LCCI International Qualifications

Book Keeping & Accounts Level 2

Model Answers
Series 4 2010 (2007)

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Book Keeping & Accounts Level 2

Series 4 2010

How to use this booklet Model Answers have been developed by EDI to offer additional information and guidance to Centres, teachers and candidates as they prepare for LCCI International Qualifications. The contents of this booklet are divided into 3 elements: (1) (2) Questions Model Answers reproduced from the printed examination paper summary of the main points that the Chief Examiner expected to see in the answers to each question in the examination paper, plus a fully worked example or sample answer (where applicable) where appropriate, additional guidance relating to individual questions or to examination technique

(3)

Helpful Hints

Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success. EDI provides Model Answers to help candidates gain a general understanding of the standard required. The general standard of model answers is one that would achieve a Distinction grade. EDI accepts that candidates may offer other answers that could be equally valid.

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2007/4/10MA

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QUESTION 1 The following balances appeared in the books of David Flynn on 30 June 2010: Debtors Creditors Cash Bank (Dr) Motor vehicle at cost Provision for depreciation on motor vehicle Capital Purchases Sales Wages and salaries General expenses Returns inwards Returns outwards Premises Stock Discount allowed Discount received 22,544 19,960 1,620 17,312 16,400 8,200 254,000 176,566 382,010 64,012 110,200 1,296 752 240,000 15,042 718 988

When the Trial Balance was prepared it did not agree. The difference was posted to a Suspense Account before the final accounts were prepared. REQUIRED (a) Calculate the balance on the Suspense Account, clearly stating whether it is a debit or a credit (trial balance is not required). (6 marks) The following errors were subsequently discovered: (1) (2) (3) (4) 140 discount, given by a supplier, was correctly entered in the supplier's account but entered in the Discount Allowed column of the Cash Book. The Sales Day Book had been over-cast by 1,760. A purchases invoice from M Bird for 330 had been entered in the Purchases Day Book as 303. A credit note for 640, issued to customer P Scott, had been posted to the wrong side of her account.

REQUIRED (b) (c) Prepare the Journal entries to correct (1) to (4) above. Narratives are not required. Prepare the Suspense Account to account for the journal entries. (11 marks) (5 marks)

REQUIRED (d) Name three types of errors that would not be revealed by the Trial Balance. (3 marks) (Total 25 marks)

2007/4/10/MA

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MODEL ANSWER TO QUESTION 1 (a) Total credit balances Total debit balances Suspense Account balance 665,910 665,710 200

Dr (6 marks)

(b) Suspense Discount allowed Discount received Sales Suspense Purchases M Bird Suspense (2 x 640) P Scott (2 x 640) (c)

DR 280

CR 140 140

1,760 1,760 27 27 1,280 1,280 (11 marks) Suspense Account

2010 Jun 30 Jun 30 Jun 30 Jun 30 Difference Discount allowed Discount received P Scott

200 140 140 1,280 1,760

2010 Jun 30 Sales

1,760

1,760

(d) [1] [2] [3] [4] [5] [6] Omission of entries Commission Principle Reversal of entries Original entry Compensating

2007/4/10/MA

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QUESTION 2 Jane Lee maintains double-entry records; she has supplied the following information: Creditors at 30 June 2009 Debtors at 30 June 2009 33,000 63,620 Creditors at 30 June 2010 Debtors at 30 June 2010 ? ?

Additional information for the year ended 30 June 2010: Cash received from debtors Cash sales Credit sales Cash paid to creditors Discount allowed Discount received Cash purchases Sales ledger contra/Purchases ledger contra Credit purchases Returns inwards Returns outwards REQUIRED (a) Prepare for the year ended 30 June 2010 the: (i) (ii) Sales Ledger Control Account Purchases Ledger Control Account. (9 marks) (9 marks) 438,000 83,800 462,654 216,940 3,800 1,490 52,200 5,000 228,490 1,000 3,000

The Purchases Ledger balances at 30 June 2010 were: Supplier A Supplier B Supplier C REQUIRED (b) Reconcile the balance on the Purchases Ledger Control Account with the total balance of the Purchases Ledger. (2 marks) Suggest five reasons why there may be a difference between the Purchase Ledger balances and a Ledger Control Account balance. (5 marks) (Total 25 marks) 9,550 14,610 10,900

(c)

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MODEL ANSWER TO QUESTION 2 Sales Ledger Control Account (a) (i) Balance b/d Credit sales 63,620 462,654 Cash Discount allowed Purchases ledger contra Returns in Balance c/d 438,000 3.800 5,000 1,000 78,474 _______ 526,274

Balance b/d (ii)

_______ 526,274 78,474

Purchases Ledger Control Account 216,940 1,490 5,000 3,000 35,060 261,490 33,000 228,490

Cash Discounts received Sales ledger contra Returns out Balance c/d

Balance b/d Credit purchases

_______ Balance b/d 261,490 35,060

(b)

Purchases Ledger balances Supplier A Supplier B Supplier C

9,550 14,610 10,900 35,060

Balance per Purchases Ledger Control Account Credit balance 35,060 35,060

(c) 1. 2. 3. 4. 5. 6. 7. Errors in the Control Account or Ledger Accounts The source records are incorrect, eg the Day Book or Cash Book might have been added up incorrectly. Adjustments have been posted to the ledger accounts but not to the control account, eg a bad debt might have been written off in a customer's ledger account but not included in the control account. The control account has been sub-totalled incorrectly. Entries could have been omitted or posted incorrectly to an individual ledger account. Individual ledger accounts have been incorrectly sub-totalled. The list of ledger balances might be incomplete, i.e. one or more of the individual balances have been omitted from the list.

2007/4/10/MA

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QUESTION 3 Leon and Alan are in partnership sharing profits and losses in the ratio 3:2 respectively. The following Trial Balance was extracted from their books at 31 October 2010: Dr Premises Motor vehicles, at cost Plant and machinery, at cost Fixtures and fittings, at cost Capital at 1 November 2009: Leon Alan Drawings: Leon Alan Rent Salaries Carriage in Carriage out Returns in Purchases Sales Insurance Light and heat Debtors Creditors General expenses Motor vehicle expenses Bad debts Provision for doubtful debts at 1 November 2009 Discount received Discount allowed Interest on bank loan Bank loan Bank Telephone expenses Stock at 1 November 2009 Provisions for depreciation 1 November 2009: motor vehicles plant and machinery fixtures and fittings 600,000 100,000 160,000 36,000 326,000 418,000 77,000 39,400 56,000 202,000 9,400 17,900 19,000 1,218,000 2,010,000 18,600 15,600 252,000 182,000 30,700 19,800 3,600 7,400 3,600 16,600 7,500 150,000 133,900 16,000 135,800 20,000 60,600 7,200 3,184,800 Cr

3,184,800

2007/4/10/MA

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QUESTION 3 CONTINUED The following additional information was made available at 31 October 2010: (1) (2) Stock was valued at 117,800. Accrued expenses were: Salaries Interest on loan Motor vehicle expenses Telephone Light and heat Prepaid expenses were: Rent Insurance 2,000 7,500 1,200 1,100 900 8,000 100

(3)

(4)

Depreciation is to be provided at the following rates using the straight line method: Motor vehicles Plant and machinery Fixtures and fittings 20% per annum 15% per annum 10% per annum

(5) (6) (7) (8)

The Provision for doubtful debts is 2% of debtors. Alan is to receive a salary of 50,000. The partners are to receive interest on capital at the rate of 5%. There were no balances on the partners' current accounts at 1 November 2009.

REQUIRED Prepare for the year ended 31 October 2010, the: (a) (b) Trading, Profit & Loss and Appropriation Account. Partners' Current Accounts. (20 marks) (5 marks) (Total 25 marks)

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MODEL ANSWER TO QUESTION 3 (a) Leon and Alan Trading, Profit & Loss and Appropriation Account for the year ended 31 October 2010 Sales Less Returns in Less: Cost of goods sold Opening stock Purchases Carriage in Less: Closing stock Gross Profit Discount received Provision for doubtful debts Less: Expenses Rent Salaries Carriage out Insurance Light and heat General expenses Motor vehicle expenses Bad debts Discounts allowed Telephone expenses Loan interest Depreciation: Motor vehicles Plant and machinery Fixtures and fittings Net profit Less: Salary: Alan Interest on capital: Leon (326,000 x 5%) Alan (418,000 x 5%) 2,010,000 19,000 1,991,000 135,800 1,218,000 9,400 1,363,200 117,800 1,245,400 745,600 (7,400 - 5,040) 3,600 2,360 5,960 751,560 48,000 204,000 17,900 18,500 16,500 30,700 21,000 3,600 16,600 17,100 15,000 20,000 24,000 3,600

(56,000 - 8,000) (202,000 + 2,000) (18,600 - 100) (15,600 + 900) (19,800 + 1,200)

(16,000 + 1,100) (7,500 + 7,500)

47,600 456,500 295,060 50,000

16,300 20,900 37,200 87,200 207,860

Share of profit: Leon (207,860 x 3/5) Alan (207,860 x 2/5)

124,716 83,144 207,860

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QUESTION 3 CONTINUED (b) Leon Drawings Bal c/d 77,000 64,016 ______ 141,016 Alan 39,400 114,644 ______ 154,044 Interest on capital Salary Profit Bal b/d Current Accounts Leon 16,300 124,716 141,016 64,016 Alan 20,900 50,000 83,144 154,044 114,644

2007/4/10/MA

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QUESTION 4 Jack Briars, a clothing retailer, valued his stock on 30 June 2009 at 71,600. All his goods are sold at a mark-up of 20%. On reviewing the results of the stock-take, the following adjustments need to be made: (1) (2) (3) (4) (5) (6) (7) On 10 May, 2009, goods costing 4,600 were sent on a sale or return basis to a customer. On 7 July, the customer returned all the goods to Jack Briars. Some shoes, with a sales value of 240, were proving unpopular. It was decided to sell them at half the cost price. A pair of trousers, with a selling price of 90, had been omitted from the stock records. A total of one stock sheet, of 6,400, had been carried forward to the next stock sheet as 4,600. Several dresses, with a total selling price of 3,600, were out of fashion and unsaleable. Twenty shirts had been included at their selling price of 24 each. Three tops, costing a total of 120, were shop soiled and would need to be sold for 30 each.

REQUIRED (a) Commencing with the original stock value of 71,600 at 30 June 2009, calculate the revised value of stock at that date. (21 marks)

When Jack carried out his next stock take at 30 June 2010, he discovered that 4,000 worth of stock at cost had been stolen. He is insured for theft, by the Premier Insurance Company REQUIRED (b) Show the Journal entries to record the claim. Note: Narratives are not required. (4 marks) (Total 25 marks)

2007/4/10/MA

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MODEL ANSWER TO QUESTION 4 (a) Original stock value at 30 June 2009 Add (1) (2) (3) (4) (5) (6) (7) Sale or return Shoes Trousers Stock sheet Dresses Shirts Tops 240 x 100 = 200 x 50% = 100 120 90 x 100 = 75 120 6,400 - 4,600 = 1,800 3,600 x 100 = 3,000 120 20 x 24 = 480 x 20 = 80 120 120 - (3 x 30) = 30 6,475 Net adjustment to original stock value Revised stock value at 30 June 2009 Dr Premier Insurance Company Stock Loss Account Bank/Cash Account Premier Insurance Company 4,000 4,000 4,000 4,000 Cr 4,600 100 75 1,800 3,000 80 30 3,210 3,265 _____ 74,865 Deduct 71,600

(b)

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QUESTION 5 Sue Ball prepares accounts on 31 October and 30 April of her accounting year. The following information was extracted from her records: Light and Heat Account 1 May 2009 Paid in advance 230 12 August 2009 13 December 2009 14 April 2010 3 months to 31 October 4 months to 28 February 3 months to 31 May 370 360 378

The following payments were made:

At 30 April 2010, 180 was paid in advance. Rates Account 1 May 2009 3 months rate prepaid 1,200 27 September 2009 20 January 2010 Rent Receivable Account A tenant paid rent of 6,000 per quarter, three monthly in advance, on 1 July 2009, 1 October 2009, 1 January 2010 and 1 April 2010. REQUIRED (a) Prepare and balance the following accounts at 31 October 2009 and 30 April 2010, clearly showing the transfers to the Profit & Loss Account. (i) (ii) (iii) (b) Light and Heat Account Rates Account Rent Receivable Account. (3 marks) (7 marks) (10 marks) 3 months rates 3 months rates 1,200 1,200

The following payments were made:

Prepare a Balance Sheet extract for Sue Ball, showing both the accruals and prepayments, at 30 April 2010. (5 marks) (Total 25 marks)

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MODEL ANSWER TO QUESTION 5 (a) (i) Balance b/d Bank Bank Bank Balance b/d Light and Heat Account 230 370 600 360 378 738 180 Oct 31 09 Apr 30 10 Apr 30 10 P & L A/c P & L A/c Balance c/d 600 600 558 180 738

May 1 09 Aug 12 09 Dec 13 09 Apr 14 10 May 1 10 (a) (ii)

Rates Account Balance b/d Bank Bank Balance c/d 1,200 1,200 2,400 1,200 1,200 2,400 Oct 31 09 P & L A/c 2,400 2,400 Apr 30 10 May 1 10 P & L A/c Balance b/d 2,400 2,400 1,200

May 1 09 Sep 27 09 Jan 20 10 Apr 30 10

(a)

(iii)

Rent Receivable Account Jul 1 09 Oct 31 09 Nov 1 09 Jan 1 10 Apr 1 10 Bank Bank Balance b/d Bank Bank Balance b/d 6,000 6,000 12,000 4,000 6,000 6,000 16,000 4,000 P & L A/c Balance c/d [W1] P & L A/c Balance c/d [W2] 8,000 4,000 12,000 12,000 4,000 16,000

Oct 31 09 Oct 31 09 Apr 30 10 Apr 30 10

[W1] [W2] (b)

May 1 10 2 months (Nov and Dec) x 2,000 = 4,000 2 months (May and June) x 2,000 = 4,000

Sue Ball Balance Sheet Extract at 30 April 2010 180

Current Assets Prepayment: Light and Heat Creditors: amounts falling due within one year Accrual: Rates Prepayment: Rent receivable

1,200 4,000

5,200

2007/4/10/MA

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