 13

REQUIRED

(a) Prepare the income statement for the year ended 30 September 2018.

Sadia
Income Statement for the year ended 30 September 2018

$ $

…………………………………………………………… ………………… …………………

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[13]

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(b) Name three items which may appear in the income statement of a trading business but which
would not appear in Sadia’s income statement.

1 ................................................................................................................................................

2 ................................................................................................................................................

3 ........................................................................................................................................... [3]

(c) Suggest two reasons why Sadia’s bank manager would be interested in her financial
statements.

1 ................................................................................................................................................

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

2 ................................................................................................................................................

.............................................................................................................................................. [2]

(d) Name two other interested parties who may wish to see Sadia’s financial statements.

1 ................................................................................................................................................

2 ........................................................................................................................................... [2]

[Total: 20]

© UCLES 2018 0452/21/O/N/18