Edexcel IGCSE · Thinka-original Practice Paper

2023 Edexcel IGCSE Accounting Practice Paper with Answers

Thinka Nov 2023 Cambridge International A Level-Style Mock — Accounting

150 marks195 mins2023

An original Thinka practice paper modelled on the structure and difficulty of the Nov 2023 Cambridge International A Level Accounting paper. Not affiliated with or reproduced from Cambridge.

Paper 1 Section A

Answer all questions. Includes multiple-choice questions, document completion, and classification exercises.

14 Question · 30 marks

Question 1 · multiple-choice

1 marks

A business purchased a delivery vehicle and incurred the following costs:

- Purchase price: $20,000
- Delivery charge: $500
- Insurance for the first year: $600
- Testing before its first use: $400

What is the total capital expenditure recorded for this vehicle?

A.$20,000
B.$20,500
C.$20,900
D.$21,500

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Worked solution

Capital expenditure includes costs incurred to acquire the non-current asset and bring it into its working condition.

$\text{Capital expenditure} = \text{Purchase price} (\$20,000) + \text{Delivery charge} (\$500) + \text{Testing} (\$400) = \$20,900$.

Insurance for the first year ($600) is a revenue expenditure (running expense).

Marking scheme

Award 1 mark for the correct option C.
- Reject other options as they either exclude necessary capital costs or include revenue expenditure.

Question 2 · multiple-choice

1 marks

A business has a debit balance of $1,500 in its cash book. The following information is then discovered:

- Bank charges of $50 have not been entered in the cash book.
- Unpresented cheques total $350.
- Outstanding lodgements total $480.

What is the balance showing on the bank statement?

A.$1,320
B.$1,370
C.$1,580
D.$1,630

Show answer & marking scheme

Worked solution

First, calculate the updated cash book balance:
$\text{Updated cash book balance} = \$1,500 - \$50 = \$1,450$ (debit/positive).

Now, reconcile to the bank statement balance:
$\text{Bank statement balance} + \text{Outstanding lodgements} - \text{Unpresented cheques} = \text{Updated cash book balance}$
$X + \$480 - \$350 = \$1,450$
$X + \$130 = \$1,450$
$X = \$1,320$ (credit/positive).

Marking scheme

Award 1 mark for the correct option A.
- Reject other options which arise from incorrect treatment of bank charges, unpresented cheques, or outstanding lodgements.

Question 3 · multiple-choice

1 marks

A business had an opening debit balance on its Sales Ledger Control Account of $12,400. During the month, the following transactions occurred:

- Credit sales: $45,000
- Cash sales: $12,000
- Returns inwards: $1,500
- Receipts from credit customers: $38,000
- Irrecoverable debts written off: $600
- Discount allowed: $400

What is the closing debit balance of the Sales Ledger Control Account at the end of the month?

A.$16,900
B.$17,300
C.$28,900
D.$29,300

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Worked solution

The Sales Ledger Control Account includes only transactions affecting credit customers. Cash sales are not recorded in this control account.

$\text{Closing balance} = \text{Opening balance} (\$12,400) + \text{Credit sales} (\$45,000) - \text{Returns inwards} (\$1,500) - \text{Receipts from credit customers} (\$38,000) - \text{Irrecoverable debts} (\$600) - \text{Discount allowed} (\$400) = \$16,900$.

Marking scheme

Award 1 mark for the correct option A.
- Reject option C and D which incorrectly include cash sales of $12,000.

Question 4 · multiple-choice

1 marks

A machine was purchased on 1 January Year 1 for $16,000. Depreciation is charged at 25% per annum using the reducing balance method. A full year's depreciation is charged in the year of purchase and none in the year of disposal.

The machine was sold on 30 June Year 3 for $8,200. What is the profit or loss on disposal?

A.Loss of $800
B.Profit of $800
C.Loss of $1,450
D.Profit of $1,000

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Worked solution

Year 1 Depreciation: $25\% \times \$16,000 = \$4,000$. NBV at end of Year 1 = $\$12,000$.
Year 2 Depreciation: $25\% \times \$12,000 = \$3,000$. NBV at end of Year 2 = $\$9,000$.
Year 3 Depreciation: None is charged in the year of disposal.
Net Book Value at disposal = $\$9,000$.

$\text{Loss on disposal} = \text{Net Book Value} (\$9,000) - \text{Disposal proceeds} (\$8,200) = \$800$.

Marking scheme

Award 1 mark for the correct option A.
- Reject other options that apply partial year depreciation or incorrect calculation of the reducing balance depreciation.

Question 5 · multiple-choice

1 marks

The following information is extracted from the records of a manufacturing business:

- Inventory of raw materials (opening): $8,500
- Inventory of raw materials (closing): $9,200
- Purchases of raw materials: $62,000
- Carriage inwards on raw materials: $1,400
- Factory wages (direct): $34,000
- Factory wages (indirect): $12,500
- Royalties paid: $3,000

What is the prime cost of manufacturing?

A.$96,700
B.$98,300
C.$99,700
D.$112,200

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Worked solution

First, calculate raw materials consumed:
$\text{Raw materials consumed} = \text{Opening inventory} (\$8,500) + \text{Purchases} (\$62,000) + \text{Carriage inwards} (\$1,400) - \text{Closing inventory} (\$9,200) = \$62,700$.

Then, add direct factory wages and direct expenses (royalties):
$\text{Prime cost} = \text{Raw materials consumed} (\$62,700) + \text{Direct factory wages} (\$34,000) + \text{Royalties} (\$3,000) = \$99,700$.
Note: Indirect factory wages ($12,500) are factory overheads and are excluded from prime cost.

Marking scheme

Award 1 mark for the correct option C.
- Reject other options that exclude royalties or carriage inwards, or include indirect factory wages.

Question 6 · multiple-choice

1 marks

A business continues to use the straight-line method of depreciation for its motor vehicles every year to ensure that the financial results are comparable from one period to the next. Which accounting concept is being applied?

A.Consistency
B.Accruals (Matching)
C.Prudence
D.Materiality

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Worked solution

The consistency concept states that once an accounting policy or method (such as a depreciation method) is chosen, it must be applied consistently from year to year to ensure financial statements are comparable over time.

Marking scheme

Award 1 mark for the correct option A.
- Reject options B, C, and D as they describe different accounting concepts (accruals, prudence, and materiality respectively) which do not specifically deal with applying the same methods across different years.

Question 7 · multiple-choice

1 marks

The following balance details are available for a trader at the end of their financial year:

- Inventory: $18,000
- Trade receivables: $24,000
- Cash at bank: $3,000
- Trade payables: $20,000
- Bank overdraft: $5,000

What is the liquid (acid test) ratio?

A.1.08 : 1
B.1.35 : 1
C.1.80 : 1
D.2.25 : 1

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Worked solution

The liquid (acid test) ratio excludes inventory from current assets.

$\text{Liquid Assets} = \text{Trade receivables} (\$24,000) + \text{Cash at bank} (\$3,000) = \$27,000$.
$\text{Current Liabilities} = \text{Trade payables} (\$20,000) + \text{Bank overdraft} (\$5,000) = \$25,000$.

$\text{Liquid Ratio} = \frac{\$27,000}{\$25,000} = 1.08 : 1$.

Marking scheme

Award 1 mark for the correct option A.
- Reject option C, which is the current ratio (including inventory of $18,000).
- Reject option B, which fails to include bank overdraft in current liabilities.

Question 8 · multiple-choice

1 marks

An invoice of $450 for repairs to office equipment was entered as a debit entry in the office equipment account. What type of accounting error has been made?

A.Error of commission
B.Error of principle
C.Error of omission
D.Complete reversal of entries

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Worked solution

An error of principle occurs when an entry is made in the incorrect class of account. In this case, repairs (a revenue expenditure account) was entered in the office equipment account (a non-current asset capital account).

Marking scheme

Award 1 mark for the correct option B.
- Reject option A because commission error involves recording in the correct class of account but incorrect personal account.
- Reject option C because the transaction was recorded, not completely missed.
- Reject option D because the entries were not reversed.

Question 9 · Multiple-Choice

1 marks

A business purchased a delivery vehicle and incurred the following costs: Purchase price $15 000, Delivery charge $400, Insurance for the first year $600, Painting the company's logo on the vehicle $900. What is the total amount of capital expenditure?

A.$15 000
B.$15 400
C.$16 300
D.$16 900

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Worked solution

Capital expenditure includes the purchase price of the non-current asset and any one-off costs incurred to bring the asset into its working condition. Capital Expenditure = Purchase price ($15 000) + Delivery charge ($400) + Painting logo ($900) = $16 300. Insurance for the first year is an ongoing operating cost and is classified as revenue expenditure.

Marking scheme

1 mark for the correct option (C).

Question 10 · Multiple-Choice

1 marks

The draft profit for the year of a business was $45 000. It was subsequently discovered that: (1) Repairs to machinery of $1 200 had been debited to the Machinery account. (2) A purchase invoice for inventory of $800 had been omitted completely from the accounting records. What is the corrected profit for the year?

A.$43 000
B.$43 800
C.$45 400
D.$47 000

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Worked solution

To calculate the corrected profit, adjust the draft profit for the errors: Draft profit of $45 000 - Repairs to machinery incorrectly capitalized $1 200 - Omitted purchases $800 = $43 000. Both adjustments increase expenses, thereby reducing the draft profit.

Marking scheme

1 mark for the correct option (A).

Question 11 · Credit Note Document Completion

5 marks

On 12 October 2023, J. Green returned 50 faulty units of Product A to Apex Wholesale Ltd. These goods had been originally sold to J. Green at a list price of $8.00 per unit, subject to a 15% trade discount. VAT is charged at a rate of 20%. Complete the Credit Note below by calculating the values for (i), (ii), (iii), (iv), and (v).

CREDIT NOTE Apex Wholesale Ltd Industrial Park, Leeds
Credit Note No: CN905 Date: 14 October 2023 To: J. Green Retailers, High Street, York
Qty Description Unit Price ($) Total ($) 50 Faulty units of Product A 8.00 Total List Price (i) Less: 15% Trade Discount (ii) Net Amount (iii) Add: 20% VAT (iv) Total Credited (v)

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Worked solution

To complete the credit note, calculate each value sequentially:
- (i) Total List Price = 50 units * $8.00 = $400.00
- (ii) Less: 15% Trade Discount = $400.00 * 15% = $60.00
- (iii) Net Amount = Total List Price - Trade Discount = $400.00 - $60.00 = $340.00
- (iv) Add: 20% VAT = $340.00 * 20% = $68.00
- (v) Total Credited = Net Amount + VAT = $340.00 + $68.00 = $408.00

Marking scheme

Award 1 mark for each correct value:
- (i) $400.00 (1 mark)
- (ii) $60.00 (1 mark)
- (iii) $340.00 (1 mark) [Accept Own Figure (OF) if based on incorrect (i) or (ii)]
- (iv) $68.00 (1 mark) [Accept Own Figure (OF) if based on incorrect (iii)]
- (v) $408.00 (1 mark) [Accept Own Figure (OF) if based on incorrect (iii) or (iv)]
Note: Accept answers without dollar signs if the numerical values are correct.

Question 12 · classification

5 marks

Amina is preparing a trial balance at the end of her financial year. Complete the table by indicating whether each of the following ledger accounts normally has a debit balance or a credit balance in the trial balance.

1. Carriage outwards
2. Provision for depreciation of equipment
3. Discount received
4. Bank overdraft
5. Trade receivables

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Worked solution

The correct classifications for the ledger accounts are as follows:

1. Carriage outwards: Debit (This is an expense incurred in distributing goods to customers).
2. Provision for depreciation of equipment: Credit (This is a contra-asset account, which always carries a credit balance).
3. Discount received: Credit (This is an item of revenue/other income).
4. Bank overdraft: Credit (This is a short-term liability representing funds owed to the bank).
5. Trade receivables: Debit (This is an asset representing amounts owed by customers).

Marking scheme

Award 1 mark for each correct classification, up to a maximum of 5 marks:
- Carriage outwards: Debit (1 mark)
- Provision for depreciation of equipment: Credit (1 mark)
- Discount received: Credit (1 mark)
- Bank overdraft: Credit (1 mark)
- Trade receivables: Debit (1 mark)

Question 13 · classification

5 marks

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Worked solution

Marking scheme

Question 14 · Short Answer

5 marks

On 1 May 2023, J. Patel, a trade customer, owed T. Drake $£450$.

During May 2023, the following transactions took place:
* **4 May**: Drake sold goods on credit to Patel, list price $£300$, subject to a 10% trade discount.
* **12 May**: Patel returned goods bought on 4 May, list price $£50$.
* **20 May**: Patel paid Drake $£400$ by cheque.
* **28 May**: Drake sent a debit note to Patel for delivery charges of $£15$.

Calculate the final closing balance on the Statement of Account prepared by T. Drake on 31 May 2023, showing the running balance after each transaction, and state whether this closing balance is a Debit (Dr) or Credit (Cr) balance.

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Worked solution

To find the final closing balance on the Statement of Account, we calculate the running balance after each transaction as follows:

* **1 May: Opening Balance (Dr)** = $£450$
* **4 May: Sales Invoice**
* Net Invoice Value = $£300 - (10\% \times £300) = £270$ (Debit to customer)
* Running Balance = $£450 + £270 = £720$ (Dr)
* **12 May: Credit Note for Sales Returns**
* Net Credit Note Value = $£50 - (10\% \times £50) = £45$ (Credit to customer)
* Running Balance = $£720 - £45 = £675$ (Dr)
* **20 May: Receipt (Cheque)**
* Amount Paid = $£400$ (Credit to customer)
* Running Balance = $£675 - £400 = £275$ (Dr)
* **28 May: Debit Note**
* Delivery Charge = $£15$ (Debit to customer)
* Running Balance = $£275 + £15 = £290$ (Dr)

Therefore, the final closing balance on 31 May 2023 is **$£290$ Debit (Dr)**.

Marking scheme

Award marks as follows:
* **(1 mark)** for calculating the correct net invoice amount of $£270$ (or running balance of $£720$ after 4 May).
* **(1 mark)** for calculating the correct net credit note amount of $£45$ (or running balance of $£675$ after 12 May).
* **(1 mark)** for correctly subtracting the bank payment of $£400$ (or running balance of $£275$ after 20 May).
* **(1 mark)** for correctly adding the debit note of $£15$ (or running balance of $£290$ after 28 May).
* **(1 mark)** for identifying the final balance of $£290$ as a **Debit** (Dr) balance.

Paper 1 Section B

Answer all questions. Contains five multi-part structured bookkeeping and accounting questions.

5 Question · 75 marks

Question 1 · structured

15 marks

Miriam is a sole trader who maintains full double-entry accounting records. The following transactions took place during May 2023 with her credit customer, Kofi.

- **May 1**: Kofi owed Miriam $ £800 $.
- **May 4**: Miriam sold goods to Kofi on credit, list price $ £500 $, subject to a 10% trade discount.
- **May 12**: Kofi returned goods purchased on 4 May. The returned goods had a list price of $ £100 $.
- **May 20**: Kofi paid the amount owing on 1 May by cheque, after deducting a 3% cash discount.
- **May 28**: Miriam sold goods to Kofi on credit, valued at $ £320 $.

**Required:**

(a) Identify the source document and the book of prime entry used by Miriam for the transactions on:
(i) May 4
(ii) May 12 (4 marks)

(b) Prepare the ledger account of Kofi in the books of Miriam for the month of May 2023. Balance the account and bring down the balance on 1 June 2023. (7 marks)

(c) (i) State the division of the ledger in which Kofi's account would be maintained. (1 mark)
(ii) Explain two benefits to a business of dividing its ledger into different sections. (3 marks)

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Worked solution

### Part (a)
- **(i) May 4 (Sales to credit customer)**:
- Source Document: **Sales Invoice** (1 mark)
- Book of Prime Entry: **Sales Journal** (or Sales Day Book) (1 mark)
- **(ii) May 12 (Returns from credit customer)**:
- Source Document: **Credit Note** (1 mark)
- Book of Prime Entry: **Sales Returns Journal** (or Sales Returns Day Book / Returns Inwards Book) (1 mark)

### Part (b)

**Kofi Account**

| Date (2023) | Details | $ £ $ | Date (2023) | Details | $ £ $ |
| :--- | :--- | :--- | :--- | :--- | :--- |
| May 1 | Balance b/d | 800 | May 12 | Sales Returns / Returns Inwards | 90 |
| May 4 | Sales | 450 | May 20 | Bank | 776 |
| May 28 | Sales | 320 | May 20 | Discount Allowed | 24 |
| | | | May 31 | Balance c/d | 680 |
| | | **1,570** | | | **1,570** |
| Jun 1 | Balance b/d | 680 | | | |

*Working Calculations:*
- **May 4 Sales**: $ £500 \times (100\% - 10\%) = £450 $
- **May 12 Sales Returns**: $ £100 \times (100\% - 10\%) = £90 $ (Trade discount must be applied to returns of discounted sales)
- **May 20 Settlement**:
- Amount owed on May 1 = $ £800 $
- Cash discount = $ £800 \times 3\% = £24 $
- Cheque amount (Bank) = $ £800 - £24 = £776 $

### Part (c)
- **(i) Division of Ledger**: **Sales Ledger** (or Receivables Ledger) (1 mark)
- **(ii) Benefits of dividing the ledger (Any 2)**:
- **Division of labor**: Allows different accounts clerks to work on different ledgers at the same time, increasing efficiency. (1.5 marks)
- **Reduces risk of fraud / enhances internal control**: It makes collusion more difficult since duties can be separated between clerks. (1.5 marks)
- **Easier location of errors**: Errors can be localized to a specific ledger using control accounts, making them quicker to find. (1.5 marks)

Marking scheme

**Part (a) [Total: 4 marks]**
- (i) Sales Invoice (1) and Sales Journal/Sales Day Book (1)
- (ii) Credit Note (1) and Sales Returns Journal/Returns Inwards Book (1)

**Part (b) [Total: 7 marks]**
- May 1 Balance b/d on debit side with $ £800 $ (1)
- May 4 Sales on debit side with $ £450 $ (1)
- May 12 Sales Returns on credit side with $ £90 $ (1)
- May 20 Bank on credit side with $ £776 $ (1)
- May 20 Discount Allowed on credit side with $ £24 $ (1)
- May 28 Sales on debit side with $ £320 $ (1)
- June 1 Balance b/d on debit side with $ £680 $ (must have correct balance c/d on 31 May to earn) (1)

**Part (c) [Total: 4 marks]**
- (i) Sales Ledger / Receivables Ledger (1)
- (ii) Award up to 3 marks for any two benefits explained:
- 1 mark for identifying the benefit (e.g., division of labor, error localization, internal check).
- 0.5 marks for development/explanation of how it benefits the business.

Question 2 · subjective

15 marks

Miriam is a sole trader. On 30 June 2023, her trial balance failed to agree; the debit total exceeded the credit total by $ £450 $. A suspense account was opened to record the difference. On investigation, the following errors were discovered: (1) A payment of $ £120 $ for motor vehicle repairs had been debited to the motor vehicles asset account. (2) A credit sale of goods to J. Malik for $ £310 $ had been completely omitted from the accounting records. (3) Cash received from T. Alvi, a trade receivable, of $ £270 $ was correctly entered in the cash book, but no entry was made in T. Alvi's ledger account. (4) Rent paid of $ £180 $ was correctly entered in the cash book but had been debited to the rent account as $ £360 $. Required: (a) Prepare the journal entries to correct each of these errors. Narratives are not required. (8 marks) (b) Prepare the Suspense Account, showing the correction of the relevant errors and clearing the balance. (4 marks) (c) Identify the type of error in Error 1 and explain why this type of error does not affect the trial balance agreement. (3 marks)

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Worked solution

Part (a) Journal Entries: Error 1: Debit Motor vehicle repairs/expenses $ £120 $, Credit Motor vehicles $ £120 $. Error 2: Debit J. Malik $ £310 $, Credit Sales/Revenue $ £310 $. Error 3: Debit Suspense $ £270 $, Credit T. Alvi $ £270 $. Error 4: Debit Suspense $ £180 $, Credit Rent $ £180 $. Part (b) Suspense Account: Debit side: T. Alvi $ £270 $, Rent $ £180 $ (Total Debit = $ £450 $). Credit side: Difference on trial balance (opening balance) $ £450 $ (Total Credit = $ £450 $). Part (c) Error 1 is an Error of Principle. This is because a transaction has been entered in the wrong class of account (revenue expenditure treated as capital expenditure). It does not affect the trial balance agreement because a debit entry of $ £120 $ was still recorded to offset the credit entry of $ £120 $ in the cash book, keeping the total debits equal to total credits.

Marking scheme

Part (a): 8 marks total. For each correct journal entry: 1 mark for the correct debit entry and 1 mark for the correct credit entry. (Error 1: Dr Repairs Cr Motor vehicles - 2 marks; Error 2: Dr J. Malik Cr Sales - 2 marks; Error 3: Dr Suspense Cr T. Alvi - 2 marks; Error 4: Dr Suspense Cr Rent - 2 marks). Part (b): 4 marks total. 1 mark for opening balance of $ £450 $ on the credit side. 1 mark for T. Alvi debit entry of $ £270 $. 1 mark for Rent debit entry of $ £180 $. 1 mark for balancing and closing the account with no remaining balance. Part (c): 3 marks total. 1 mark for identifying 'Error of Principle'. 1 mark for explaining that it involves posting to the wrong class/category of account. 1 mark for explaining that equal debit and credit entries were still made, meaning total debits still equal total credits.

Question 3 · Section B

15 marks

Anika is a sole trader who keeps a full set of accounting records, including control accounts. The following information relates to her business for the month ended 30 April 2023:

| Details | Amount ($) |
| :--- | :--- |
| **At 1 April 2023:** | |
| Sales ledger balances - Debit | 14,000 |
| Sales ledger balances - Credit | 150 |
| **For the month ended 30 April 2023:** | |
| Credit sales | 28,000 |
| Cash and bank receipts from credit customers | 27,150 |
| Discount allowed | 600 |
| Sales returns (returns inwards) | 800 |
| Irrecoverable debts written off | 400 |
| Contra entry (transfer to Purchases Ledger) | 300 |
| Customer's cheque dishonoured | 200 |
| Interest charged on overdue accounts | 50 |
| **At 30 April 2023:** | |
| Sales ledger balances - Credit | 150 |

**Additional information:**
On 1 May 2022, the balance on Anika's Provision for Doubtful Debts Account was $600. At 30 April 2023, she wishes to maintain the provision at 4% of the closing trade receivables (debit balance).

**Required:**

**(a)** Prepare the Sales Ledger Control Account for the month ended 30 April 2023. Balance the account and bring down the balances on 1 May 2023. **(8 marks)**

**(b)** Prepare the Provision for Doubtful Debts Account for the year ended 30 April 2023. Balance the account and bring down the balance on 1 May 2023. **(4 marks)**

**(c)** Explain **one** accounting concept that is applied when a business maintains a provision for doubtful debts. **(3 marks)**

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Worked solution

**(a) Sales Ledger Control Account for the month ended 30 April 2023**

| Date | Details | Amount ($) | Date | Details | Amount ($) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2023 | | | 2023 | | |
| 1 Apr | Balance b/d | 14,000 | 1 Apr | Balance b/d | 150 |
| 30 Apr | Sales (Credit) | 28,000 | 30 Apr | Bank/Cash received | 27,150 |
| | Bank (dishonoured cheque) | 200 | | Discount allowed | 600 |
| | Interest charged | 50 | | Sales returns | 800 |
| | Balance c/d (Credit) | 150 | | Irrecoverable debts | 400 |
| | | | | Contra / Purchases Ledger | 300 |
| | | | | Balance c/d (Debit) | 13,000 |
| | | **42,400** | | | **42,400** |
| 1 May | Balance b/d (Debit) | 13,000 | 1 May | Balance b/d (Credit) | 150 |

**Calculation for part (b):**
- Closing trade receivables (debit balance) = $13,000
- Required Provision = $13,000 \times 4\% = 520$
- Opening Provision = $600
- Decrease in Provision = $600 - 520 = 80$ (credited to Income Statement)

**(b) Provision for Doubtful Debts Account for the year ended 30 April 2023**

| Date | Details | Amount ($) | Date | Details | Amount ($) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2023 | | | 2022 | | |
| 30 Apr | Income Statement | 80 | 1 May | Balance b/d | 600 |
| | Balance c/d | 520 | | | |
| | | **600** | | | **600** |
| | | | 2023 | | |
| | | | 1 May | Balance b/d | 520 |

**(c) Accounting Concept Explanation:**
- **Prudence Concept:** This concept ensures that profits and assets are not overstated. By creating a provision for doubtful debts, the trade receivables asset in the Statement of Financial Position is shown at a more realistic, recoverable amount rather than an overvalued figure.
- *Alternative acceptable concept:* **Accruals/Matching Concept:** This concept requires that revenue earned must be matched against the expenses incurred to earn that revenue in the same period. By recognizing the potential cost of bad debts in the year the sales occurred, profits are matched accurately.

Marking scheme

**(a) Sales Ledger Control Account [8 marks]**
- **1 mark** for both correct opening balances (Debit $14,000 and Credit $150).
- **1 mark** for credit sales ($28,000) on the debit side.
- **1 mark** for bank / cash received ($27,150) on the credit side.
- **1 mark** for discount allowed ($600) and sales returns ($800) on the credit side.
- **1 mark** for dishonoured cheque ($200) and interest charged ($50) on the debit side.
- **1 mark** for irrecoverable debts written off ($400) on the credit side.
- **1 mark** for contra entry ($300) on the credit side.
- **1 mark** for correct closing debit balance calculation ($13,000) and bringing down both balances on 1 May 2023.

**(b) Provision for Doubtful Debts Account [4 marks]**
- **1 mark** for correct opening balance b/d on the credit side ($600).
- **1 mark** for calculating correct required closing provision of $520.
- **1 mark** for correct transfer entry to the Income Statement ($80) on the debit side.
- **1 mark** for balancing the account and bringing down the balance b/d on 1 May 2023 ($520) on the credit side.

**(c) Accounting Concept Explanation [3 marks]**
- **1 mark** for naming a relevant concept (e.g. Prudence or Accruals/Matching).
- **1 mark** for defining/explaining the chosen concept.
- **1 mark** for applying the concept directly to how the provision for doubtful debts works.

Question 4 · Section B

15 marks

Maya is a sole trader who prepares monthly bank reconciliation statements. On 31 October 2023, her Cash Book (bank column only) showed a debit balance of £2,450.

On the same date, her bank statement showed a different balance. On investigation, the following discrepancies were discovered:
1. Bank charges of £45 shown on the bank statement had not been entered in the cash book.
2. A standing order for rent of £350 had been paid by the bank, but not recorded in the cash book.
3. A credit transfer from a customer, J. Patel, of £180 was received but not recorded in the cash book.
4. Cheques written and sent to suppliers but not yet presented to the bank for payment:
- Cheque 4021: £290
- Cheque 4025: £410
5. Cash and cheques received and entered in the cash book on 31 October 2023 but not yet credited by the bank (uncredited deposits) amounted to £920.
6. A cheque received from S. Vance for £120 on 20 October and entered in the cash book was returned by the bank marked 'Refer to Drawer' (dishonoured cheque) on 29 October. No entry has been made in the cash book for this dishonour.

**(a)** Explain **two** reasons why Maya should prepare a bank reconciliation statement. (4 marks)

**(b)** Update Maya's Cash Book (bank column only) at 31 October 2023. Show the new balance carried down. (5 marks)

**(c)** Prepare a bank reconciliation statement for Maya as at 31 October 2023. (4 marks)

**(d)** State **two** advantages to Maya of paying her suppliers by Electronic Funds Transfer (EFT) rather than by cheque. (2 marks)

Show answer & marking scheme

Worked solution

**(a) Two reasons for preparing a bank reconciliation statement:**
1. **To identify and correct errors/omissions in the Cash Book:** Certain transactions such as bank charges, standing orders, and direct credits are only known when the bank statement is received. Reconciling ensures these are updated.
2. **To identify bank errors or timing differences:** It distinguishes between actual errors and timing differences (such as unpresented cheques and uncredited deposits) to ascertain the true bank balance.
3. **To detect fraud or embezzlement:** Comparing the independent bank record with internal records helps ensure all funds are accounted for and prevents unauthorized withdrawals.

**(b) Maya's Updated Cash Book (Bank column only) as at 31 October 2023**

$$\begin{array}{lr|lr}
\text{Dr. Cash Book (Bank Column)} & & & \text{Cr.} \\
\hline
\text{Details} & \text{£} & \text{Details} & \text{£} \\
\hline
\text{Balance b/d} & 2,450 & \text{Bank charges} & 45 \\
\text{J. Patel (Credit transfer)} & 180 & \text{Rent (Standing order)} & 350 \\
& & \text{S. Vance (Dishonoured cheque)} & 120 \\
& & \text{Balance c/d} & 2,115 \\
\hline
& \mathbf{2,630} & & \mathbf{2,630} \\
\hline
\text{Balance b/d} & 2,115 & & \\
\end{array}$$

**(c) Bank Reconciliation Statement as at 31 October 2023**

$$\begin{array}{lrr}
\text{Details} & \text{£} & \text{£} \\
\hline
\text{Balance as per updated cash book (debit)} & & 2,115 \\
\text{Add: Unpresented cheques} & & \\
\text{- Cheque 4021} & 290 & \\
\text{- Cheque 4025} & 410 & 700 \\
\hline
& & 2,815 \\
\text{Less: Uncredited deposits} & & (920) \\
\hline
\text{Balance as per bank statement (credit)} & & \mathbf{1,895} \\
\hline
\end{array}$$

*(Alternative approach starting from bank statement balance:)*
$$\begin{array}{lrr}
\text{Details} & \text{£} & \text{£} \\
\hline
\text{Balance as per bank statement (credit)} & & 1,895 \\
\text{Add: Uncredited deposits} & & 920 \\
\hline
& & 2,815 \\
\text{Less: Unpresented cheques (290 + 410)} & & (700) \\
\hline
\text{Balance as per updated cash book (debit)} & & \mathbf{2,115} \\
\hline
\end{array}$$

**(d) Two advantages of paying suppliers by EFT instead of cheque:**
1. **Speed and efficiency:** Payments are received by suppliers almost instantly, avoiding postal delays and reducing the working capital cycle.
2. **Lower administration costs:** Saves money on cheque stationery, printing, envelopes, and postage.
3. **Improved security:** Eliminates the risk of physical cheques being lost, stolen, or altered in transit.

Marking scheme

**Part (a): [Total: 4 marks]**
- Award 1 mark for identifying a reason and 1 mark for explaining its benefit to the business. (Max 2 reasons $\times$ 2 marks = 4 marks)
- *Example:* To detect errors in the cash book (1) so that entries like bank charges can be corrected to ensure ledger accuracy (1).
- *Example:* To identify outstanding items like unpresented cheques (1) to calculate the true amount of cash available in the bank account (1).

**Part (b): [Total: 5 marks]**
- 1 mark (A) for debiting J. Patel (Credit transfer) £180.
- 1 mark (A) for crediting Bank charges £45.
- 1 mark (A) for crediting Rent (Standing order) £350.
- 1 mark (A) for crediting S. Vance (Dishonoured cheque) £120.
- 1 mark (A) for the correct balance c/d of £2,115 (must be on the credit side to balance, and brought down on the debit side).

**Part (c): [Total: 4 marks]**
- 1 mark (A) for starting with the correct updated cash book balance (£2,115) or bank statement balance (£1,895).
- 1 mark (M) for correct treatment of unpresented cheques (total £700).
- 1 mark (M) for correct treatment of uncredited deposits (£920).
- 1 mark (A) for the correct final reconciled balance (£1,895 or £2,115 depending on starting point).

**Part (d): [Total: 2 marks]**
- Award 1 mark for each valid advantage stated (Max 2 marks).
- Acceptable points: Faster transactions/instant clearing (1); lower costs of postage/stationery (1); more secure than cheques (1); direct electronic record of transaction (1).

Question 5 · Section B Question

15 marks

Part (a) [4 marks]

Classify each of the following transactions for Kaelen's manufacturing business as either Capital Expenditure, Revenue Expenditure, Capital Receipt, or Revenue Receipt:

Purchase of a new delivery vehicle.
Payment for annual insurance of the delivery vehicle.
Legal fees incurred during the purchase of business premises.
Cash received from the sale of an old office computer at book value.

Part (b) [7 marks]

Kaelen provides the following information regarding his manufacturing machinery:

On 1 January 2021, he purchased Machinery A for $40,000.
On 1 July 2022, he purchased Machinery B for $20,000.
Depreciation is charged on machinery at the rate of 20% per annum using the straight-line method. Depreciation is calculated on a monthly pro-rata basis for the period of ownership.
On 30 September 2023, Machinery A was sold for $16,500 cash.
Kaelen's financial year ends on 31 December.

Prepare the Machinery Disposal Account in the ledger of Kaelen for the year ended 31 December 2023.

Part (c) [4 marks]

Explain how the accruals (matching) concept applies to the depreciation of non-current assets.

Show answer & marking scheme

Worked solution

Solution:

Part (a)

Capital Expenditure (Cost of acquiring a non-current asset)
Revenue Expenditure (Day-to-day operating expense)
Capital Expenditure (Cost incurred to bring a non-current asset into use/legal cost of acquisition)
Capital Receipt (Proceeds from the sale of a non-current asset)

Part (b)

Workings:

Accumulated Depreciation of Machinery A up to disposal date (30 September 2023):

Year ended 31 December 2021: $ \\$40,000 \times 20\\% = \\$8,000 $
Year ended 31 December 2022: $ \\$40,000 \times 20\\% = \\$8,000 $
Period 1 January 2023 to 30 September 2023 (9 months): $ \\$40,000 \times 20\\% \times \frac{9}{12} = \\$6,000 $
Total Accumulated Depreciation: $ \\$8,000 + \\$8,000 + \\$6,000 = \\$22,000 $

Loss on Disposal calculation:

Cost of Machinery A: $ \\$40,000 $
Less: Accumulated Depreciation: $ (\\$22,000) $
Net Book Value: $ \\$18,000 $
Less: Sale Proceeds: $ (\\$16,500) $
Loss on Disposal: $ \\$1,500 $

Machinery Disposal AccountDateDetails$ \\$ $DateDetails$ \\$ $2023202330 SeptMachinery (Cost)40,00030 SeptProvision for Depreciation22,00030 SeptBank / Cash16,50031 DecIncome Statement (Loss on Disposal)1,500Total40,000Total40,000

Part (c)

The accruals (matching) concept states that revenue earned and expenses incurred in an accounting period must be matched against each other to calculate the true profit of that period.

Applying this to depreciation:

Non-current assets are purchased to be used over several accounting periods to help generate revenue.
Depreciation spreads the net cost of the asset over its useful economic life, which represents the expense charge for using the asset in each period.
By matching this depreciation charge (expense) against the revenue earned in the same period, the financial statements present a realistic and fair profit/loss, and ensure that the cost of the asset is not written off entirely in the year of purchase (which would unfairly understate profit in year 1 and overstate it in future years).

Marking scheme

Part (a) [4 marks]

1 mark for each correct classification.

Part (b) [7 marks]

1 mark for debiting disposal account with Machinery (Cost) $ \\$40,000 $ with correct date (30 Sept).
2 marks for crediting disposal account with Provision for Depreciation of $ \\$22,000 $ (1 mark for working of $ \\$22,000 $, 1 mark for correct ledger entry).
1 mark for crediting disposal account with Bank/Cash of $ \\$16,500 $.
2 marks for crediting disposal account with Income Statement / Loss on Disposal of $ \\$1,500 $ (1 mark for transfer to Income Statement, 1 mark for the correct amount).
1 mark for correct formatting, balancing, and dates of the ledger account.

Part (c) [4 marks]

1 mark for defining the accruals/matching concept (matching expenses to the revenues they help generate in the same period).
1 mark for stating that non-current assets generate revenue over multiple accounting periods.
1 mark for explaining that depreciation allocates the cost of the asset across those periods of use.
1 mark for explaining the impact on profit (avoids understating profit in the year of purchase and overstating it in future years).

Paper 2

Answer all questions. Focused on the preparation and evaluation of financial statements.

2 Question · 50 marks

Question 1 · structured

25 marks

Arjun is a sole trader who manufactures plastic components under the business name Apex Plastics. The following balances were extracted from his books on 31 October 2023:

- Revenue (Sales): $410,000
- Purchases of raw materials: $142,000
- Carriage inwards (on raw materials): $3,200
- Direct factory wages: $86,000
- Indirect factory wages: $34,500
- Factory power and heating: $18,000
- Office salaries: $41,000
- Rent and rates: $20,000
- Depreciation of factory machinery: $15,000
- Inventory at 1 November 2022:
- Raw materials: $18,500
- Work in progress: $12,400
- Finished goods: $24,000

**Additional Information at 31 October 2023:**
1. Inventory was valued as follows:
- Raw materials: $16,200
- Work in progress: $14,100
- Finished goods: $26,500
2. Direct factory wages of $2,400 were accrued.
3. Factory power and heating accrued was $800.
4. Rent and rates of $1,200 were prepaid. Rent and rates are to be apportioned 75% to the factory and 25% to the office.
5. Arjun is considering a proposal to extend the credit period offered to credit customers from 30 days to 60 days in order to boost sales, but is concerned about the impact on his working capital.

**Required:**

(a) Prepare the Manufacturing Account for Arjun for the year ended 31 October 2023. (14 marks)

(b) Prepare the Trading Account section of the Income Statement for Arjun for the year ended 31 October 2023, showing the Gross Profit. (6 marks)

(c) Evaluate Arjun's proposal to extend credit terms from 30 days to 60 days. Recommend whether he should go ahead with this proposal. (5 marks)

Show answer & marking scheme

Worked solution

**(a) Arjun - Manufacturing Account for the year ended 31 October 2023**

| | $ | $
|---|---|---|
| **Opening inventory of raw materials** | | 18,500
| Add: Purchases of raw materials | 142,000 |
| Add: Carriage inwards | 3,200 | 145,200
| | | 163,700
| Less: Closing inventory of raw materials | | (16,200)
| **Cost of raw materials consumed** | | **147,500**
| Direct factory wages $(\$86,000 + \$2,400)$ | | 88,400
| **PRIME COST** | | **235,900**
| | |
| **Factory Overheads:** | |
| Indirect factory wages | 34,500 |
| Factory power and heating $(\$18,000 + \$800)$ | 18,800 |
| Factory rent and rates $(\$20,000 - \$1,200) \times 75\%$ | 14,100 |
| Depreciation of factory machinery | 15,000 |
| **Total Factory Overheads** | | **82,400**
| | | 318,300
| Add: Opening work in progress | | 12,400
| | | 330,700
| Less: Closing work in progress | | (14,100)
| **COST OF PRODUCTION** | | **316,600**

---

**(b) Arjun - Trading Account (Income Statement section) for the year ended 31 October 2023**

| | $ | $
|---|---|---|
| **Revenue** | | 410,000
| **Cost of Sales:** | |
| Opening inventory of finished goods | 24,000 |
| Add: Cost of production | 316,600 | 340,600
| Less: Closing inventory of finished goods | | (26,500)
| **Cost of Sales** | | **(314,100)**
| **GROSS PROFIT** | | **95,900**

---

**(c) Evaluation of credit terms proposal**

* **Advantages:**
* Attracts new customers and retains existing ones, which increases sales revenue and potential gross/net profits.
* Allows Arjun to clear excess inventory, reducing inventory holding costs (storage, insurance, obsolescence).

* **Disadvantages:**
* Deteriorates the working capital ratio and cash position, as cash inflows from trade receivables are delayed by an additional 30 days.
* Increases the risk of irrecoverable (bad) debts.
* Arjun may face difficulty paying his own suppliers on time (trade payables), potentially losing out on prompt payment discounts or damaging supplier relationships.
* May require bank overdraft facilities, incurring interest costs.

* **Conclusion/Recommendation:**
* Arjun should not immediately extend terms to 60 days for all customers. He could instead offer this selectively to credit-worthy long-standing customers, or introduce a cash discount for early payment (e.g., 2% if paid in 10 days) to mitigate liquidity issues.

Marking scheme

**Part (a): Manufacturing Account [14 marks in total]**
- Opening inventory of raw materials $\$18,500$ (1 mark)
- Purchases $(\$142,000)$ + Carriage inwards $(\$3,200)$ correctly processed as $\$145,200$ (1 mark)
- Closing inventory of raw materials $(\$16,200)$ correctly subtracted (1 mark)
- Cost of raw materials consumed correctly calculated at $\$147,500$ (1 mark)
- Direct wages adjusted to $\$88,400$ (1 mark for adjustment, 1 mark for placing under Prime Cost) (2 marks)
- Prime Cost of $\$235,900$ correctly calculated (1 mark OF - only if raw materials consumed + direct wages)
- Indirect factory wages $\$34,500$ placed in overheads (1 mark)
- Factory power and heating correctly adjusted to $\$18,800$ (1 mark)
- Rent and rates adjusted and apportioned correctly $(\$20,000 - \$1,200) \times 75\% = \$14,100$ (1 mark)
- Depreciation of factory machinery $\$15,000$ placed in overheads (1 mark)
- Opening work in progress added and closing work in progress deducted (1 mark)
- Cost of production correctly calculated at $\$316,600$ (1 mark OF)

**Part (b): Trading Account [6 marks in total]**
- Revenue of $\$410,000$ (1 mark)
- Opening inventory of finished goods of $\$24,000$ (1 mark)
- Cost of production transferred correctly as $\$316,600$ (1 mark OF from Part a)
- Closing inventory of finished goods $(\$26,500)$ deducted (1 mark)
- Cost of sales correctly calculated at $\$314,100$ (1 mark OF)
- Gross Profit correctly calculated at $\$95,900$ (1 mark OF)

**Part (c): Evaluation [5 marks in total]**
- Up to 2 marks for explaining the benefits of extending credit terms (e.g., increased competitiveness, higher sales volume).
- Up to 2 marks for explaining the drawbacks of extending credit terms (e.g., cash flow squeeze, higher risk of irrecoverable debts, pressure on payables payment).
- 1 mark for a clear, reasoned recommendation.

Question 2 · 25-mark structure

25 marks

Maya Lin is a sole trader who operates a retail business under the name VeloSpares. The following draft financial information is available for the year ended 31 December 2023:

- Draft profit for the year (before adjustments): $14,500
- Capital (1 January 2023): $30,000
- Equipment at cost: $45,000
- Accumulated depreciation on equipment (1 January 2023): $18,000
- Inventory (31 December 2023): $14,200
- Trade receivables: $9,600
- Allowance for doubtful debts (1 January 2023): $360
- Trade payables: $7,400
- Bank overdraft: $6,540
- Drawings: $8,000

The following information has not yet been accounted for in the draft profit calculation or the general ledger:
1. Depreciation on equipment is to be provided at 20% per annum using the reducing balance method.
2. The allowance for doubtful debts is to be adjusted to 5% of trade receivables.
3. Rent prepaid at 31 December 2023 amounted to $800.
4. Electricity accrued at 31 December 2023 amounted to $350.

Required:

(a) Calculate the corrected (adjusted) profit for the year ended 31 December 2023. (5 marks)

(b) Prepare the Statement of Financial Position for VeloSpares as at 31 December 2023. (14 marks)

(c) Maya is considering replacing her manual bookkeeping system with a computerised accounting system. Evaluate whether Maya should change to a computerised accounting system. (6 marks)

Show answer & marking scheme

Worked solution

Part (a)
Calculation of Corrected Profit for the Year ended 31 December 2023:

- Draft profit for the year: $14,500
- Less: Depreciation of equipment: $ (\$45,000 - \$18,000) \times 20\% = (\$5,400) $
- Less: Increase in allowance for doubtful debts: $ (\$9,600 \times 5\%) - \$360 = \$480 - \$360 = (\$120) $
- Add: Rent prepaid: +$800
- Less: Accrued electricity: ($350)
- Corrected Profit for the Year: $9,430

Part (b)
Statement of Financial Position for VeloSpares as at 31 December 2023:

Non-Current Assets:
- Equipment: Cost $45,000, Accumulated Depreciation $ (\$18,000 + \$5,400) = \$23,400 $, Carrying Value = $21,600

Current Assets:
- Inventory: $14,200
- Trade receivables: $9,600 less Allowance $480 = $9,120
- Other receivables (Prepaid rent): $800
- Total Current Assets = $24,120
- Total Assets = $45,720

Equity and Liabilities:
Capital:
- Opening Capital: $30,000
- Add: Corrected Profit for the year: $9,430
- Less: Drawings: ($8,000)
- Closing Capital: $31,430

Current Liabilities:
- Trade payables: $7,400
- Other payables (Accrued electricity): $350
- Bank overdraft: $6,540
- Total Current Liabilities = $14,290
- Total Capital and Liabilities = $31,430 + $14,290 = $45,720

Part (c)
Evaluation of changing to a computerised accounting system:

Arguments for (Advantages):
- Speed and Efficiency: Transactions are processed faster, and financial statements can be generated instantly.
- Accuracy: Built-in validation checks and automated calculations reduce mathematical and ledger-balancing errors.
- Data Backups: Cloud-based or off-site backups lower the risk of losing financial documents due to physical fire or theft.

Arguments against (Disadvantages):
- Initial and Ongoing Costs: High capital cost of purchasing software, compatible hardware, and subscription licenses.
- Training Costs and Time: Maya will need training to use the system, which takes her away from daily core business tasks.
- Vulnerability to Security Risks: Cyber-attacks, malware, and electricity blackouts could disrupt access to accounting data.

Conclusion:
Maya should transition to a computerised accounting system as the long-term benefits of speed, automated reporting, and lower risk of human error outweigh the short-term training and installation costs, provided she implements robust password controls and automated cloud backups.

Marking scheme

Part (a) [Total: 5 marks]
- 1 mark for calculating depreciation of $5,400 (deducted)
- 1 mark for calculating increase in allowance for doubtful debts of $120 (deducted)
- 1 mark for adding rent prepaid of $800
- 1 mark for deducting accrued electricity of $350
- 1 mark for correct final corrected profit of $9,430 (or correct OF based on errors above)

Part (b) [Total: 14 marks]
- 1 mark for correct cost of equipment ($45,000) and 1 mark for correct accumulated depreciation ($23,400)
- 1 mark (OF) for carrying value of non-current assets ($21,600)
- 1 mark for inventory ($14,200)
- 1 mark for trade receivables ($9,600) less allowance ($480) [1 mark for allowance, 1 mark for net balance of $9,120]
- 1 mark for other receivables/prepaid rent ($800)
- 1 mark for trade payables ($7,400)
- 1 mark for other payables/accrued electricity ($350)
- 1 mark for bank overdraft ($6,540)
- 1 mark for opening capital ($30,000) and drawings ($8,000)
- 1 mark (OF) for profit addition ($9,430)
- 1 mark (OF) for closing capital ($31,430)
- 1 mark for balancing check: Total Assets = Total Capital and Liabilities ($45,720)

Part (c) [Total: 6 marks]
- Up to 2 marks for explaining advantages (e.g. speed, accuracy, data recovery).
- Up to 2 marks for explaining disadvantages (e.g. costs, training, system failure risk).
- 2 marks for a reasoned final recommendation/decision based on the points discussed.

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