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Classified Past Paper Questions Booklet B

This document provides information about accounting for bad and doubtful debts. It includes sample questions about preparing sales ledger control accounts, journal entries to record debt settlements, and calculating provisions for doubtful debts based on the age of outstanding balances.

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0% found this document useful (0 votes)

29 views

Classified Past Paper Questions Booklet B

Uploaded by

waseemakhlaque

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

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ACCOUNTING (O LEVEL)

PAST PAPERS’ CLASSIFIED QUESTIONS

7110/7707 (Paper 2)
Booklet B
For 10C (O2)

Compiled by: WASEEM AKHLAQUE

MBA(FINANCE), B.Com
O & A Level Senior Teacher
Compiled By: WASEEM AKHLAQUE 1
Table of Contents

BAD AND DOUBTFUL DEBTS ............................................................................................................................... 3

STOCK VALUATION AND NET REALIZABLE VALUE .................................................................................... 13
ADJUSTED FINAL ACCOUNTS (SOLE TRADER) ............................................................................................. 19
RATIO ANALYSIS .................................................................................................................................................. 69
CONTROL ACCOUNTS ....................................................................................................................................... 140
CORRECTION OF ERRORS ................................................................................................................................ 151

Compiled By: WASEEM AKHLAQUE 2

BAD AND
DOUBTFUL
DEBTS
(IRRECOVERABLE DEBTS AND
PROVISION FOR DOUBTFUL DEBTS)

Compiled By: WASEEM AKHLAQUE 3

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

..................................................................................................................................... [4]
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(b) State two reasons why Andrea prepares a sales
4 ledger control account.

1 2 1 .......................................................................................................................................
Andrea prepares a sales ledger control account. At 30 September 2011 the following For
information is available: Examiner’s
.......................................................................................................................................... Use
$
Trade receivables at 1 October 2010 25 000
2 .......................................................................................................................................
Credit sales for year 80 000
Receipts from credit customers for year 75 000
..................................................................................................................................... [4]
Trade receivables at 30 September 2011 30 000
On 30 September 2011, after preparing the sales ledger control account Andrea was advised
REQUIRED
that Keira is unable to pay the whole of her debt, $2500.

(a) accepted
Andrea Prepare the sales
$500 ledger
in full control account
settlement and the for the year
balance of ended 30was
the debt September
written 2011.
off.

Andrea
Sales Ledger Control account

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

..................................................................................................................................... [4]

(b) State two reasons why Andrea prepares a sales ledger control account.

1 .......................................................................................................................................
© UCLES 2011 7110/22/O/N/11
..........................................................................................................................................

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

..................................................................................................................................... [4]

On 30 September 2011, after preparing the sales ledger control account Andrea was advised
that Keira is unable to pay the whole of her debt, $2500.

Andrea accepted $500 in full settlement and the balance of the debt was written off.

Compiled By: WASEEM AKHLAQUE 7110/22/O/N/11

REQUIRED For
Examiner’s
(c) Prepare the journal entry to record the transactions on 30 September 2011. A narrative Use

is not required.

Journal
Dr Cr
$ $

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

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

Andrea carried out a review of her remaining trade receivables before preparing her financial
statements. The following information relating to her debtors was available:

Analysis of balances
$ Age of debt
George 11 500 One month
Ranjula 9 500 Two months
Harry 5 000 Four months
Trupti 1 500 Eight months
27 500

Andrea has the following policy for calculating the provision for doubtful debts:
Age of debts %
Up to 3 months 2
3–6 months 10
Over 6 months 20

REQUIRED

(d) Calculate the value of the provision for doubtful debts at 30 September 2011.

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

..................................................................................................................................... [4]

Compiled By: WASEEM AKHLAQUE 5

(e) On 1 October 2010 the balance of the provision for doubtful debts account was $1300. For
Examiner’s
Prepare the provision for doubtful debts account for the year ended 30 September 2011. Use

Bring down the balance on 1 October 2011.

Andrea
Provision for doubtful debts account

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

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

(f) Name two accounting principles which Andrea is applying by maintaining a provision for
doubtful debts.

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

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

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

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

[Total: 20]

Compiled By: WASEEM AKHLAQUE 6

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4

2 2 Raja supplied the following information relating to her trade receivables before the preparation For
of the income statement for the year ended 31 May 2013. Examiner’s
Use

1 31 May 2012 31 May 2013

$ $
Trade receivables 18 800 19 200
Provision for doubtful debts 940 ?

2 The following accounts are to be written off as bad debts.

$
R B Brown 502
L Wong 90
P Singh 288

3 The provision for doubtful debts is maintained at 5% of trade receivables.

REQUIRED

(a) Prepare the provision for doubtful debts account for the year ended 31 May 2013.
Balance the account and bring the balance down on 1 June 2013.

Provision for Doubtful Debts account

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

...................................................................................................................................... [6]

(b) Indicate with a tick (✓) the effect a reduction in the provision for doubtful debts would
have on the following:

Increase Decrease No effect

Gross profit
Profit for the year
Trade receivables
[3]

Compiled By: WASEEM AKHLAQUE 7110/21/O/N/13

Raja is concerned that her profits have been falling and wishes to stop charging the provision For
for doubtful debts in her income statement. Examiner’s
Use

REQUIRED

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

...................................................................................................................................... [9]

Compiled By: WASEEM AKHLAQUE 8

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

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2 .......................................................................................................................................
4
..........................................................................................................................................
32 Ann buys ..........................................................................................................................................
and sells on credit. She supplied the following information for the month ended For
31 May 2013. Examiner’s
Use
3 .......................................................................................................................................
2013 $
May ..........................................................................................................................................
1 Trade receivables 5 687
31 Credit sales 72 641
Receipts from credit customers 64 500
...................................................................................................................................... [6]
Credit notes issued to customers 8 242
(c) StateCash two sources
discounts of allowed
information for the sales ledger control 1 894account.
Bad debts 800
1 .......................................................................................................................................
Contra entry 300

The sales2journal
.......................................................................................................................................
had been under-cast by $86. A cheque received and banked on 8 May
from John Lee for $2300 had been returned by the bank because of insufficient funds. [2]

Ann was informed that John Lee was unable to pay his outstanding balance of $2300. It
REQUIRED
was agreed that he would pay 40 cents for each dollar owed and he sent a cheque on
26 June 2013 in settlement. The balance was written off as a bad debt.
(a) Prepare the sales ledger control account for the month ended 31 May 2013.
Balance the account at that date and bring the balance down on 1 June 2013.
REQUIRED

Sales
(d) Prepare the general journal ledger
entry control
to write account
off the bad debt. A narrative is required.

..........................................................................................................................................
General Journal
Debit Credit
..........................................................................................................................................
$ $
..........................................................................................................................................
.............................................................................................. ........................ ........................
..........................................................................................................................................
.............................................................................................. ........................ ........................
..........................................................................................................................................
.............................................................................................. ........................ ........................
..........................................................................................................................................
.............................................................................................. ........................ ........................

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........................ ........................
6
..........................................................................................................................................
(e) Advise Ann why she should create a provision for doubtful debts. [3]
For
Examiner’s
..........................................................................................................................................
.......................................................................................................................................... Use

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

..........................................................................................................................................
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.......................................................................................................................................... over

...................................................................................................................................... [9]
..........................................................................................................................................

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

..........................................................................................................................................
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...................................................................................................................................... [6]
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[Total: 26]
7
4
Sofea provided the following information about her trade receivables.

1 On 28 February 2016 Wade Designs, which owed Sofea $5100, was declared bankrupt.
A cheque for $1800 was received. The balance of the debt was irrecoverable.

2 On 29 February 2016 the remaining trade receivables were:

Age of debt Amount Provision for doubtful debts

(Months) $ percentage (%)
Up to 1 month 18 000 2
1 to 3 months 12 200 5
3 to 6 months 3 300 10
Over 6 months 2 200 20
35 700

On 1 March 2015 the provision for doubtful debts account was $2050.

REQUIRED

(e) Prepare the general journal to record the entries for Wade Designs on 28 February 2016.
A narrative is not required.

General journal

Debit Credit
$ $

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

[3]

(f) Calculate the provision for doubtful debts on 29 February 2016.

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

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

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8

(g) Prepare the provision for doubtful debts account for the year ended 29 February 2016.
Balance the account and bring down the balance on 1 March 2016.

Provision for doubtful debts account

Date Details $ Date Details $

[3]

(h) Name one accounting concept applied by Sofea in providing for doubtful debts.

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

[Total: 20]

© UCLES 2016 7110/21/M/J/16

Compiled By: WASEEM AKHLAQUE 11

5
5
On 1 April 2016 the balance on the provision for doubtful debts account was $1900.

Umar maintains a provision for doubtful debts at 5%.

REQUIRED

(c) Prepare the provision for doubtful debts account for the year ended 31 March 2017. Balance
the account and bring down the balance on 1 April 2017.

Provision for doubtful debts account

Date Details $ Date Details $

[4]

(d) Name one accounting concept or principle that supports the use of a provision for doubtful
debts.

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

On 15 April 2017 Umar was advised that Horner, a credit customer who owed $1250, was bankrupt.
Umar received a cheque for $500 in final settlement. The balance was written off as irrecoverable.

REQUIRED

(e) Prepare the journal entry made by Umar to record the bankruptcy of Horner. A narrative is
required.

General journal

Dr Cr
$ $

[4]

[Total: 20]

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Compiled By: WASEEM AKHLAQUE 12

STOCK
VALUATION
AND NET
REALIZABLE
VALUE
Compiled By: WASEEM AKHLAQUE 13
1 Ah Sung has a business buying and selling parts for machines.

You are given the following information about part Q.

At 1 April there were 200 units in stock which cost $3.20 each. In the month of April purchases
were:

April Units Cost per unit

$
5 100 3.20
10 150 3.00
27 100 3.00

At 30 April there were 300 units in stock and the net realisable value of each unit was $3.00.

REQUIRED

Calculate the following for part Q. Show all workings.

(a) The value of stock at 1 April.

[3]

(b) The total cost of purchases for April.

[4]

(c) The value of stock at 30 April.

[3]

Compiled By: WASEEM AKHLAQUE 14

(d) The number of units sold in April.

[4]

(e) The cost of goods sold for the month of April.

Compiled By: WASEEM AKHLAQUE 15

2 Tania Yousaf sells office equipment. She values her inventory at the lower of cost and net realisable
value.

REQUIRED

(a) Explain the meaning of the term “cost”.

(b) Explain the meaning of the term “net realisable value”.

(c) Explain how valuing inventory at the lower of cost and net realisable value is an
application of the principle of prudence.

(d) After the preparation of her financial statements for the year ended 31 December
2011, Tania Yousaf discovered that the closing inventory had been overvalued by
$400.

Complete the table below to show the effect of this.

The first one has been completed as an example.

overstated understated no effect

gross profit for the year ended

(i)
31 December 2011
profit for the year ended 31
(ii)
December 2012
Credit balance on capital
(iii)
account on 1 January 2013
[4]

Compiled By: WASEEM AKHLAQUE 16

3
At 1 October Moma had 200 units of inventory (stock) which had cost $2.80 per unit. In the month
of October her purchases were:

October Units Cost per unit

$
5 100 3.20
10 130 3.10
27 120 2.90

REQUIRED

(b) Calculate the following. Show your workings.

(i) The value of inventory (stock) at 1 October.

[2]

(ii) The total cost of purchases for October.

[6]

(c) Stock is sold in the order in which it is received. At 31 October Moma had 250 units in stock.
The net realisable value of each unit was $3.00.

Calculate the value of inventory (stock) at 31 October.

[5]

Compiled By: WASEEM AKHLAQUE 17

4 Mark Utaka provided the following information about his inventory (stock).

Cost Net realisable value

$ $
Inventory (stock) 1 November 2009 39 000 42 000
Inventory (stock) 31 October 2010 43 000 41 000

REQUIRED

Explain why the inventory (stock) at 31 October 2010 was included in the financial statements
(final accounts) at net realisable value rather than at cost.

After the preparation of the income statement (trading account) for the year ended 31
October 2010 it was discovered that the inventory (stock) on 1 November 2009 had
been included at net realisable value.

REQUIRED

(e) Complete the following table to indicate the effect of this error on the cost of sales, the
gross profit and the net profit for the year ended 31 October 2010.
Place a tick ( ) under the correct heading to indicate whether the items would be
overstated or understated.
Overstated Understated
Cost of sales

Gross profit

Profit for the year (Net profit)

[3]

(f) Explain two ways in which Mark Utaka could improve his rate of inventory (stock)
turnover.
(i)

(ii)

Compiled By: WASEEM AKHLAQUE 18

ADJUSTED
FINAL
ACCOUNTS
(SOLE TRADER)

Compiled By: WASEEM AKHLAQUE 19

Answer Question 5 on the following pages For

Examiner's
15 Sue Searle is in the import business. The following balances were extracted from her books Use

on 31 March 2009.
$
Sales 95 800
Purchases 48 340
Returns outwards 960
Stock at 1 April 2008 10 780
Wages of motor vehicle driver 11 500
Motor vehicle running expenses 6 500
Motor vehicles at cost 20 000
Provision for depreciation of motor vehicle at 1 April 2008 15 000
Premises 60 000
Provision for depreciation of premises at 1 April 2008 12 000
Rent and insurance 7 700
Light and heat 4 950
General and marketing expenses 6 200
Discount received 5 300
Provision for doubtful debts 560
8 % Bank loan repayable 30 June 2011 30 000
Cash 270
Bank overdraft 1 680
Debtors 18 500
Creditors 9 750
Drawings 11 310
Capital at 1 April 2008 35 000
Additional information

1 Stock at 31 March 2009 was valued at $12 600.

2 The motor vehicle is used to bring purchases to the business premises of Sue Searle
and to deliver goods to customers. The motor vehicle is used 20 % of the time to collect
purchases and 80 % to deliver goods to customers.

3 Depreciation is to be charged on the premises at the rate of 2 % per annum on cost

using the straight line method and on the motor vehicle at 20 % per annum using the
diminishing (reducing) balance method.

4 The loan interest is outstanding at 31 March 2009.

5 Insurance, $450, was prepaid at 31 March 2009.

6 Electricity for lighting, $130, was due at 31 March 2009.

7 The provision for doubtful debts is to be maintained at 2 % of debtors.

REQUIRED

(a) Prepare the trading and profit and loss account for Sue Searle for the year ended
31 March 2009. [18]

(b) Prepare the balance sheet of Sue Searle at 31 March 2009. [14]
[Total: 32]

Compiled By: WASEEM AKHLAQUE

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Examiner's
Use

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For
Examiner's
Use

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For
Examiner's
Use

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2
5 The following balances were extracted from the books of Doji, a trader, on For
30 September 2010: Examiner's
Use
$
Ordinary goods purchased (purchases) 70 000
Carriage inwards 3 000
Revenue (sales) 155 000
Sales returns 9 500
Non current (fixed) assets:
Motor vehicles 42 000
Office equipment 26 000
Provisions for:
depreciation on motor vehicles 8 000
depreciation on office equipment 4 000
Provision for doubtful debts 1 000
Salaries 23 750
Rent and rates 6 800
Discount received 5 600
Sundry expenses 14 150
Advertising 6 200
Trade payables (creditors) 18 300
Trade receivables (debtors) 23 000
Inventory (stock) at 1 October 2009 11 500
Bank overdraft 16 000
Capital 40 000
Drawings 12 000

Additional information at 30 September 2010

1 Inventory (stock) was valued at $14 600.

2 During the year Doji took goods costing $1250 for his own use. No entries have
been made in the books.

3 Advertising, $300, was prepaid. Salaries, $2600, were accrued.

4 Depreciation is to be charged as follows:

motor vehicles at the rate of 25% per annum using the diminishing (reducing)
balance method;
office equipment at the rate of 10% per annum using the straight line method.

5 Trade receivables (debtors) include a debt of $4250 which is considered

irrecoverable and is to be written off. The provision for doubtful debts is to be
maintained at 4% of all remaining debts.

6 On 1 April 2010 Doji made a short-term loan, $10 000, to the business. This was
included in error in the capital account. Interest payable at 5% per annum has not
been entered in the books.

REQUIRED

(a) Prepare the income statement (trading and profit and loss accounts) of Doji for the year
ended 30 September 2010. [22]

(b) Prepare the balance sheet of Doji at 30 September 2010. [18]

[Total: 40]
Compiled By: WASEEM AKHLAQUE 24
© UCLES 2010 7110/02/O/N/10 [Turn over
16

For
Examiner's
Use

Compiled By: WASEEM AKHLAQUE 25

For
Examiner's
Use

Compiled By: WASEEM AKHLAQUE 26

For
Examiner's
Use

Compiled By: WASEEM AKHLAQUE 27

© UCLES 2010 7110/02/O/N/10
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2
3
1 Christos is in business buying and selling goods on credit. The following details relate to the For
account of his customer Michelle for the month of July 2011. Examiner’s
Use
$
July 1 Michelle owed Christos 200
July 7 Christos sent an invoice to Michelle 150
July 16 Christos sent a credit note to Michelle 8
July 31 Michelle sent Christos a cheque 195
July 31 Christos allowed Michelle cash discount 5

REQUIRED

(a) Prepare the account of Michelle in the books of Christos. Bring down the balance on
1 August 2011.

Christos
Michelle account

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

..................................................................................................................................... [6]

(b) Name the book of prime entry in which Christos would record the transaction of
16 July 2011.

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

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

The balances on Christos’ books at 31 July 2011 were as follows:

$
Capital ?
Drawings 8 000
Office furniture 5 000
Provision for depreciation on office furniture 3 200
Inventory 4 150
Bank overdraft 250
Trade payables 2 950
Sundry expenses 10 600
Purchases 32 400
Provision for doubtful debts 350
Revenue (sales) 53 750
Trade receivables 6 250
© UCLES 2011 7110/21/O/N/11
Compiled By: WASEEM AKHLAQUE 28
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3

REQUIRED For
Examiner’s
(c) Prepare the trial balance for Christos at 31 July 2011, including the balance on the Use

capital account.

Christos
Trial Balance at 31 July 2011
Dr Cr
$ $

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

..................................................................................................................................... [6]

(d) State the item in the trial balance which would include the balance on Michelle’s account.

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

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

(e) State two differences between a trial balance and a balance sheet.

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

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

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

..................................................................................................................................... [4]

[Total: 18]
Compiled By:2011
© UCLES WASEEM AKHLAQUE 7110/21/O/N/11 29[Turn over
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Answer Question 5 on the following pages. For

Examiner’s
4 5 Jasmine is a retailer of fashion goods. The following balances were extracted from her books Use

on 30 September 2011.

$
Revenue (sales) 210 000
Purchases 113 500
Goods returned by customers 8 120
Goods returned to suppliers 3 400
Inventory at 1 October 2010 9 430
Carriage 1 700
Insurance 5 600
Light and heat 6 300
Staff wages 27 000
Advertising 10 600
General expenses 15 850
Discount received 1 750
Building costs 20 100
Land and buildings at cost 100 000
Fixtures and fittings at cost 18 000
Computer equipment at cost 12 000
Provisions for depreciation:
Fixtures and fittings 7 200
Computer equipment 3 600
Disposal account 200 Cr
7% Bank loan repayable 30 March 2014 20 000
Bank overdraft 18 500
Trade receivables 8 200
Trade payables 26 750
Provision for doubtful debts 500
Drawings 15 500
Capital at 1 October 2010 80 000

Additional information:

1 Inventory at 30 September 2011 was valued at $11 780.

2 The cost of carriage from suppliers was $500, the remainder of the cost related to
the delivery of goods to customers.

3 At 30 September 2011:
Heating expenses, $375, were accrued.
Insurance, $1120, is prepaid.

4 The 7% bank loan was received on 1 April 2011. Interest is payable on each
anniversary of the loan.

5 Buildings costs consists of $16 000 to build an extension to the building and $4100
to repair the heating system.

Compiled By: 2011

6 Depreciation is charged on: For

Fixtures and fittings at the rate of 20% per annum on cost using the straight Examiner’s
line method. Use

Computer equipment at the rate of 30% per annum using the diminishing
(reducing) balance method.

7 A provision for doubtful debts is to be maintained at 5% of trade receivables.

REQUIRED

(a) Prepare the income statement for Jasmine for the year ended 30 September 2011. [24]

(b) Prepare the balance sheet of Jasmine at 30 September 2011. [16]

[Total: 40]

Compiled By: WASEEM AKHLAQUE 31

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

© UCLES 2011 7110/22/O/N/11

Compiled By: WASEEM AKHLAQUE 32
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16

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

© UCLES 2011 7110/22/O/N/11

Compiled By: WASEEM AKHLAQUE 33
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16

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

© UCLES 2011 7110/22/O/N/11

Compiled By: WASEEM AKHLAQUE 34
2
5
1 Yang is a supplier of goods to Win. The following transactions took place in March 2012. For
Examiner’s
2012 Use

March 1 Win owed $3 000 to Yang.

March 17 Win purchased goods from Yang with a list price of $1 000. Yang allowed Win
20% trade discount.
March 20 Win returned goods purchased on 17 March, list price of $200.
March 30 Win informed Yang that he had ceased trading and was unable to pay his debt
in full. Win offered Yang $650 in full settlement, which Yang accepted.

REQUIRED

(a) Prepare the account of Win in the ledger of Yang.

Win account

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

......................................................................................................................................[7]

(b) State the name of the document that Yang would send to Win, following delivery of the
goods returned on 20 March 2012.

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

(d) Yang extracted a trial balance on 31 March 2012.

(i) State one purpose in preparing a trial balance.

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

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

Compiled By: WASEEM AKHLAQUE 35

© UCLES 2012 7110/21/M/J/12

11
6
5 Thien has a retail business. The following balances were extracted from his books at the end For
of his financial year on 31 March 2012. Examiner’s
$ Use

Leasehold property – 25 years (cost) 50 000

Equipment (cost) 54 000
Provisions for depreciation:
Leasehold property 10 000
Equipment 17 000
6% Bank loan repayable 31 December 2015 25 000
Bank 5 150 Dr
Trade receivables 6 750
Trade payables 4 010
Provision for doubtful debts 700
Revenue 78 580
Purchases 18 240
Purchase returns 1 600
Inventory at 1 April 2011 4 690
Equipment repairs 850
Equipment running expenses 2 650
General expenses 8 400
Wages 15 300
Insurance 3 640
Power and water 2 300
Advertising 5 100
Discount allowed 1 650
Discount received 330
Capital at 1 April 2011 50 000
Drawings 8 500

Additional information at 31 March 2012

1 Inventory was valued at $3870.
2 Thien took stock valued at $450 for his own use.
3 Equipment running expenses, $750, were accrued and insurance, $1350, was prepaid.
4 The 6% bank loan was received on 1 December 2011.
5 An appropriate amount is to be written off the lease.
6 The purchase of additional equipment, $10 000, had been omitted from the books.
Payment was $5000 by cheque with the remainder on credit.
7 Equipment is to be depreciated at the rate of 20% per annum using the diminishing
(reducing) balance method.
8 Provision for doubtful debts is to be maintained at 8% of trade receivables.

REQUIRED

(a) Prepare the income statement for the year ended 31 March 2012. [20]

(b) Prepare the balance sheet at 31 March 2012. [20]

[Total: 40]

Compiled By: WASEEM AKHLAQUE 36

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

© UCLES 2012 7110/21/M/J/12

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Compiled By: WASEEM AKHLAQUE 37
13

For
......................................................................................................................................................... Examiner’s
Use

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

For
......................................................................................................................................................... Examiner’s
Use

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

.........................................................................................................................................................
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12
7
5 Su and Li are in partnership sharing profits and losses in the ratio 3:2. Interest is allowed For
on capital at the rate of 5% per annum. Su is entitled to a salary of $15 000 per annum. The Examiner’s
following balances were extracted from the books on 30 April 2012: Use

$
Land and buildings (cost) 200 000
Equipment (cost) 48 000
Fixtures and fittings (cost) 35 000
Provisions for depreciation:
Land and buildings 14 000
Equipment 12 000
Fixtures and fittings 26 000
Revenue 380 000
Inventory at 1 May 2011 53 750
Purchases 170 000
Returns from customers 11 100
Returns to suppliers 8 900
Carriage outwards 6 290
Administration expenses 25 720
Marketing expenses 17 800
Wages and salaries 69 530
Communication expenses 8 900
Loan interest paid 3 600
Building works 24 000
6% Loan repayable 31 December 2020 80 000
Trade receivables 58 000
Provision for doubtful debts 2 500
Trade payables 20 340
Bank deposit 5 000
Bank 9 150 Cr
Capital accounts:
Su 120 000
Li 100 000
Current accounts:
Su 500 Cr
Li 2 700 Dr
Drawings:
Su 20 000
Li 14 000

Additional information

1 Inventory at 30 April 2012, $38 500.

2 The $15 000 salary paid to Su had been posted to the wages and salaries account and
not to her drawings account.

3 Building works consisted of an extension to the building, $20 000, and repairs to the
existing air conditioning, $4000.

4 At 30 April 2012 communication expenses, $890, were prepaid and marketing expenses,
$4000, were accrued.

Compiled By: WASEEM AKHLAQUE 40

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© UCLES 2012 7110/22/M/J/12
13

5 Depreciation is to be charged on all non-current assets owned at the end of the year as For
follows: Examiner’s
Use

(i) Buildings at the rate of 2% per annum on cost. No depreciation is charged on land.
On 1 April 2011 the land was valued at $75 000.

(ii) Equipment at the rate of 20% per annum using the diminishing (reducing) balance
method.

(iii) Fixtures and fittings at the rate of 10% using the straight-line method.

6 Trade receivables contain a debt of $3000 which is considered irrecoverable.

7 The provision for doubtful debts is to be maintained at 6% of remaining trade receivables.

REQUIRED

(a) Prepare the income statement and appropriation account of Su and Li for the year
ended 30 April 2012. [22]

(b) Prepare the balance sheet of Su and Li at 30 April 2012. [18]

The current accounts details may be included within the balance sheet or in account
format outside the balance sheet.

[Total: 40]

www.maxpapers.com
© UCLES 2012 7110/22/M/J/12 [Turn over
Compiled By: WASEEM AKHLAQUE 41
14

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

Compiled By: WASEEM AKHLAQUE 42

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

Compiled By: WASEEM AKHLAQUE 43

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

Compiled By: WASEEM AKHLAQUE 44

www.maxpapers.com
12
8
5 Maria is in business as a retailer. The following balances were extracted from her books on For
30 September 2012. Examiner’s
$ Use

Capital at 1 October 2011 180 000

Drawings 21 000
Land and buildings at cost 150 000
Fixtures and fittings at cost 28 000
Computer equipment at cost 40 000
Provisions for depreciation:
Land and buildings 10 000
Fixtures and fittings 19 000
Computer equipment 12 000
8% Bank loan repayable 31 December 2020 50 000
Loan interest paid 2 000
Bank 14 070 Dr
Trade receivables 60 000
Trade payables 31 000
Provision for doubtful debts 6 400
Revenue 365 000
Purchases 135 000
Goods returned by customers 8 900
Purchase returns 4 250
Inventory at 1 October 2011 33 500
Delivery expenses 18 630
Computer repairs expenses 19 150
General running expenses 31 600
Salaries and wages 86 700
Marketing costs 14 000
Discount allowed 22 400
Discount received 7 300

Additional information

1 Inventory at 30 September 2012 was valued at $36 450.

2 An invoice for a credit purchase of goods, $7500, had been misplaced in December and
no entries had been recorded in the books.

3 The purchase of fixtures and fittings, $4000, had been included in the general running
expenses.

4 At 30 September 2012 computer repair expenses, $1700, were accrued and salaries
and wages were prepaid, $5200.

5 The 8% bank loan was received on 1 January 2012.

Compiled By: WASEEM AKHLAQUE 45

6 Depreciation is to be charged on all non-current assets owned at the end of the year, as For
follows: Examiner’s
Use
(i) Buildings at the rate of 2% per annum using the straight-line method.
No depreciation is charged on land. The land was valued at cost, $50 000.
(ii) Fixtures and fittings at the rate of 15% per annum using the straight-line method.
(iii) Computer equipment at the rate of 25% per annum using the diminishing
(reducing) balance method.

7 A provision for doubtful debts is to be maintained on trade receivables. Debts up to

3 months old at the rate of 4%, debts over 3 months old at the rate of 8%. One-quarter
of the trade receivables are over 3 months old.

REQUIRED

(a) Prepare the income statement for the year ended 30 September 2012. [22]

(b) Prepare the balance sheet at 30 September 2012. [18]

[Total: 40]

Compiled By: WASEEM AKHLAQUE 46

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

© UCLES 2012 7110/21/O/N/12

Compiled By: WASEEM AKHLAQUE 47

www.maxpapers.com
14

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

© UCLES 2012 7110/21/O/N/12

Compiled By: WASEEM AKHLAQUE 48

www.maxpapers.com
19

For
......................................................................................................................................................... Examiner’s
Use

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

9 5 The following balances were extracted from the books of Patricia Chin on 31 March 2013.

$
Premises 67 000
Fixtures and fittings (cost) 20 000
Motor vehicle (cost) 18 000
Provisions for depreciation:
Premises 2 680
Fixtures and fittings 9 600
Motor vehicle 11 520
Revenue 119 140
Purchases 60 200
Purchases returns 2 900
Inventory at 1 April 2012 5 430
Wages 20 960
General expenses 9 100
Insurance 12 600
Motor vehicle expenses 5 670
Discount allowed 1 428
Discount received 884
Trade receivables 7 546
Trade payables 4 920
Provision for doubtful debts 800
Bank overdraft 2 330
7% Bank loan (repayable 30 June 2018) 30 000
Capital 56 000
Drawings 12 840

Additional information

1 Inventory at 31 March 2013 was valued at $4200.

2 Insurance relates to a period of fourteen months to 31 May 2013.
3 A motor vehicle repair bill $225 was owing at 31 March 2013.
4 Bad debts of $246 are to be written off.
5 During the year Patricia took $800 from the bank for personal use.
No record of this was made in the books.
6 A purchase of fixtures and fittings during the year, $2000, had been recorded in the general
expenses account.
7 Premises are depreciated at 2% per annum on cost.
Fixtures and fittings are depreciated at 8% per annum on cost.
Motor vehicles are depreciated at 20% per annum using the diminishing (reducing) balance
method.
8 The provision for doubtful debts is to be maintained at 6% of trade receivables.

REQUIRED

(a) Prepare the income statement for the year ended 31 March 2013. [20]

(b) Prepare the balance sheet (statement of financial position) at 31 March 2013. [20]

[Total: 40]

© UCLES 2013 7110/22/M/J/13 [Turn over

Compiled By: WASEEM AKHLAQUE 50

www.maxpapers.com
14

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

© UCLES 2013 7110/22/M/J/13

Compiled By: WASEEM AKHLAQUE 51

www.maxpapers.com
14

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

© UCLES 2013 7110/22/M/J/13

Compiled By: WASEEM AKHLAQUE 52

www.maxpapers.com
14

Answer Question 5 on the following pages. For

Examiner’s
......................................................................................................................................................... Use

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

© UCLES 2013 7110/22/M/J/13

Compiled By: WASEEM AKHLAQUE 53

16
10
5 Franco is in business as a sole trader. The following balances were extracted from his books on 31
January 2014.

$
Land and buildings (cost) 150 000
Fixtures and fittings (cost) 30 000
Computer equipment (cost) 70 000
Provisions for depreciation:
Land and buildings 20 000
Fixtures and fittings 13 500
Computer equipment 34 000
Disposal account 500 Cr
8% Bank loan (repayable 30 April 2020) 100 000
Bank 17 430 Dr
Trade receivables 45 000
Trade payables 37 650
Provision for doubtful debts 1 400
Revenue 362 500
Purchases 172 400
Returns inwards 7 200
Returns outwards 8 800
Inventory at 1 February 2013 17 970
Distribution expenses 16 300
Insurance 5 900
Light and heat 7 850
Wages and salaries 69 500
Marketing expenses 31 000
General expenses 9 200
Commission received 11 400
Drawings 20 000
Capital 80 000

Additional information at 31 January 2014

1 Inventory was valued at $15 600.

2 Wages and salaries includes $15 000 drawings by Franco.

3 Marketing expenses, $6750, were prepaid.

4 No interest had been paid on the bank loan.

5 Computer equipment costing $8000 was purchased by cheque on 25 January 2014.

No entries had been made in the books.

6 Depreciation policy is as follows:

(i) The buildings are depreciated at the rate of 2% per annum using the straight line
method. Land and buildings consists of land, cost $50 000, and buildings, cost
$100 000. No depreciation is charged on the land.
(ii) Fixtures and fittings at the rate of 15% per annum using the straight line method.
(iii) Computer equipment at the rate of 25% per annum using the diminishing (reducing)
balance method.

© UCLES 2014 7110/22/M/J/14

Compiled By: WASEEM AKHLAQUE 54

7 Trade receivables, $3000, were considered irrecoverable. A provision for doubtful debts
of 5% is to be maintained.

REQUIRED

(a) Prepare the income statement for the year ended 31 January 2014.

Franco
Income Statement for the year ended 31 January 2014

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

© UCLES 2014 7110/22/M/J/14 [Turn over

Compiled By: WASEEM AKHLAQUE 55

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

.............................................................................................................................................[24]
© UCLES 2014 7110/22/M/J/14
Compiled By: WASEEM AKHLAQUE 56
19

(b) Prepare the statement of financial position at 31 January 2014.

Franco
Statement of Financial Position at 31 January 2014

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

...................................................................................................................................................
© UCLES 2014 7110/22/M/J/14 [Turn over
Compiled By: WASEEM AKHLAQUE 57
14
11
5 Cheng is a sole trader. The following balances were extracted from his books on 30 September 2015.

$
Revenue 315 000
Purchases 165 000
Returns outwards 2 600
Wages and salaries 34 800
Motor vehicle expenses 17 200
Commission receivable 12 500
Rent 15 000
Provision for doubtful debts 1 000
6% Bank loan (repayable 30 June 2019) 30 000
Bank interest paid 1 200
Inventory at 1 October 2014 36 800
Heat and light 6 500
Other operating expenses 7 100
Cash and bank 19 500 debit
Trade payables 25 000
Trade receivables 34 000
Capital 15 000
Drawings 18 000
Motor vehicles (cost) 50 000
Fixtures and fittings (cost) 24 000
Provision for depreciation:
Motor vehicles 10 000
Fixtures and fittings 18 000

Additional information at 30 September 2015

1 On 26 September 2015 goods had been purchased for $3000 cash. The transaction had not
been recorded in the books.

2 Inventory was valued at $29 980.

3 The rent included a payment of $6000 for the six months ending 31 December 2015.

4 Other operating expenses accrued $1100.

5 Commission receivable of $2500 was outstanding.

6 Depreciation is to be charged on all non-current assets owned at the end of the year as
follows:
(i) Motor vehicles at the rate of 20% per annum using the diminishing (reducing) balance
method
(ii) Fixtures and fittings at the rate of 15% per annum, using the straight-line method.

7 Trade receivables of $2000 are irrecoverable. The provision for doubtful debts is to be
maintained at 5% on the remaining trade receivables.

© UCLES 2015 7110/21/O/N/15

Compiled By: WASEEM AKHLAQUE 58

REQUIRED

(a) Prepare the income statement for the year ended 30 September 2015.

Cheng
Income Statement for the year ended 30 September 2015
$ $

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

[22]
© UCLES 2015 7110/21/O/N/15 [Turn over
Compiled By: WASEEM AKHLAQUE 59
16

(b) Prepare the statement of financial position at 30 September 2015.

Cheng
Statement of Financial Position at 30 September 2015
$ $ $

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

Compiled By: WASEEM AKHLAQUE 60

14
12
5 Ning is a sole trader. The following balances were extracted from his books on 30 September 2015.

$
Revenue 248 200
Purchases 104 750
Returns inwards 7 850
Carriage inwards 3 400
Advertising expenses 10 800
Distribution expenses 17 200
Electricity 4 230
Discount received 8 250
Wages and salaries 35 000
Insurance 5 000
Commission received 5 900
Loss on disposal 2 270
Leasehold premises (cost) 80 000
Computer equipment (at cost) 75 000
Fixtures and fittings (cost) 30 000
Provisions for depreciation:
Leasehold premises 20 000
Computer equipment 23 000
Fixtures and fittings 17 500
Bank 5 300 credit
8% Bank loan 50 000
Bank loan interest paid 3 000
Trade receivables 44 400
Trade payables 38 700
Provision for doubtful debts 1 500
Inventory at 1 October 2014 20 450
Capital at 1 October 2014 50 000
15
Drawings 25 000
Additional information at 30 September 2015

1 Inventory was valued at $17 300.

2 Distribution expenses accrued were $2600.

3 Advertising expenses includes an advertising campaign costing $1500 which runs from
1 August to 31 December 2015.

4 The 8% Bank loan is repayable in 5 equal payments on 1 October each year.

5 The depreciation policy is as follows.

(i) The lease on the premises is for 20 years. An appropriate amount should be charged
each year.
(ii) Computer equipment at the rate of 25% per annum using the diminishing (reducing)
balance method.
(iii) Fixtures and fittings at the rate of 10% per annum using the straight-line method.
No depreciation is charged in the year of disposal.

6 Trade receivables, $6400, are irrecoverable. A provision for doubtful debts of 5% is to be

maintained.

© UCLES 2015 7110/22/O/N/15

Compiled By: WASEEM AKHLAQUE 61

REQUIRED

(a) Prepare the income statement for the year ended 30 September 2015.

Ning
Income Statement for the year ended 30 September 2015
$ $

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

Compiled By: WASEEM AKHLAQUE 62

(b) Prepare the statement of financial position at 30 September 2015.

Ning
Statement of Financial Position at 30 September 2015
$ $ $

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

Compiled By: WASEEM AKHLAQUE 63

16
13
5 Suria is in business as a sole trader. The following balances were extracted from her books on
31 March 2016.

$
Revenue 287 000
Purchases 143 800
Returns inwards 3 150
Inventory at 1 April 2015 15 340
Capital 70 000
Drawings 28 000
Leasehold premises at cost (25 year lease) 100 000
Computers at cost 44 000
Office furniture at cost 15 500
Provisions for depreciation:
Leasehold premises 7 000
Computers 16 600
Office furniture 12 000
Wages and salaries 26 500
Computer maintenance 12 200
Commission receivable 4 900
Rent and rates 10 000
Provision for doubtful debts 910
6% Bank loan (repayable 30 June 2016) 40 000
Bank interest paid 1 500
Heat and light 7 300
Advertising 12 600
General expenses 8 700
Cash and bank 520 Debit
Trade payables 18 600
Trade receivables 27 900

Additional information at 31 March 2016

1 Inventory was valued at $17 990.

2 Commission receivable of $1400 was outstanding.

3 Advertising included a payment of $5700 for a series of advertisements being published in

the six months ending 31 July 2016.

4 General expenses accrued were $2400.

5 A computer costing $8000 had been recorded in the computer maintenance account.

6 Depreciation is to be charged on all non-current assets owned at the end of the year as
follows:
(i) an appropriate amount on the leasehold premises
(ii) computers at the rate of 25% per annum using the diminishing (reducing) balance
method
(iii) office furniture at the rate of 10% per annum using the straight-line method.

7 Trade receivables of $1900 are irrecoverable. The provision for doubtful debts is to be
maintained at 4%.

© UCLES 2016 7110/22/M/J/16

Compiled By: WASEEM AKHLAQUE 64

REQUIRED

(a) Prepare the income statement of Suria for the year ended 31 March 2016.

Suria
Income Statement for the year ended 31 March 2016

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

...................................................................................................................................................
© UCLES 2016 7110/22/M/J/16 [Turn over
Compiled By: WASEEM AKHLAQUE 65
16
14
5 Bik is a sole trader. The following balances were extracted from her books on 28 February 2017.

$
Revenue 410 000
Purchases 216 800
Returns inwards 15 600
Returns outwards 9 550
Administration expenses 71 000
Insurance 6 800
Rent receivable 15 000
Electricity 10 200
Staff salaries 59 700
Advertising 27 500
General expenses 14 600
Non-current assets
Leasehold buildings (cost) 90 000
Shop fixtures (cost) 24 000
Computer equipment (cost) 60 000
Provision for depreciation
Leasehold buildings 13 500
Shop fixtures 14 000
Computer equipment 42 000
Disposal account 6 000 Debit
8% Bank loan (repayable 31 December 2017) 60 000
Inventory at 1 March 2016 24 050
Bank 20 500 Debit
Trade receivables 34 500
Trade payables 25 600
Provision for doubtful debts 1 100
Capital 100 000
Drawings 9 500

Additional information at 28 February 2017

1 Inventory was valued at $20 700.

2 Staff salaries include $8000 paid to Bik.

3 Rent receivable, $3000, was owing.

4 General expenses, $5000, were owing.

5 No interest had been paid on the bank loan.

6 During the year new shop fixtures costing $8000 were purchased. Payment was made
by cheque. No entries had been made in the books.

7 Depreciation is to be charged on all non-current assets owned at the end of each year.
(i) The buildings are held on a lease of 20 years. An appropriate amount is charged for
depreciation of the leasehold.
(ii) Shop fixtures at the rate of 15% per annum using the straight line method.
(iii) Computer equipment at the rate of 30% per annum using the diminishing (reducing)
balance method.

8 Trade receivables, $2500, were considered irrecoverable and should be written off. The
provision for doubtful debts of 5% is to be maintained.
© UCLES 2017 7110/21/M/J/17

Compiled By: WASEEM AKHLAQUE 66

REQUIRED

(a) Prepare the income statement for the year ended 28 February 2017.

Bik
Income Statement for the year ended 28 February 2017

$ $ $
........................................................................ ................... ................... ...................

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

[Turn over
Compiled By: WASEEM AKHLAQUE
© UCLES 2017 7110/21/M/J/17
67
19

(b) Prepare the statement of financial position at 28 February 2017.

Bik
Statement of Financial Position at 28 February 2017

$ $ $
..................................................................... .......................... .......................... ..........................

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

[17]
[Total: 40]
© UCLES 2017 7110/21/M/J/17

Compiled By: WASEEM AKHLAQUE 68

RATIO
ANALYSIS

Compiled By: WASEEM AKHLAQUE 69

[4]

1 Bell and Hayward provided the following information.

Year ended
30 April 2009
$
Opening stock 17 000
Closing stock 15 000
Purchases 238 000
Sales 300 000

REQUIRED

(d) (i) Calculate the rate of stock turnover for the year ended 30 April 2009. Show your
workings.

13 [4]

(ii) Calculate the gross profit to sales percentage. Show your workings. For
Examiner's
Use

© UCLES 2009 7110/02/M/J/09

[4]

The figures for the previous year ended 30 April 2008 were as follows:

Rate of stock turnover 9 times

Gross profit to sales percentage 30 %

Compiled By: WASEEM AKHLAQUE

REQUIRED 70

(e) Suggest two possible reasons for the changes in the figures between 30 April 2008
[4]

The figures for the previous year ended 30 April 2008 were as follows:

Rate of stock turnover 9 times

Gross profit to sales percentage 30 %

REQUIRED

(e) Suggest two possible reasons for the changes in the figures between 30 April 2008
and 30 April 2009.

[4]

[Total: 28]

© UCLES 2009 7110/02/M/J/09 [Turn over

Compiled By: WASEEM AKHLAQUE 71

14
2
4 Jamal Mohsin has been provided with some information about a general trading business, For
Easisell, which buys and sells goods on credit. The following information relates to the year Examiner's
Use
ended 30 September 2009.

$
Sales 120 000
Stock at 1 October 2008 12 000
Purchases 91 000
Stock at 30 September 2009 28 000
Expenses 15 000
Debtors 30 000
Creditors 43 000
Bank overdraft 15 000
Capital 150 000

REQUIRED

(a) Calculate, to two decimal places, the following ratios. Show your workings.

(i) Gross profit to sales percentage

[3]

(ii) Rate of stock turnover

[3]

Compiled By: WASEEM AKHLAQUE 72

© UCLES 2009 7110/02/O/N/09

(iii) Net profit to capital percentage For

Examiner's
Use

[3]

(iv) Working capital ratio (current ratio)

[3]

Compiled By: WASEEM AKHLAQUE 73

Jamal Mohsin obtained the following ratios for a similar business: For
Examiner's
Use
1 Gross profit to sales percentage 40 %

2 Rate of stock turnover 6 times

3 Net profit to capital percentage 12 %

4 Working capital ratio (current ratio) 1.8 : 1

REQUIRED

(b) Using the information above and your answer to (a) compare and comment upon the
performance of Easisell under the following headings.

(i) Controlling stock

[4]

(ii) Net profit to capital percentage

[4]

(iii) Ability to pay creditors

[4]

[Total: 24]

Compiled By: WASEEM AKHLAQUE 74

© UCLES 2009 7110/02/O/N/09

3 4 The following information was extracted from the books of Jack Lightbourne for the year For
ended 31 July 2009. Examiner's
Use

Sales 174 600

Opening inventory (stock) 6 350

Purchases 89 150

Closing inventory (stock) 8 200

Sundry expenses 69 840

Drawings 6 984

Current assets 24 600

Current liabilities 16 400

REQUIRED

(a) Calculate the following ratios, correct to one decimal place. Show your workings in the
box provided.

Workings

(i)
Gross profit/sales

(ii)
Net profit/sales

(iii) Rate of inventory (stock)

turnover

Compiled ©By: WASEEM

UCLES 2009 AKHLAQUE 7110/02/SP/10 75
11

For
Examiner's
Use

(iv) Current (working capital) ratio

(v) Acid test ratio

[10]

Jack Lightbourne’s main competitor generates gross profit/sales of 100% and net
profit/sales of 15%.

REQUIRED

(b) Suggest how Jack could improve his ratios for gross profit/sales and net profit/sales to
a competitive level.

Gross profit/sales

Net profit/sales

[3]

Compiled ©By: WASEEM

UCLES 2009 AKHLAQUE 7110/02/SP/10 76[Turn over
10
4
4 Zaynah is in business buying and selling goods on credit. The following balances were For
extracted from her books on 30 April 2010. Examiner’s
Use
$
Revenue (Sales) 200 000
Cost of sales 130 000
Expenses 65 000
Inventory (stock) 1 May 2009 20 000
Inventory (stock) 30 April 2010 60 000
Trade receivables (debtors) 16 000
Trade payables (creditors) 35 000
Loans repayable within 12 months 5 000
(Bank overdraft)
Closing capital 100 000

REQUIRED

(a) Calculate, to one decimal place, the following ratios for the year ended 30 April 2010.
Clearly show all workings.

(i) Gross profit to revenue (sales) percentage

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

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

(ii) Working capital ratio (current ratio)

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

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

(iii) Quick ratio (acid test)

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

.............................................................................................................................. [4]

Compiled By:2010
© UCLES WASEEM AKHLAQUE 7110/21/M/J/10 77
11

(iv) Profit for the year (net profit) to capital percentage For
Examiner’s
.................................................................................................................................. Use

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

.............................................................................................................................. [4]

(b) Comment on the following ratios at 30 April 2010:

(i) Quick ratio (acid test)

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

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

(ii) Profit for the year (net profit) to capital percentage.

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

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

In the previous year, ended 30 April 2009, the business of Zaynah achieved the following
ratios:
Gross profit to revenue (sales) percentage 50%
Working capital ratio (current ratio) 1.7:1

REQUIRED

(i) gross profit to sales percentage;

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

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

(ii) working capital ratio (current ratio).

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

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

[Total: 22]
Compiled By: WASEEM AKHLAQUE 78
© UCLES 2010 7110/21/M/J/10 [Turn over
10 For
Examiner’s
Use
54 Paula Lim supplied the following information relating to her financial year ended 30 April 2010.
$
Revenue (sales) 250 000
Inventory (stock) 1 May 2009 10 000
Inventory (stock) 30 April 2010 25 000
Gross profit to sales 40%
Profit for the year (net profit) to sales 8%

REQUIRED

Calculate the following for the year ended 30 April 2010. Show all your workings.

(a) Cost of sales

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

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

(b) Raw materials (purchases)

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

...................................................................................................................................... [4]

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

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

(d) Rate of inventory (rate of stock) turnover

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

...................................................................................................................................... [3]
[Total: 13]
Compiled By: WASEEM AKHLAQUE 79
© UCLES 2010 7110/22/M/J/10
12
6
4 Windy Ltd is in business buying and selling goods on credit. The following balances were For
taken from the books of Windy Ltd. Examiner's
Use

Year ended Year ended

30 September 2009 30 September 2010
$ $
Non-current (fixed) assets 80 000 200 000
Inventory (stock) 55 000 60 000
Trade receivables (debtors) 50 000 90 000
Trade payables (creditors) 30 000 75 000
Amount due in more than one year - 50 000
(long-term loan)
Bank 15 000 -
Bank overdraft - 45 000

REQUIRED

(a) Calculate the following. Give your answers to two decimal places.

Show your workings.

(i) Current ratio at 30 September 2009

Current ratio at 30 September 2010

[4]

Compiled By: WASEEM AKHLAQUE 80

© UCLES 2010 7110/02/O/N/10

(ii) Quick (acid test) ratio at 30 September 2009 For

Examiner's
Use

Quick (acid test) ratio at 30 September 2010

[4]

(b) Suggest one reason for the change in liquidity between 30 September 2009 and
30 September 2010.

[2]

Compiled By: WASEEM AKHLAQUE 81

© UCLES 2010 7110/02/O/N/10 [Turn over

(ii)

(iii)

(iv)

[8]

[Total: 18]

Compiled By: WASEEM AKHLAQUE 82

© UCLES 2010 7110/02/O/N/10

www.maxpapers.com
10

7 4 George is a trader who buys and sells goods on credit. He provided the following For
information: Examiner’s
Use

2010 2011
$ $
For the year ended 30 April
Sales 220 000 180 000
Gross profit 110 000 72 000
Expenses 66 000 63 000

At 30 April 2010 2011

$ $
Inventory 46 000 35 000
Capital 160 000 180 000
Bank 20 000 (overdraft) 15 000
Trade receivables 50 000 40 000
Trade payables 60 000 60 000

Ratios/percentages
2010 2011
Percentage net profit/sales ? 5%
Percentage net profit/capital ? 5%
Working capital ratio (current ratio) 1.2:1 ?
Quick ratio (acid test) 0.6:1 ?

REQUIRED

(a) Calculate the following to one decimal place.

(i) Percentage net profit/sales for the year ended 30 April 2010

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

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

(ii) Percentage net profit/capital for the year ended 30 April 2010

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

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

Compiled By: WASEEM AKHLAQUE 83

(iii) Working capital ratio (current ratio) on 30 April 2011 For

Examiner’s
.................................................................................................................................. Use

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

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

(iv) Quick ratio (acid test) on 30 April 2011

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

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

(b) Suggest two possible reasons for the change in the net profit between the two years.

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

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

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

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

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

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

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

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

[Total: 20]

Compiled By: WASEEM AKHLAQUE 84

84 Mary is in business buying and selling goods on credit. The following information was For
available at 30 April 2011. Examiner’s
$ Use

Inventory 1 May 2010 5 500

Inventory 30 April 2011 7 500
Capital 30 April 2011 75 000
Operating expenses for the year 23 500
Purchases for the year 72 000
Mark up 50%

REQUIRED

(a) Calculate for the year ended 30 April 2011:

(i) Revenue (sales)

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

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

(ii) Rate of inventory turnover (correct to one decimal place)

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

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

(iii) Profit for the year (net profit)

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

.............................................................................................................................. [2]
© UCLES 2011 7110/22/M/J/11

Compiled By: WASEEM AKHLAQUE 85

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11

(iv) Percentage net profit /revenue (correct to one decimal place) For
Examiner’s
.................................................................................................................................. Use

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

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

(v) Percentage net profit / capital (correct to one decimal place).

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

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

(b) Explain why businesses with a high rate of inventory turnover often have a low
percentage net profit to revenue.

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

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

For each of the options below, place a (✓) to indicate whether the option would increase
or decrease the rate of inventory turnover.

Increase rate of Decrease rate of

inventory turnover inventory turnover
(i) Hold a ‘Sale’ and reduce
prices by 20%.
(ii) Increase the inventory by
$20 000.

(iii) Raise selling prices by 10%.

[3]
Compiled By: WASEEM AKHLAQUE 86
[Total: 19]
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9
4 The following information relates to the business of Samara, a wholesaler. For
Examiner’s
$ Use
Revenue (sales) for year ended 30 September 2011 200 000
Inventory 1 October 2010 18 000

At 30 September 2011
Inventory 36 000
Trade receivables 24 000
Bank overdraft 10 000
Trade payables 40 000

Mark up 25%
Net profit / sales 6%

REQUIRED

(a) Calculate for the year ended 30 September 2011:

(i) purchases

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

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

(ii) expenses

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

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

Compiled By: WASEEM AKHLAQUE 87

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11

(b) Calculate at the 30 September 2011: For

Examiner’s
(i) working capital ratio (current ratio), correct to one decimal place Use

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

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

(ii) quick ratio (acid test), correct to one decimal place.

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

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

(c) Explain why the quick ratio (acid test) is a more accurate measure of the liquidity of a
business than the working capital ratio (current ratio).

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

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

(d) State three actions that Samara could take to improve his bank balance.

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

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

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

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

3 .......................................................................................................................................

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

Compiled By: WASEEM AKHLAQUE 88 18]

[Total:
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10
10
4 The following information was extracted from the books of Anika. For
Examiner’s
$ Use
Revenue (sales) for the year ended 30 September 2011 80 000
Purchases for the year ended 30 September 2011 58 000
Inventory at 1 October 2010 6 000
Inventory at 30 September 2011 8 000
Bank overdraft at 30 September 2011 2 000
Trade payables at 30 September 2011 14 000
Trade receivables at 30 September 2011 16 000

REQUIRED

(a) Calculate the following:

(i) cost of sales

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

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

(ii) rate of inventory turnover.

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

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

(b) (i) Calculate the gross profit/ sales percentage.

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

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

Compiled By: WASEEM AKHLAQUE 89

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11

(ii) Anika’s gross profit/sales percentage for the year ended 30 September 2010 For
was 40%. Examiner’s
Use

Suggest two possible reasons for the change in the gross profit / sales percentage
between 30 September 2010 and 30 September 2011.

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

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

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

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

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

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

Anika is considering taking the following actions to improve her working capital.

1 Obtain a long-term loan of $10 000.

2 Hold a sale of ‘slow moving’ inventory with an original cost of $4000, the sale to
raise $3200 in cash.

3 Purchase non-current assets of $8000 and additional inventory of $2000.

4 Pay accounts payable of $5000, taking a cash discount of 4%.

Compiled By: WASEEM AKHLAQUE 90

9
11
4 Ashok provided the following information for the year ended 31 March 2012: For
Examiner’s
$ Use

Revenue (sales) 120 000

Inventory 1 April 2011 22 500
Inventory 31 March 2012 26 500

Gross profit/sales 20%

Net profit/sales 8%

REQUIRED

(a) Calculate for the year ended 31 March 2012:

(i) Cost of sales

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

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

(ii) Purchases

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

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

(iii) Expenses

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

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

Compiled By: WASEEM AKHLAQUE 91

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© UCLES 2012 7110/21/M/J/12 [Turn over
10

(b) Calculate to two decimal places the rate of inventory (stock) turnover for the year ended For
31 March 2012. Examiner’s
Use

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

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

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

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

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

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

Ashok is investigating a possible error in the valuation of the closing inventory on

31 March 2012. The revised valuation may be $30 000.

(d) Calculate the profit for the year if the closing inventory is valued at $30 000.

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

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

(e) State three disadvantages of holding too much inventory.

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

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

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

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

3 .......................................................................................................................................

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

[Total: 20]

Compiled By: WASEEM AKHLAQUE 92

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12
4 Jones is a trader, buying and selling goods on credit. The following balances were available For
on 30 April 2012. Examiner’s
Use

$
Capital 350 000
Revenue 200 000
Expenses 40 000
Inventory 30 April 2012 25 000
Trade payables 50 000
Trade receivables 47 000
Bank overdraft 10 000

Net profit/sales 15%

REQUIRED

(a) Calculate the cost of sales. Show your workings.

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

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

(b) Calculate, to two decimal places, the following ratios:

(i) Percentage net profit/capital

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

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

(ii) Working capital ratio (current ratio)

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

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

Compiled By: WASEEM AKHLAQUE 93

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© UCLES 2012 7110/22/M/J/12
11

(iii) Quick ratio (acid test) For

Examiner’s
.................................................................................................................................. Use

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

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

Jones has been considering how he might improve his working capital ratio (current ratio).
The following proposals have been made.

1 Obtain a long term loan from the bank, $5000.

2 Pay half the trade payables in exchange for a cash discount of 4%.

3 Sell non-current assets with a net book value of $12 000 for $8000.

REQUIRED

(c) Complete the following table showing the effect on the current assets, current liabilities
and the working capital ratio (current ratio). The first item has been completed as an
example.

Working capital ratio

Current assets Current liabilities
(current ratio)

1 +$5 000 No effect Increase

3
[6]

[Total: 20]

Compiled By: WASEEM AKHLAQUE 94

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10
13
4 The trial balance of Maya, after the calculation of the gross profit, was as follows: For
Examiner’s
Maya Use

Trial Balance at 30 September 2012

Dr Cr
$ $
Gross profit 120 000
Sundry expenses 57 000
Non-current assets (cost) 400 000
Non-current assets (provision for depreciation) 82 000
Trade receivables 55 000
Trade payables 85 000
Inventory at 30 September 2012 125 000
Cash 5 000
Bank loan (repayable 31 October 2012) 35 000
Capital 320 000
642 000 642 000

Additional information for the year ended 30 September 2012:

1 Mark-up on cost of sales, 25%.

2 Depreciation for the year on non-current assets, $15 000.

REQUIRED

(a) Calculate the following for the year ended 30 September 2012:

(i) Revenue (sales)

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

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

(ii) Net profit/sales percentage

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

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

Compiled By: WASEEM AKHLAQUE 95

© UCLES 2012 7110/21/O/N/12

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11

(iii) Net profit/capital percentage For

Examiner’s
.................................................................................................................................. Use

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

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

(iv) Quick ratio (acid test)

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

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

(b) Explain to Maya why the quick ratio (acid test) is a better measure of liquidity than the
working capital ratio (current ratio).

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

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

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

Reason

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

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

(d) Suggest three ways in which Maya might increase the cash in the business.

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

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

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

Compiled By: WASEEM AKHLAQUE 96 20]

[Total:

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14
4 Chow is in business buying and selling goods on credit. The following information was For
available: Examiner’s
Use

$
Cost of sales 320 000
Inventory at 1 October 2011 25 000
Inventory at 30 September 2012 65 000
Expenses 60 000
Trade receivables 70 000
Trade payables 75 000
Bank overdraft 15 000

Mark up 25%

REQUIRED

(a) Calculate the following for the year ended 30 September 2012.

(i) Profit for the year

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

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

(ii) Rate of turnover of inventory

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

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

(iii) Gross profit to sales percentage

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

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

Compiled By: WASEEM AKHLAQUE 97

© UCLES 2012 7110/22/O/N/12

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11

(iv) Net profit to sales percentage For

Examiner’s
.................................................................................................................................. Use

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

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

(v) Working capital ratio (current ratio)

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

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

(b) Chow’s rate of turnover of inventory last year was 4 times. Suggest two possible reasons
for any change between the years.

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

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

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

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

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

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

(d) Suggest one way in which Chow could improve his liquidity.

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

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

[Total: 20]

Compiled By: WASEEM AKHLAQUE 98

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6
15
Tay supplied the following information for year ended 30 April: For
Examiner’s
1 2013 Use

$
Revenue 60 000
Cost of sales 48 000

2 2012
Revenue 58 000
Gross profit to sales ratio 33.3%

REQUIRED

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

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

(d) Compare the gross profit to sales ratio in 2012 with your answer in (c) and suggest
three possible causes for any changes that may have taken place.

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

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

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

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

3 .......................................................................................................................................

......................................................................................................................................[6]

(e) Make two suggestions on how Tay may use the gross profit to sales ratio.

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

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

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

......................................................................................................................................[4]

[Total: 26]

Compiled By: WASEEM AKHLAQUE 99

© UCLES 2013 7110/21/M/J/13

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7
16
3 The following balances were extracted from the books of Alex Penn on 31 March 2013. For
Examiner’s
$ Use

Equipment (net book value) 40 000

Delivery vans (net book value) 22 000
Inventory 10 670
Trade receivables 11 200
Other receivables 4 130
Bank overdraft 4 200
Trade payables 8 800
6% Bank loan (repayable 23 May 2016) 15 000
Capital 31 March 2013 70 000
Drawings 10 000

During the year Penn had purchased non-current assets to the value of $20 000.

REQUIRED

(a) Calculate the working capital.

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

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

(b) Calculate the following to two decimal places:

(i) Working capital ratio (current ratio)

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

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

(ii) Quick ratio (acid test ratio)

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

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

Compiled By: WASEEM AKHLAQUE 100

© UCLES 2013 7110/21/M/J/13 [Turn over

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8

For the year ended 31 March 2012 Penn’s working capital ratio (current ratio) was 3:1 and For
his quick ratio (acid test ratio) was 1:1. Examiner’s
Use

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

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

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

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

3 .......................................................................................................................................

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

......................................................................................................................................[6]

(d) Suggest two courses of action Penn could take to improve his liquidity.

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

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

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

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

......................................................................................................................................[6]

[Total: 18]

Compiled By: WASEEM AKHLAQUE 101

© UCLES 2013 7110/21/M/J/13

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17
4 Baljit provided the following information for the year ended 30 April 2013. For
Examiner’s
$ Use

Inventory 1 May 2012 14 841

Inventory 30 April 2013 21 159
Cost of goods sold 90 000
Administration expenses 4 890
Selling expenses 7 485
Capital employed 1 May 2012 101 250

Mark up 25%

REQUIRED

(a) Calculate for the year ended 30 April 2013:

(i) Sales

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

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

(ii) Purchases

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

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

(iii) Profit for the year

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

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

Compiled By: WASEEM AKHLAQUE 102

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11

(b) Calculate the following ratios. Comparative figures for the previous year are shown in For
the last column. Examiner’s
Use

30 April 30 April
Workings
2013 2012
Gross profit
margin
(gross profit 25%
to sales)

Net profit
margin
(net profit 11%
to sales)

Rate of
inventory
8 times /
turnover
45.6 days

Return
on capital
employed 12%
(ROCE)

[8]

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

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

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

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

......................................................................................................................................[6]

Compiled By: WASEEM AKHLAQUE 103

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12

(d) Suggest three actions Baljit may take to improve her rate of inventory turnover. For
Examiner’s
1 ....................................................................................................................................... Use

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

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

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

3 .......................................................................................................................................

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

......................................................................................................................................[6]

[Total: 26]

Compiled By: WASEEM AKHLAQUE 104

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18
4 Shaw’s accounting year ends on 30 April. The following information is supplied for 2011, For
2012 and 2013. Examiner’s
Use

2011 2012 2013

$ $ $
Revenue (Sales) 150 000 225 000 300 000
Gross profit 37 500 56 250 75 000
Profit for year (Net profit) 18 750 23 400 27 990
Capital 150 000 195 000 240 000
Gross profit margin 25% 25% ?
Net profit margin 12.50% 10.40% ?
Percentage of expenses to sales 12.50% 14.60% 15.67%
Return on capital employed 12.5% 12% ?

REQUIRED

(a) Calculate, to two decimal places, the following ratios at 30 April 2013:

Gross profit margin

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

Net profit margin

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

Return on capital employed

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

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

Compiled By: WASEEM AKHLAQUE 105

(b) Using the ratios calculated in (a) comment on the profitability over the three years. For
Examiner’s
.......................................................................................................................................... Use

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

...................................................................................................................................... [8]

[Total: 11]

Compiled By: WASEEM AKHLAQUE 106

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4
19 Wenger’s trial balance on 30 April 2013 was as follows: For
Examiner’s
Trial Balance Use

at 30 April 2013

Account Debit Credit

$ $
Bank 1 750
Capital 113 500
Cash 250
Inventory 20 000
Long-term loan 30 000
Non-current assets 122 500
Other payables 6 860
Other receivables 1 400
Trade payables 12 140
Trade receivables 16 600
162 500 162 500

REQUIRED

(a) Calculate the following correct to two decimal places, at 30 April 2013:

Working capital (current) ratio;

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

Compiled By: WASEEM AKHLAQUE 107

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Quick (acid test) ratio. For

Examiner’s
.......................................................................................................................................... Use

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

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

Wenger’s working capital (current) ratio and quick (acid test) ratio at 30 April 2012 were 4:1
and 2:1 respectively.

REQUIRED

(b) (i) Comment on the change in the ratios between 2012 and 2013.

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

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

(ii) State three possible causes for any changes that have taken place.

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

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

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

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

3 ...............................................................................................................................

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

.............................................................................................................................. [6]

Compiled By: WASEEM AKHLAQUE 108

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11

(c) Advise Wenger on two measures he may take to improve his working capital. For
Examiner’s
1 ....................................................................................................................................... Use

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

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

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

...................................................................................................................................... [4]

[Total: 15]

Compiled By: WASEEM AKHLAQUE 109

© UCLES 2013 7110/21/O/N/13 [Turn over

12
20
4 Demetris is a trader, buying and selling goods on credit. The following information was available on
31 March 2014.
$
Revenue 300 000
Inventory 31 March 2014 50 000
Purchases 170 000
Capital 100 000
Bank 5 000 Dr
Trade payables 60 000
Trade receivables 11 000

Gross profit/sales 20%

REQUIRED

(a) Calculate the:

(i) Cost of goods sold.

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

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

(ii) Inventory at 1 April 2013.

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

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

(b) Suggest two possible effects of holding too much inventory.

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

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

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

...............................................................................................................................................[2]
© UCLES 2014 7110/21/M/J/14
Compiled By: WASEEM AKHLAQUE 110
13

(c) Calculate, to two decimal places, the:

(i) Working capital ratio (current ratio)

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

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

(ii) Quick ratio (acid test ratio)

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

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

(d) Comment upon the sufficiency of the working capital ratio (current ratio).

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

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

© UCLES 2014 7110/21/M/J/14 [Turn over

Compiled By: WASEEM AKHLAQUE 111
14

During the year ended 31 March 2014, Demetris took the following actions.

1 Repaid a $40 000 long term bank loan.

2 Purchased $20 000 of non-current assets on credit.
3 Sold inventory for $20 000 on credit (cost $15 000).

REQUIRED

(e) Complete the following table showing the effect on the current assets, current liabilities and
the working capital ratio (current ratio) for each of the actions 1 to 3 above. The first item has
been completed as an example.

Working capital ratio

Current assets Current liabilities
(current ratio)
1 Repaid a $40 000 long
Decreased $40 000 No effect Decreased
term bank loan.
2 Purchased $20 000 of
non-current assets on
credit.
3 Sold inventory for $20 000
on credit (cost $15 000).

[6]

[Total: 21]

© UCLES 2014 7110/21/M/J/14

Compiled By: WASEEM AKHLAQUE 112
12
21
4 Najla provided the following information for the year ended 31 March 2014.

$
Revenue 168 000
Inventory 1 April 2013 20 000
Inventory 31 March 2014 16 000
Purchases 122 000
Trade receivables 24 500
Trade payables 35 000
Capital 100 000
Bank 1 500 Dr

REQUIRED

(a) Calculate the:

Cost of goods sold

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

Gross profit/sales percentage

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

Rate of inventory turnover

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

© UCLES 2014 7110/22/M/J/14

Compiled By: WASEEM AKHLAQUE 113
13

Working capital ratio (current ratio)

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

...................................................................................................................................................
14
.............................................................................................................................................[10]
In the previous year, ended 31 March 2013, Najla calculated the following ratios:

Gross profit /sales percentage 20%

Rate of inventory turnover 6 times
Working capital ratio (current ratio) 1.7:1

REQUIRED

(b) Comment upon the performance of Najla under the following headings, using the information
above and your answer in (a).

Controlling inventory

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

Ability to pay trade payables

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

...............................................................................................................................................[4]

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

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

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

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

Compiled By: WASEEM AKHLAQUE 114

Najla is considering the following proposals to improve his working capital.

1 Sell obsolete inventory costing $1000 for cash $500.

2 Sell non-current assets for $3000 cash.

3 Allow trade receivables to pay debts of $4000 less 5% cash discount.

4 Bring $5000 additional capital into the business: Motor vehicle $3000 and cash $2000.

REQUIRED

(d) Complete the following table showing the changes to working capital. The first proposal has
been completed as an example.

Working capital Amount of change

Proposals
increase decrease ($)

1 ✔ $500
2
3
4

[6]

[Total: 22]

© UCLES 2014 7110/22/M/J/14 [Turn over

Compiled By: WASEEM AKHLAQUE 115
12
22
4 Lai Yee provided the following information.

$
Profit from operations (before bank loan interest) 36 000
Capital 200 000
Trade payables 50 000
Trade receivables 45 000
8% Bank loan (repayable 2024) 100 000
Bank 60 000 Dr
Closing inventory 75 000
Cost of sales 480 000
Revenue 600 000

REQUIRED

(a) Calculate to one decimal place:

Ratio Workings Answer

Percentage gross profit/sales

Percentage net profit/sales

Return on capital employed

(ROCE)

Working capital ratio

(Current ratio)

[12]

(b) Comment upon the sufficiency of the working capital ratio (current ratio).

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

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

© UCLES 2014 7110/21/O/N/14

Compiled By: WASEEM AKHLAQUE 116

Lai Yee is considering ways in which she might improve her return on capital employed (ROCE).
She is considering the following proposals.

1 Introduce additional capital of $10 000.

2 Repay half of the 8% bank loan.

3 Sell $20 000 non-current assets, saving $3000 in depreciation.

4 Convert $25 000 of the 8% bank loan into a bank overdraft at 12% interest per annum.

REQUIRED

(c) Complete the following table, by placing a tick ( ) in the appropriate box, to show the effect
on the profit for the year and the capital employed.

The first item has been completed as an example.

Proposals Profit for the year Capital employed

increase decrease no effect increase decrease no effect
1
2
3
4

[6]

Lai Yee is also considering improving her profit for the year by:

1 revaluing her business premises to the market value of $120 000 (cost $100 000)

2 removing the provision for doubtful debts.

REQUIRED

(d) Name which accounting concept would not be complied with if Lai Yee implemented her
proposals.

Proposal 1 .................................................................................................................................

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

[Total: 22]

© UCLES 2014 7110/21/O/N/14 [Turn over

Compiled By: WASEEM AKHLAQUE 117
12
23
4 The following information relates to the business of Lili.

$
Revenue 200 000
Inventory 1 October 2013 15 500
Inventory 30 September 2014 24 500

Rate of inventory turnover 8 times

Net profit/sales 7%

REQUIRED

(a) Calculate the following.

Workings Answer
cost of sales

purchases

percentage gross profit to

sales

expenses

profit for the year

[14]

Compiled By: WASEEM AKHLAQUE 118

Lili’s inventory of $24 500 needs to be adjusted for the following.

1 5 items costing $10 each had been omitted from the inventory.
2 10 items costing $25 each were damaged and could only be sold for $15 each.
3 4 items were included in the inventory at the list price of $300 each, having been marked up
by 50%.
4 1 item costing $20 was recorded in error in the inventory as $200.

REQUIRED

(b) Complete the following table showing the effect that each adjustment will have upon the
inventory valuation at 30 September 2014. The first item has been completed as an example.

Effect on inventory value Value

Adjustment
increase decrease $

1 ✓ 50
2
3
4
[6]

[Total: 20]

© UCLES 2014 7110/22/O/N/14 [Turn over

Compiled By: WASEEM AKHLAQUE 119
11
24
4 John provided the following information for the year ended 31 March 2015.

$
Revenue 900 000
Inventory 1 April 2014 65 000
Inventory 31 March 2015 35 000
Expenses 105 000
Owner’s capital 300 000
Long term loan 150 000

Mark up 20%

REQUIRED

(a) Calculate for the year ended 31 March 2015:

(i) Cost of goods sold

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

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

(ii) Profit for the year

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

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

© UCLES 2015 7110/21/M/J/15 [Turn over

Compiled By: WASEEM AKHLAQUE 120
12

(b) Calculate the following ratios.

Workings 31 March 2015 31 March 2014

Profit margin
(profit for the year 5%
to revenue)
Rate of inventory
7 times
turnover
Return on capital
4%
employed (ROCE)
[6]

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

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

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

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

...............................................................................................................................................[6]

© UCLES 2015 7110/21/M/J/15

Compiled By: WASEEM AKHLAQUE 121

11
25
4 Xever provided the following information for the year ended 31 March 2015.

$
Capital 40 000
Bank loan (repayable 1 Jan 2020) 10 000
Inventory 1 April 2014 15 000
Inventory 31 March 2015 35 000
Cost of sales 125 000
Trade receivables 25 000
Trade payables 70 000
Bank overdraft 30 000

Mark up 20%
Profit margin (profit for the year to revenue) 5%

REQUIRED

(a) Calculate the following for the year ended 31 March 2015.

(i) Revenue

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

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

(ii) Purchases

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

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

(iii) Expenses for the year

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

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

© UCLES 2015 7110/22/M/J/15 [Turn over

Compiled By: WASEEM AKHLAQUE 122
12

(b) Calculate the following ratios, correct to two decimal places. The previous year’s ratios are
shown in the last column.

Workings 31 March 2015 31 March 2014

Gross profit margin

25.61%
(gross profit to revenue)
Return on capital
12.00%
employed (ROCE)
Rate of turnover of
2.82 times
inventory
Quick ratio
0.91:1
(acid test ratio)
[8]

(i) Profitability

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

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

(ii) Liquidity

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

.......................................................................................................................................[3]
[Total: 20]
© UCLES 2015 7110/22/M/J/15

Compiled By: WASEEM AKHLAQUE 123

12
26
4 Galenia buys and sells goods on credit. The following information was available on
30 September 2015.

$
Inventory 1 October 2014 11 000
Inventory 30 September 2015 37 000
Cost of goods sold 90 000
Profit for the year 18 900
Trade receivables 14 200
Trade payables 27 000
Bank 2 800 debit

Mark up 40%

REQUIRED

(a) Calculate the following for the year ended 30 September 2015.

(i) Revenue

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

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

(ii) Purchases

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

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

(iii) Expenses for the year

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

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

© UCLES 2015 7110/21/O/N/15

Compiled By: WASEEM AKHLAQUE 124
13

(b) Calculate the following ratios to two decimal places. Comparative figures for the previous
year are shown in the last column.

Workings 30 September 30 September

2015 2014
Profit margin 12.13%
(profit for the year to
revenue)
Rate of inventory 2.00 times
turnover

Working capital ratio 2.60:1

(current ratio)

Quick ratio 1.10:1

(acid test ratio)

[8]

(i) Inventory turnover

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

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

(ii) Ability to pay trade payables

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

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

[Total: 20]

© UCLES 2015 7110/21/O/N/15 [Turn over

Compiled By: WASEEM AKHLAQUE 125
12
27
4 Danish provided the following information.

For the year ended 31 July 2015

$
Revenue 380 000
Purchases 295 000
Profit for the year 35 000

Gross profit margin 25%

At 31 July 2015
$
Inventory 65 000
Trade receivables 42 000
Trade payables 52 000
Bank 13 000 debit
Expenses accrued 8 000

REQUIRED

(a) Calculate the following:

Workings Answer
Inventory at 1 August 2014

Rate of inventory turnover

(to two decimal places)

Expenses paid in the year

ended 31 July 2015

Working capital ratio

(current ratio)

Quick ratio
(acid test ratio)
(to two decimal places)

[12]

© UCLES 2015 7110/22/O/N/15

Compiled By: WASEEM AKHLAQUE 126
13

Danish is considering the following proposals to improve his working capital.

1 Sell excess non-current assets for $4000

2 Sell old inventory costing $15 000, for $9000 cash
3 Allow a trade receivable 5% cash discount for early payment of a debt of $10 000
4 Pay expenses accrued of $8000
5 Bring additional capital into the business, motor vehicle $5000 and cash $1000

REQUIRED

(b) Complete the table, to show the effect on the working capital of each proposal. The first one
has been completed as an example.

Proposal Working capital Amount

(Increase, decrease, $
no effect)
1 Sell excess non-current assets Increase 4000
for $4000

2 Sell old inventory costing

$15 000, for $9000 cash

3 Allow a trade receivable 5% cash

discount for early payment of a
debt of $10 000
4 Pay expenses accrued of $8000

5 Bring additional capital into the

business, motor vehicle $5000
and cash $1000
[8]

[Total: 20]

© UCLES 2015 7110/22/O/N/15 [Turn over

Compiled By: WASEEM AKHLAQUE 127
14
28
4 Lache’s accounting year ends on 31 December. The following information is available.

2015 2014

$ $

Revenue 750 000 600 000

Expenses 200 000 175 000
Profit for the year 100 000 50 000
Capital 250 000 250 000
Bank loan repayable
– 120 000
30 December 2014
Bank loan repayable
80 000 –
30 December 2020
Inventory 60 000 260 000
Trade receivables 22 000 40 000
Trade payables 50 000 60 000
Other receivables 1 500 2 500
Other payables 8 500 3 500
Bank 28 000 Debit 40 000 Credit

REQUIRED

(a) Calculate the following ratios for 2015. Comparative figures for 2014 are shown. Your answers
should be calculated to one decimal place.

Workings Answer 2014

Gross profit to revenue
(Gross profit margin)
37.5%

Return on capital
employed (ROCE)
20%
based on profit for the
year
Current ratio
(Working capital ratio)
2.9:1

Quick ratio
(acid test ratio)
0.4:1

[12]

© UCLES 2016 7110/21/M/J/16

Compiled By: WASEEM AKHLAQUE 128
15

(b) Using the ratios calculated in (a) and the information provided, comment on the:

(i) profitability over the two years

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

.......................................................................................................................................[4]

(ii) liquidity over the two years.

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

.......................................................................................................................................[4]

[Total: 20]

[Turn over
Compiled By: WASEEM AKHLAQUE
© UCLES 2016 7110/21/M/J/16
129
12
294 Ng provided the following information for the year ended 30 September 2016.

$
Cost of sales 240 000
Trade payables 180 000
Trade receivables 120 000
8% Bank loan (repayable 2024) 30 000
Bank 20 000 Credit
Closing inventory 130 000

Gross profit margin 25%

REQUIRED

(a) Calculate the following for the year ended 30 September 2016. Comparative figures for the
previous year are shown.

Year ended 30 September 2016 Year ended

30 September
2015
Workings Answer

Revenue $220 000

Working capital ratio

(Current ratio) 1.93:1

(to two decimal places)

Quick ratio (acid test
ratio) 1.12:1

(to two decimal places)

[8]

© UCLES 2016 7110/21/O/N/16

Compiled By: WASEEM AKHLAQUE 130

(b) Comment on the liquidity position of Ng over the two years.

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

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

On 31 October 2016 Ng had $15 000 in his business bank account. He is considering ways to
further improve his working capital.
REQUIRED

(c) Complete the table showing the effect on the working capital of the following proposals.
The first item has been completed as an example.

Proposal Effect on
Current assets Current liabilities Working capital
Sell $15 000 non-current + $15 000 No effect +$15 000
assets for cash.

Introduce additional capital of

$10 000, consisting of $5000
in cash and $5000 non-current
assets.

Obtain an additional bank

loan for $30 000, repayable in
equal instalments over five
years.

Offer trade receivables a cash

discount of 10% for quick
payment. Credit customers
owing $60 000 will accept this
offer.
[9]
[Total: 20]
© UCLES 2016 7110/21/O/N/16 [Turn over

Compiled By: WASEEM AKHLAQUE 131

12
30
4 Zahin is a trader, buying and selling goods on credit. The following information is available on
31 August 2016.

$
Capital 60 000
Bank loan (repayable 2020) 20 000
Inventory
1 September 2015 29 000
31 August 2016 31 000
Purchases 170 000

Percentage of gross profit to revenue 25%

(Gross profit margin)
Percentage of profit for the year to revenue 5%
(Profit margin)

REQUIRED

(a) Calculate the following for the year ended 31 August 2016. Comparative figures for the
previous year are shown.

Year ended 31 August 2016 Year ended

31 August 2015
Workings Answer
Revenue for the year $200 000

Percentage mark-up 27%

Expenses for the year $36 000

Return on capital 21%

employed (ROCE)
based on profit for
the year

[10]

© UCLES 2016 7110/22/O/N/16

Compiled By: WASEEM AKHLAQUE 132
13

(b) Give three comments about the performance of Zahin’s business over the two years.

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

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

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

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

3 ................................................................................................................................................

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

...................................................................................................................................................
[6]

Zahin is considering changes to his accounting policies.

REQUIRED

(c) Complete the table naming one principle or concept which has not been complied with if
each proposed action is implemented. The first item has been completed as an example.

Proposed action Principle or concept

Revalue his premises, recording the Historic cost
increase in market value as a profit

Include a value for business reputation in

his income statement

Record his drawings in the income

statement

Stop charging depreciation on

non-current assets for the year

Do not provide for trade debts which are

probably irrecoverable

[4]

[Total: 20]
[Turn over
Compiled By: WASEEM AKHLAQUE
© UCLES 2016 7110/22/O/N/16
133
12
31
4 Jia provided the following information.

$
At 1 April 2016
Opening inventory 27 000

For the year ended 31 March 2017

Expenses 35 000
Revenue 240 000

At 31 March 2017
Trade payables 20 000
Trade receivables 16 000
Bank 2 000 Debit
Closing inventory 21 000

Jia uses a mark-up of 25%.

REQUIRED

(a) Calculate the following for the year ended 31 March 2017.

(i) Cost of sales

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

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

(ii) Profit for the year

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

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

© UCLES 2017 7110/21/M/J/17

Compiled By: WASEEM AKHLAQUE 134
13

(b) Calculate the following ratios to two decimal places. The previous year’s ratios are shown in
the last column.

Workings 31 March 31 March

2017 2016
Gross profit/sales
(Gross profit margin) 15.00%

Rate of inventory
turnover 5.33 times

Working capital ratio

(Current ratio) 3.15:1

Quick ratio (acid test

ratio) 0.32:1

[8]

(i) Gross profit/sales (Gross profit margin)

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

(ii) Quick ratio (acid test ratio)

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

...................................................................................................................................................
[4]

© UCLES 2017 7110/21/M/J/17 [Turn over

Compiled By: WASEEM AKHLAQUE 135
14

Jia is considering ways in which she might improve her profit and working capital in the following year.
She is considering the following proposals:

Proposal 1 Introduce additional capital of $20 000 in cash.

Proposal 2 Charge depreciation on non-current assets at 15% per annum instead of 25%
per annum.

Proposal 3 Take out a 5-year 6% bank loan of $30 000.

REQUIRED

(d) Complete the following table by placing a tick (✓) to show the effect of each proposal on Jia’s
profit for the year and working capital. The first item has been completed as an example.

Profit for the year Working capital

increase decrease no effect increase decrease no effect
Proposal 1 ✓ ✓
Proposal 2
Proposal 3

[4]

[Total: 20]

Compiled By: WASEEM AKHLAQUE 136

11
32
4 Irfan’s accounting year ends on 30 April. The following information is available for the years ended
30 April 2015, 2016 and 2017.

2015 2016 2017

$ $ $
Revenue 128 000 155 000 200 000
Cost of sales 96 000 124 000 164 000
Opening inventory 10 200 13 800 11 000
Expenses 27 500 23 000 22 000
Capital 50 000 50 000 50 000
Bank loan (repayable May 2020) 40 000 30 000 20 000
Gross profit margin 25% 20% ?
Rate of inventory turnover 8 times 10 times ?
Return on capital employed
5% 10% ?
(ROCE)

Additional information

Inventory on 30 April 2017 was valued at $9500.

REQUIRED

(a) Calculate the following ratios at 30 April 2017.

(i) Gross profit margin

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

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

(ii) Rate of inventory turnover

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

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

Compiled By: WASEEM AKHLAQUE 137
12

(iii) Return on capital employed (ROCE)

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

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

(b) (i) Suggest two possible reasons for the change in the gross profit margin over the 3 years.

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

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

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

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

(ii) Suggest two possible reasons for the change in the rate of inventory turnover over the
3 years.

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

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

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

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

(iii) Suggest two possible reasons for the change in the return on capital employed (ROCE)
over the 3 years.

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

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

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

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

Irfan is considering ways in which he might improve his percentage return on capital employed
(ROCE) in the following year. He is considering the following proposals:

1 Introduce additional capital of $5000.

2 Sell non-current assets at book value, $15 000, saving $1500 in depreciation.

3 Give customers cash discount for prompt payment.

4 Convert $20 000 of bank loan into a bank overdraft at the same rate of interest.

Compiled By: WASEEM AKHLAQUE 138
13

REQUIRED

(c) Complete the following table, by placing a tick (✓) in the appropriate box, to show the effect of
each proposal on the profit for the year and the return on capital employed (ROCE).

The first item has been completed as an example.

Profit for the year Return on capital employed (ROCE)

Proposal
increase decrease no effect increase decrease no effect
1 ✓ ✓
2
3
4
[6]

Irfan has also considered improving his profit for the year by:

Proposal 5 Changing the method of depreciating his non-current assets to reduce the annual
depreciation charge

Proposal 6 Not adjusting his financial statements for wages owing at the year end

REQUIRED

(d) Name the accounting concept or principle which would not be complied with if Irfan
implemented his proposals.

Proposal 5 ................................................................................................................................

Proposal 6 ............................................................................................................................[2]

[Total: 20]

Compiled By: WASEEM AKHLAQUE 139
CONTROL
ACCOUNTS

Compiled By: WASEEM AKHLAQUE 140

5 For
Examiner’s
Use
1 2 Tsang is in business buying and selling goods on credit. The following information is available
for the month of March 2010.

$
Revenue (sales) 65 000
Inventory (stock) 1 March 3 400
Trade payables (creditors) 1 March 1 700
Payments to suppliers 47 000
Discount received 300
Inventory (stock) 31 March 2 900
Ordinary goods purchased 47 900
Wages & expenses 2 500

REQUIRED

(a) Prepare the purchase ledger control account showing the balance of trade payables
(creditors) at 31 March 2010.

Purchases Ledger Control account

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

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

Included in the expenses are the wages paid to Susan, who works for Tsang. In the month of
March, Susan worked 160 hours for which she was paid $5 per hour, and 20 hours overtime,
for which she was paid time and a half.

Tax and social security deducted from her pay was $165. Tsang also had to pay $90 for
employer’s social security contributions. The total tax and social security is to be paid to the
tax authorities on 30 April 2010.

REQUIRED

(b) (i) Calculate Susan’s net pay for the month of March.

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

Compiled By: WASEEM AKHLAQUE 141

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

.............................................................................................................................. [2]
www.maxpapers.com
4

2 2 Kya is a wholesaler. She prepares control accounts at the end of each month. The following For
information relates to the month ended 30 April 2011. Examiner’s
Use

$
Sales ledger control account balance 1 April 2011 64 350
Cheques received from debtors 136 800
Discount allowed 5 250
Bad debts written off 7 900
Cash sales 10 750
Credit sales 153 400
Returns inwards 8 100

REQUIRED

(a) State two ways in which control accounts can be used by Kya in her business.

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

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

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

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

(b) Prepare the sales ledger control account for the month ended 30 April 2011.

Balance the account and bring down the balance on 1 May 2011.

Sales ledger control account

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

...................................................................................................................................... [8]

Later when preparing the trial balance, Kya discovered the following errors:

1 A receipt of $485 from a debtor, D. Hulme, had been correctly entered in the
cash book but had been credited to the account of D. Holm.

2 A purchase of office equipment, $550, had been correctly entered in the cash book,
but had been entered in error into the purchases account.
Compiled ©By: WASEEM
UCLES 2011 AKHLAQUE 7110/21/M/J/11 142
www.maxpapers.com
4

3 2 Andrea prepares a sales ledger control account. At 30 September 2011 the following For
information is available: Examiner’s
Use
$
Trade receivables at 1 October 2010 25 000
Credit sales for year 80 000
Receipts from credit customers for year 75 000
Trade receivables at 30 September 2011 30 000

REQUIRED

(a) Prepare the sales ledger control account for the year ended 30 September 2011.