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Please complete this box:

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Subject no. 50B

Paper 2

Accounting Tuesday morning, 29 November 2016 Time allowed: 1 hour 30 minutes Do not open this examination paper until the presiding officer or an invigilator tells you to. You must not take this paper out of the examination room. The examination paper contains 18 questions and is divided into three sections. You must attempt all questions in Section A and Section B, and two questions in Section C. Section A contains 15 marks, Section B contains 30 marks and Section C contains 30 marks. There are 75 marks available in total for the paper. You should allow yourself approximately 20 minutes in total to answer the questions in Section A, 30 minutes in total to answer the questions in Section B, and 20 minutes for each of the questions attempted in Section C. You may continue your answers on a separate sheet of paper if necessary. Separate answer sheets are available from the invigilator. Note: Unless otherwise specified, you should assume that an Act or an organisation referred to in the questions is a UK Act or organisation.

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Section A Answer all questions in this section. Continue your answers on a separate sheet of paper if necessary. 1 A company which sells its goods on credit should recognise sales when:

A the goods are sent to the customer.

B the customer places their order.

C the customer pays for the goods.

D the customer receives an invoice for the goods.

(1 mark) 2 The gross profit margin of a business can change between accounting periods. Give two reasons

why this may happen.

(i) _______________________________________________________________________

(ii) ______________________________________________________________________

(2 marks)

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3 An extract from the financial statements of Hopkin plc for the period ended 31 October 2016 is

shown below.

£Non-current assets 407,800 Current assets Receivables 12,800Bank 3,400

Current liabilities Payables 7,500

Long-term liabilities Long-term debt 150,000

Capital and reserves Ordinary shares 205,500Revenue reserves 61,000

Calculate Hopkin plc’s gearing ratio for the period ended 31 October 2016. Show your workings in the box below.

(2 marks)

4 What is the name of the account that provides an arithmetic check of a sales or purchase ledger?

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(1 mark)

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5 What is the major change introduced by the new UK GAAP, effective from 1 January 2015?

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(1 mark) 6 At the end of its accounting period, how should a business entity report any accrued expenses in

its Statement of Financial Position?

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(1 mark)

7 Prim Ltd has profits at the end of its accounting period which it has not distributed to its shareholders. How would Prim Ltd account for these profits?

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(1 mark) 8 Show the double entry required for a company to account for the annual depreciation of a fixed

asset which it owns.

Dr _________________________________________account Cr _________________________________________account

(2 marks) 9 List two financial statements which are required as a part of IAS1 ‘Presentation of financial

statements’.

(i) _______________________________________________________________________

(ii) _______________________________________________________________________

(2 marks)

10 Show the double entry required for a company to account for its unused stock at the end of an accounting period. Dr ________________________________________ account Cr ________________________________________ account

(2 marks)

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__________________________________________________________________________ Total for Section A = 15 marks

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Section B Answer all questions in this section. Continue your answers on a separate sheet of paper if necessary. 11 The book-keeper employed by Tinvil Cars made the following three errors when preparing the

books for the period ended 31 October 2016: (i) A receipt of £975 from B Paul had been recorded in the cashbook correctly but had been

posted to the account of D Paulo.

(ii) The purchase of a new scanner costing £1,100 from Jurst Supplies had not been posted.

(iii) A sales invoice for goods sold on credit to Raiss & Co for £9,500 had been posted in the books as £5,900.

Show in the box below how you would correct each error.

(6 marks)

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12 With the aid of examples, explain the similarities and differences between a ‘bad debt’ and a

‘provision for doubtful debt’. (6 marks)

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13 Explain the limitations of ratio analysis.

(6 marks)

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14 At the end of a sole trader’s first year, three year-end adjustments needed to be made. Using the

table below, show the impact of each adjustment on each financial statement. (6 marks)

Year End

Adjustment Impact upon profit and loss

account Impact upon balance sheet

Utilities overpayment of £1,500

Marketing expenditure underpayment of

£2,445

First year annual depreciation charge of

£2,000

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15 The following transactions were extracted from the accounting records of a sole trader as at 31

October 2016.

£

Balance 1 October 2016 5,835

Payment to suppliers during October 5,430

Purchases from suppliers in October 8,560

Discount received 995

Returns to suppliers in October 440

Using the table below, prepare the purchases ledger account as at 31 October 2016.

(6 marks)

Purchase Ledger Account

Description Dr Cr Balance

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Total for Section B = 30 marks

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Section C Answer two questions only. Continue your answers on a separate sheet of paper if necessary. 16 A sole trader set up a business selling promotional T-shirts, which has had some success.

However, he did not have prior experience in business and has started up without any consideration of book-keeping requirements.

At the end of the first quarter of the business, he has not created any accounts to record the business transactions. However, he has kept individual box files filled with a variety of paper-based source documents. He has saved these so he can present them to an accountant at a future date. Explain how a range of source documents could be used to create a reliable record of this business’s performance so far.

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17 The trial balance, with notes, for Lucke Graphic Designs (‘Lucke’) is shown below:

Brenda Lucke T/A Lucke Graphic Designs Trial Balance for the period ended 31 October 2016

Dr Cr £ £

Purchases 250,343Sales 389,108 Sales returns 16,500Wages 45,280Heating 1,258Postage, printing & stationery 2,975Rent 28,000Plant and machinery at cost 4,292Accumulated depreciation Plant and machinery b/f 2,818 Inventory b/f 19,508Trade receivables 84,250Trade payables 25,744 Bank 13,654Drawings 5,371Profits b/f 2,761 Long-term loan 46,000 Capital b/f 5,000

471,431 471,431

Notes

1 Inventory at 31 October 2016 was £24,843.

2 Staff wages totalling £2,243 were still unpaid at 31 October 2016.

3 The total rent balance includes £4,000 paid for November and December 2016.

4 Depreciation is charged at 20% on a reducing balance basis.

5 Brenda has been informed that a boutique owing her £21,750 has gone into liquidation.

With the aid of the trial balance and notes above, prepare the Profit or Loss account for Lucke for the period ended 31 October 2016.

(15 marks)

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18 Blynde Jewellery Ltd (‘Blynde’) generated annual sales of £319,618 and a gross profit of £64,172 for the year ended 31 October 2016.

The company’s Statement of Financial Position as at 31 October 2016 is shown below, together with a summary of financial ratio benchmarks from the jewellery industry.

Blynde Jewellery Ltd - Statement of Financial Position as at 31 October 2016

£Non-Current Assets 25,716

Current Assets Inventories 49,686Receivables 13,135Bank 15,415

78,236 Total Assets 103,952

Current Liabilities Payables 23,795

Non-current Liabilities Long term debt 15,467

Capital and reserves Ordinary shares 40,000Revenue reserves 24,690

64,690

Total equity and liabilities 103,952

Financial Ratio Jewellery Industry

Current ratio 1.9:1

Collection of trade receivables 2 days

Payment of trade payables 15 days

Calculate the current ratio, collection of trade receivables and payment of trade payables for Blynde and analyse Blynde’s performance for the year ended 31 October 2016.

(15 marks)

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________________________________________________________ Total for Section C = 30 marks

Total for paper = 75 marks

END

The scenarios included here are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental.

Do not write on this page – examiner use only Section A Section B Section C

Question Question Question

1 11 16

2 12 17

3 13 18

4 14 Total

5 15

6 Total

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Total

Marker (full name):

Reviewer (full name):

Clerical check (full name):

Examiner review:

Total marks for paper: