B o o k -k e e p i n g & Accounts Level 2
Model Answ ers Series 3 2008 (Code 2007)
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Book-Keeping & Accounts Level 2 Series 3 2008
How to use this booklet Model Answers have been developed by Education Development International plc (EDI) to offer additional information and guidance to Centres, teachers and candidates as they prepare for LCCI International Qualifications. The contents of this booklet are divided into 3 elements: (1)
Questions
– reproduced from the printed examination paper
(2)
Model Answers
– summary of the main points that the Chief Examiner expected to see in the answers to each question in the examination paper, plus a fully worked example or sample answer (where applicable)
(3)
Helpful Hints
– where appropriate, additional guidance relating to individual questions or to examination technique
Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success. EDI provides Model Answers to help candidates gain a general understanding of the standard required. The general standard of model answers is one that would achieve a Distinction grade. EDI accepts that candidates may offer other answers that could be equally valid.
© Education Development International plc 2008 All rights reserved; no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the Publisher. The book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover, other than that in which it is published, without the prior consent of the Publisher
Page 1 of 13
Page 2 of 13
Book-Keeping & Accounts Level 2 Series 3 2008 QUESTION 1 The following information relates to the business of Sally. Balances in the books at 1 July 2007: Purchases Ledger
Debit Credit Debit Credit
Sales Ledger
£ 1,458 111,129 196,326 5,580
The following figures extracted from the books for the month ended 31 July 2007: £ Cash purchases 57,309 Credit purchases 316,773 Returns outwards 5,499 Payments by cheque to creditors 289,440 Carriage charged to debtors 14,805 Transfers of debit balances in sales ledger to purchases ledger 12,825 Interest charged to debtors 1,467 Credit sales 597,804 Returns inwards 8,721 Bad debts written off 3,840 Discounts received 7,728 Cash sales 343,446 Debtors cheque dishonoured 11,877 Discount allowed 16,647 Payments from debtors by cheque 651,690 Allowance to a debtor, Jenny, for damaged goods 2,250 Balances in the books at 1 August 2007: Purchases ledger Sales ledger Provision for doubtful debts
Debit Credit Credit
£ 2,535 9,693 19,710
REQUIRED (a) Prepare the following for the month ended 31 July 2007: (i)
Purchases Ledger Control Account
(ii)
Sales Ledger Control Account.
(9 marks) (14 marks)
(b) State one advantage to Sally of preparing control accounts.
(2 marks)
(Total 25 marks)
2007/3/08/MA
Page 3 of 13
MODEL ANSWER TO QUESTION 1 (a) (i)
2007 July 01 July 31 July 31 July 31 July 31 July 31 Aug 01
Purchases Ledger Control Account
Balance b/d Returns outwards Bank Contra Discount received Balances c/d Balance b/d
Aug 01 (b)
2007 July July 01 July July 31 July July 31
Aug Aug 01
Bala Balanc nce e b/d b/d Purc Purcha hase ses s Bala Balanc nces es c/d c/d
£ 111, 111,12 129 9 316, 316,77 773 3 2,53 2,535 5
Bala Balanc nce e b/d b/d
430,437 113, 113,48 487 7
Sales Ledger Control Account
(ii)
2007 July 01 July 31 July 31 July 31 July 31 July 31
£ 1,458 5,499 289,440 12,825 7,728 113,487 430,437 2,535
Balance b/d Carriage Interest Sales Dishonoured cheque Balance c/d
£ 196,326 14,805 1,467 597,804 11,877 9,693
Balance b/d
831,972 130,419
2007 July July 01 July July 31 July July 31 July July 31 July July 31 July July 31 July July 31 July July 31
Aug Aug 01
Bala Balanc nce e b/d b/d Cont Co ntra ra Retur Re turns ns inwa inward rds s Bad Bad debt debts s Disc Discou ount nt allo allowe wed d Bank Bank Jenn Jenny y – allo allowa wanc nce e Bala Balanc nce e c/d c/d
£ 5,58 5,580 0 12,8 12,825 25 8,72 8,721 1 3,84 3,840 0 16,64 16,647 7 651, 651,69 690 0 2,250 2,2 50 130, 130,41 419 9
Bala Balanc nce e b/d b/d
831,972 9,69 9,693 3
One advantage from: The identification of errors in the sales and purchases ledger. The location of errors via control accounts eliminates the need to consider the sales and purchases ledgers when errors are revealed by the trial balance. An audit of staff efficiency where control accounts are prepared independently by a senior member of staff. For management purposes, control account balances can be taken to equal debtors and creditors without the extraction of individual balances.
Accept any other reasonable answer .
2007/3/08/MA
Page 4 of 13
QUESTION 2 Joe and Sue have been in partnership for some years sharing profits in the ratio 3:2 respectively. On 30 September 2007 their Balance Sheet was as follows:
£
£
Fixed Assets Plant and Equipment Fixtures and Fittings Current Assets Stock Debtors Bank
30,000 14,000 44,000 19,100 12,000 6,100 37,200
Current Liabilities Creditors
6,400 30,800 74,800
Capital Accounts Joe Sue
30,000 40,000 70,000
Current Accounts Joe Sue
1,000 3,800 4,800 74,800
On 1 October 2007, Lyn joined the partnership. She introduced a vehicle valued at £5,000 and paid £10,000 into the partnership bank account. Plant and equipment was revalued at £56,000, fixtures and fittings at £24,000 and stock at £17,710. A provision for doubtful debts was created at 3% of debtors. Goodwill was valued at £15,000, although no account was retained for goodwill. Joe, Sue and Lyn agreed to share profits and losses in the ratio 3:2:1 respectively.
REQUIRED Prepare the following at 1 October 2007: (a) Revaluation Account
(6 marks)
(b) Capital Accounts for Joe, Sue and Lyn in columnar format (c) Balance Sheet.
(10 marks) (9 marks)
(Total 25 marks)
2007/3/08/MA
Page 5 of 13
MODEL ANSWER TO QUESTION 2 (a)
Revaluation Account Provision for doubtful debts (12,000 x 3%) Stock (19,100 - 17,710) Capital a/c Joe (3/5) Capital a/c Sue (2/5)
£ 360
£ 26,000
Plant and equipment (56,000 - 30,000) Fixtures and fittings (24,000 - 14,000)
1,390 20,550 13,700 36,000
10,000
36,000
(b)
Goodwill (3 : 2 : 1) Balances c/d
Joe £ 7,500 52,050
59,550
Sue £ 5,000 54,700
Capital Accounts Lyn £ 2,500 Balances b/d 12,500 Vehicle Bank Goodwill (3 : 2)
_____ 59,700 15,000
Revaluation a/c _____
Bala Balanc nces es b/d b/d
2007/3/08/MA
Page 6 of 13
Joe £ 30,000
Sue £ 40,000
Lyn £ 5,000 10,000
9,000
6,000
20,550
13,700
59,550
59,700 59
15,000
52,0 52,050 50
54,7 54,700 00
12,5 12,500 00
MODEL ANSWER TO QUESTION 2 CONTINUED (c)
Balance Sheet at 1 October 2007 £
Fixed Assets Plant and Equipment Fixtures and Fittings Vehicle
Current Assets Stock Debtors Less Provision for doubtful debts Bank
56,000 24,000 5,000 85,000
17,710 12,000 (360)
11,640 16,100 45,450
Current Liabilities Creditors Net Current Assets
6,400 39,050 124,050
Capital Accounts Joe Sue Lyn
52,050 54,700 12,500 119,250
Current Accounts Jo Sue
1,000 3,800 4,800 124,050
2007/3/08/MA
Page 7 of 13
QUESTION 3 Lucy West depreciates her motor vehicles at of 25% per annum using the reducing balance method. She provides a full year's depreciation on assets in the year of purchase and provides no depreciation in the year of disposal. Lucy bought new fixed assets as follows:
Date Purchased 31 July 2005 31 August 2006
Motor vehicles £ 40,000 36,000
On 30 November 2007, she traded in the vehicle purchased in 2005 for a new vehicle. The old vehicle was traded in for £22,000 and the purchase price of the replacement vehicle was £42,000, the balance being paid by cheque.
REQUIRED Prepare the following accounts, for each of the years ended 31 December 2005, 2006 and 2007: (a) Motor Vehicles Account.
(5 marks)
(b) Provision for Depreciation of Motor Vehicles Account.
(5 marks)
(c) Depreciation of Motor Vehicles Account.
(3 marks)
(d) Disposal of Motor Vehicle Account.
(5 marks)
Items which appear in a Sales Ledger Control Account or a Purchase Ledger Control Account could include the following: (i) Payments made by credit customers (ii) Sales returns (iii) Purchases (iv) Bad debts written-off (v) Cash discounts (vi) Transfers between the Sales Ledger and the Purchases Ledger (vii) Interest charged to customers on overdue accounts (viii) Refunds from suppliers.
REQUIRED (e) List the numbers (i) to (viii) in your answer book and against each number state the name of the appropriate book of prime entry. The first is completed as an example. (i)
Cash book
(7 marks)
(Total 25 marks)
2007/3/08/MA
Page 8 of 13
MODEL ANSWER TO QUESTION 3 (a)
Lucy West Motor Vehicles
31.07.05
Bank
01.01.06 31.08.06
Bal b/d Bank
01.01.07 30.11.07 30.11.07
Bal b/d Bank Disposal a/c
01.01.08
Bal b/d
(b) 31.12.05
Bal c/d
31.12.06
Bal c/d
31.12.07 31.12.07
Disposal Bal c/d
£ 40,000 40,000 40,000 36,000 76,000 76,000 20,000 22,000 118,000 78,000
31.1 31.12. 2.05 05
Bal Bal c/d c/d
31.1 31.12. 2.06 06
Bal Bal c/d c/d
30.1 30.11. 1.07 07 31.1 31.12. 2.07 07
Disp Dispos osal al a/c a/c Bal Bal c/d c/d
76,0 76,000 00 76,000 40,0 40,000 00 78,0 78,000 00 118,000
Provision for Depreciation of Motor Vehicles £ 10,000 31.1 31.12.0 2.05 5 De Depr prec ecia iati tion on 10,000 01.01.06 Bal b/d 26,500 31.12.06 Depreciation 26,500 (7,500 + 9,000) 17,500 01.0 01.01. 1.07 07 Bal Bal b/d b/d 26,250 31.1 31.12.0 2.07 7 De Depr prec ecia iati tion on (6,750 + 10,500) 43,750 01.0 01.01. 1.08 08 Bal Bal b/d b/d
£ 10,00 10,000 0 10,000 10,000 16,500 26,500 26,5 26,500 00 17,25 17,250 0 43,750 26,2 26,250 50
Depreciation of Motor Vehicles
(c) 31.12.05
PDMV
31.12.06
PDMV
31.12.07
PDMV
£ 10,000 10,000 16,500 16,500 17,250 17,250
(d)
31.1 31.12. 2.05 05
P&L P&L
31.1 31.12. 2.06 06
P&L P&L
31.1 31.12. 2.07 07
P&L P&L
£ 10,0 10,000 00 10,000 16,5 16,500 00 16,500 17,2 17,250 50 17,250
Disposal of Motor Vehicle
30.11.07
Motor vehicle
£ 40,000
30.1 30.11.0 1.07 7 31.1 31.12. 2.07 07 31.12.07 .07
40,000
(e)
£ 40,0 40,000 00 40,000
(i) Cash Book (ii) Sales Returns Day Book (iii) Purchases Day Book (iv) General Journal (v) Cash Book (discount column) (vi) General Journal (vii) General Journal (viii) Cash Book
2007/3/08/MA
Page 9 of 13
Motorr vehi Moto vehicl cle e PDMV PD MV P& L
£ 22,00 22,000 0 17,5 17,500 00 500 500 40,000
QUESTION 4 Jeremy sells goods at a mark-up of 25% on cost. During the year ended 31 December 2007 there was a fire which damaged a quantity of his stock. Jeremy needs to identify the amount of the stock lost for an insurance claim. Other information relating to the year is as follows: £ Sales 320,000 Sales returns 8,000 Stock at 1 January 34,000 Stock at 31 December 36,000 Creditors at 1 January 17,000 Creditors at 31 December 14,400 Payments to creditors 284,600
REQUIRED (a) Prepare a Trading Account for Jeremy for the year ended 31 December 2007, showing the stock loss resulting from the fire. (11 marks)
Samantha has six lines of stock in her business. At 31 March 2008, the following information is available regarding her stock:
Stock type Skirts Dresses Jeans Jumpers Trousers Cardigans
Number of units in stock 10 17 15 12 24 11
Cost per unit £ 32 48 36 24 44 32
Selling price per unit £ 0 37 48 28 48 44
Additional information is also available: (i)
The stock of skirts is now obsolete
(ii)
The stock of trousers needs an additional cost of £2 per unit to be incurred in bringing the stock into a saleable condition
(iii) 20 cardigans are presently at a customer's premises on a sale or return basis.
REQUIRED (b) Calculate the value of Samantha’s stock, at 31 March 2008.
(14 marks)
(Total 25 marks)
2007/3/08/MA
Page 10 of 13
MODEL ANSWER TO QUESTION 4 (a)
Jeremy Trading Account for the year ended 31 December 2007 £
£ 320,000 8,000 312,000
Sales Less Sales returns Opening stock Purchases (284,600 + 14,400 - 17,000) Stock loss Less Closing stock Cost of sales (312,000 x 80%) Gross profit (312,000 x 20%)
34,000 282,000 (30,400) (36,000) 249,600 62,400
(b)
Stock type Skirts Dresses Jeans Jumpers Trousers Cardigans
2007/3/08/MA
Units 10 17 15 12 24 31
Value per unit £ 0 37 36 24 44 32
Page 11 of 13
Total £ 0 629 540 288 1,056 992 3,505
QUESTION 5 Jack Brown’s book-keeper prepared his trial balance at 31 May 2008. The trial balance contained the balances for the Sales Ledger Control Account and the Purchase Ledger Control Account. The bookkeeper was unable to make the trial balance totals agree and therefore opened a suspense account. After examining the books the following errors were discovered: (i)
Discounts allowed allowed of £60 had been incorrectly credited to the discount received account.
(ii)
A credit note from Black, a supplier, for £120 was incorrectly entered in the Purchases Return Journal as £160.
(iii) A vehicle had been sold during the year for which Jack had received a cheque for £5,000. This had been entered on the wrong side of the cash book although treated correctly in the disposal account. (iv) It is company policy not to depreciate vehicles in the year of disposal. An entry of £250 had been incorrectly entered in the provision for depreciation account for a vehicle sold on 8 April 2008. (v) Jack had taken goods amounting to £1,200 at cost for his own use. No entries had been made in the books. (vi) Rent paid by Jack Brown of £580 was correctly entered in the cash book but entered in the rent payable account as £850. (vii) Cash of £200 was received from a debtor with regard to a debt which had been written off in March 2007. This had been correctly entered in the cash book but no other entry had been made. (viii) The Sales Journal had been overcast by £900. Once these errors had been corrected the trial balance totals agreed.
REQUIRED (a) Prepare journal entries to correct the above errors. Narratives are not required.
(17 marks)
(b) Prepare the Suspense Account, correcting the errors above, and showing the opening balance. (8 marks)
(Total 25 marks)
2007/3/08/MA
Page 12 of 13
MODEL ANSWER TO QUESTION 5 (a)
Dr £ 60 60
Discounts received Discounts allowed Suspense
120
Purchases returns Purchases ledger control account
40 40
Bank Suspense
10,000 10,000
Provision for depreciation P&L
250 250
Drawings Purchases
1,200
Suspense Rent
270
Suspense Bad debts recovered
200
Sales Sales ledger control account
900
(b) Balance b/d Rent Bad debts recovered
2007/3/08/MA
Cr £
1,200
270
200
900
Suspense Account 9,650 270 200 10,120
Page 13 of 13
Discounts allowed Discounts received Bank
60 60 10,000 10,120
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