LCCI International Qualifications
Book-keeping and Accounts Level 2
Model Answers Series 4 2009 (2007)
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Book- Keeping and Accounts Level 2 Series 4 2009
How to use this booklet Model Answers have been developed by EDI to offer additional information and guidance to Centres, teachers and candidates as they prepare for LCCI International Qualifications. The contents of this 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 2009 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. 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 14
QUESTION 1 After stocktaking for the year ended 31 October 2009 had taken place, the closing stock of Fell Ltd was valued at cost £80,500. The following adjustments are required: (i) (ii) (iii) (iv) (v) (vi) (vii)
Some items were no longer up to date and it was decided to sell them at half the cost price. The original selling price had been £2,400. Ten items at a cost of £69 each had been included in the stock list at £96 each. A total of £12,900 on one stock stock sheet had been carried forward as £9,120 to the next sheet. A damaged item, which had cost £630, was to be written off. Goods that had been set aside, and are awaiting collection by a customer, had been included in stock at a valuation of £1,850. The last stock sheet, sheet, totalling £11,900, had not been included in the stock value. Goods sent on a sale or or return basis to Jones, at a sale price of £3,300, had not been sold or returned at 31 October 2009.
Fell Ltd applies a mark up of 50% on cost. REQUIRED (a) Copy the following layout into your answer book and calculate the correct cost of stock at 31 October 2009. Add
Less
Original Cost of Stock Item
£ 80,500
(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) ……….. ………..
Correct Cost of Stock
(16 marks) Simms valued his stock on 30 November 2009 at a cost of £10,200. On the night of 5 December 2009 a fire occurred in the warehouse. The following transactions took place between 1 December 2009 and 5 December 2009: £ Purchases 700 Purchases returns 50 Sales 1,800 Sales returns 300 Some stock, with a cost price £2,000, was saved from the fire but due to smoke damage this will be sold for £1,500. 1
The gross profit margin of Simms is 33 / 3%. REQUIRED (b) Prepare a statement for the stock destroyed to show the value to be claimed from the insurance company. (9 marks) (Total 25 marks)
2007/4/09/MA
Page 2 of 14
MODEL ANSWER TO QUESTION 1 (a)
Fell Ltd Adjusted Stock Valuation at 31 October 2009 Add
Less
Original Cost of Stock (i)
Less:
Reduction to NRV (2,400 – 800* / 2)
(ii)
Less:
800
Overvaluation (96 – 69 x 10)
(iii)
Add:
£ 80,500
270
Stock sheet error (12,900 – 9,120)
(iv)
Less:
Written off item
(v)
Less:
Customers’ goods
(vi)
Add:
Stock sheet total
(vii)
Add:
Sale or return (3,300 – 1,100)
3,780 630 1,850 11,900
2,200 17,880
…….. 3,550
14,330 94,830
Correct Cost of Stock
(b)
Simms Statement of Stock Destroyed on 5 December 2009 £ Stock: 30 November 2009 Add: Purchases Less: Returns
Less: Less:
700 50
Sales Returns
1,800 300 1,500 (1,500 – 500)
Less: Stock saved – NRV Adjustment Value to be claimed
2007/4/09/MA
Page 3 of 14
£ 10,200 650 10,850
1,000 9,850 1,500 8,350
QUESTION 2 The following information relates to the business of C Ward. Balances in the books at 30 June 2009:
Purchases Ledger
Debit Credit Debit Credit
Sales Ledger
£ 1,458 111,129 196,326 5,580
The following balances were extracted from the books for the month ended 31 July 2009:
Cash purchases Credit purchases Returns outwards Payments by cheque to creditors Carriage charged to debtors Transfers of debit balances in sales ledger to purchases ledger Interest charged to debtors Credit sales Returns inwards Bad debts written off Discounts received Cash sales Debtors cheque dishonoured Discount allowed Payments from debtors by cheque Allowance to a debtor, K. Miller, for damaged goods
£ 57,309 316,773 5,499 289,440 14,805 12,825 1,467 597,804 8,721 3,840 7,728 343,446 11,877 16,647 651,690 2,250
Balances in the books at 1 August 2009:
Purchases Ledger Sales Ledger Provision for doubtful debts
Debit Credit Credit
£ 2,535 9,693 19,710
REQUIRED (a) Prepare for the month ended 31 July 2009: (i)
Purchases Ledger Control Account. (9 marks)
(ii)
Sales Ledger Control Account. (14 marks)
(b) State one advantage of preparing Control Accounts. (2 marks) (Total 25 marks)
2007/4/09/MA
Page 4 of 14
MODEL ANSWER TO QUESTION 2 (a) (i) Purchases Ledger Control Account £ 2009 July 1 July 31 July 31 July 31 July 31 July 31 Aug 1
Balance b/d Returns outwards Bank Contra/set off Discount received Balance c/d Balance b/d
1,458 5,499 289,440 12,825 7,728 113,487 430,437 2,535
£ 2009 July 1 July 31 July 31
Balance b/d Purchases Balance c/d
111,129 316,773 2,535
Aug 1
Balance b/d
430,437 113,487
(ii) Sales Ledger Control Account
July 1 July 31 July 31 July 31 July 31 July 31
Aug 1
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
July 1
Balance b/d
July 31 July 31 July 31 July 31 July 31 July 31 July 31
Contra/set off Returns inwards Bad debts Discount allowed Bank K. Miller - allowance Balance c/d
Aug 1
Balance b/d
£ 5,580 12,825 8,721 3,840 16,647 651,690 2,250 130,419 831,972 9,693
(b) One advantage from examples below for 2 marks: The identification of errors in the sales and purchases ledger. Assist in preparing final accounts. Locate total debtors and creditors. 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.
QUESTION 3 The following Trial Balance was extracted from the books of Broom Golf Club on 31 July 2009: Dr £ Subscriptions Catering stock at 1 August 2008 Catering staff wages Catering purchases Catering sales Rent and rates Golf club secretary’s salary Lighting and heating Insurance General expenses Cash at bank Cash in hand Accumulated fund Equipment (at cost) Fixtures and fittings (at cost) Provision for depreciation on golf equipment Provision for depreciation on fixtures and fittings
Cr £ 96,250
14,250 8,000 52,000 110,340 6,500 21,250 8,120 17,160 24,750 40,995 125 37,310 30,750 85,000 ………... 308,900
15,000 _50,000 308,900
Additional information: (1) Depreciation is to be provided for the year ended 31 July 2009 as follows: Equipment – 10% reducing balance Fixtures and fittings – 25% straight line. (2) No subscriptions were were prepaid or accrued at 1 August 2008. (3) At 31 July 2009: General expenses included a prepayment of £1,000 Rent and rates were accrued £930 Subscriptions in arrears amounted to £1,500 Subscriptions prepaid totalled £1,200 Catering stock was valued at £16,000 at cost. REQUIRED Prepare for Broom Golf Club the: (a) Catering Account, Account, showing the profit for the year year ended 31 July 2009. (4 marks) (b) Income and Expenditure Account for the year ended 31 July 2009. (13 marks) (c)
Balance Sheet at 31 July 2009. (8 marks) (Total 25 marks)
2007/4/09/MA
Page 6 of 14
MODEL ANSWER TO QUESTION 3 (a) Broom Golf Club Catering Account for the year ended 31 July 2009 £ Sales Cost of sales Opening stock Purchases
14,250 52,000 66,250 16,000
Closing stock
50,250 60,090 _8,000 52,090
Catering staff wages Catering profit
(b)
£ 110,340
Income & Expenditure Account for the year ended 31 July 2009 £
Catering profit Accept 1.5 where 1,500 is shown Subscriptions (96,250 + 1,500 – 1,200)
£ 52,090 95051.50 148,640
Less
Rent and rates (6,500 + 930) Golf club’s secretary Lighting and heating Insurance General expenses (24,750 – 1,000) Depreciation: Golf equipment [(30,750 – 15,000) x 10%] Fixtures and fittings (85,000 x 25%)
7,430 21,250 8,120 17,160 23,750 1,575 21,250 100,535 48,105 (Accept 46,606.50 for where 1.50 used not 1,500)
MODEL ANSWER TO QUESTION 3 CONTINUED (c) Balance Sheet at 31 July 2009 Fixed Assets Fixtures and fittings Golf equipment
Cost £ 85,000 30,750 115,750
Current Assets Stock Subscriptions in arrears General expenses prepaid Bank Cash
Current Liabilities Subscriptions prepaid Rent and rates accrued
Depreciation £ 71,250>50,000 16,575>15,000 87,825
NBV £ 13,750 14,175 27,925
16,000 1,500 1,000 40,995 125 59,620
1,200 930 2,130 57,490 85,415
Represented by Accumulated fund Add Surplus
2007/4/09/MA
37,310 48,105 85,415
Page 8 of 14
QUESTION 4 Peggy produces her annual accounts with with a year end of 31 October. She depreciates her motor vehicles at 25% a year on the reducing balance basis. She provides a full year’s depreciation in the year of acquisition and none in the year of disposal. On 31 October 2008, her business owned three motor vehicles: Motor vehicle W was purchased on 1 January 2006 for £32,000; Motor vehicle X was purchased on 23 July 2007 for £36,000; and Motor vehicle Y was purchased on 5 August 2008 for £38,000.
REQUIRED (a) Calculate separately, for each of the motor vehicles W, X and Y, the accumulated depreciation at 31 October 2008. (8 marks)
On 1 May 2009, Peggy sold motor vehicle W for £12,400 and replaced it with motor vehicle Z, which she purchased with a cheque for £40,000.
REQUIRED (b) Prepare, for the year year ended 31 October 2009: 2009: (i)
The Motor Vehicles Cost Account (5 marks)
(ii)
The Provision for Depreciation Account (8 marks)
(iii) The Disposal Account (4 marks) Figures must be rounded to the nearest whole £. (Total 25 marks)
2007/4/09/MA
Page 9 of 14
MODEL ANSWER TO QUESTION 4 (a)
2006 2007 2008
Motor vehicle W £ 8,000 6,000 4,500
Workings £ (32,000 x 25%) [(32,000 – 8,000) x 25%)] [(32,000 – 14,000) x 25%)] 18,500
Motor vehicle X 2007 2008
9,000 6,750
(36,000 x 25%) [(36,000 – 9,000) x 25%)] 15,750
Motor vehicle Y 2008 Total
9,500 43,750
(38,000 x 25%)
(b) (i) Motor Vehicles 2008 1 Nov 2009 1 May 1 Nov
Balance b/d Bank Balance b/d
£ 106,000
2009 1 May
Disposal
£ 32,000
40,000 146,000 114,000
31 Oct
Balance c/d
114,000 146,000
(ii) Provision for Depreciation 2009 1 May
Disposal
31 Oct
Balance c/d
£ 18,500 47,438 65,938
2008 1 Nov 2009 31 Oct 1 Nov
Balance b/d P & L/Dep Balance b/d
£ 43,750 22,188 65,938 47,438
[1] Workings P&L
Motor vehicle X [(36,000 – 15,750) x 25%] Motor vehicle Y [(38,000 – 9,500) x 25%] Motor vehicle Z (40,000 x 25%)
£ 5,063 7,125 10,000 22,188
(b) (iii) Disposal Account 2009 1 May
Motor vehicle
£ 32,000 _____ 32,000
2007/4/09/MA
2009 1 May Bank 1 May Provn Depn 31 Oct P & L
Page 10 of 14
£ 12,400 18,500 1,100 32,000
QUESTION 5 Yeung Ltd’s Trial Balance at 31 March 2009 is as follows:
£ 146,200
Machinery at cost Provision for depreciation on machinery Fixtures and fittings at cost Provision for depreciation on fixtures and fittings Motor vehicles at cost Provision for depreciation on motor vehicles Ordinary share capital Stock at 31 March 2008: Raw materials Work in progress Finished goods Sales Salesmen’s salaries Purchases of raw materials Direct wages Indirect wages Machinery repairs Debtors Creditors Bank Rent and rates Administrative expenses Insurance Light and heat Motor expenses Provision for doubtful debts
87,700 27,625 11,050 61,740 31,500 176,900 9,880 5,135 23,692 455,000 15,925 112,309 146,185 36,400 11,700 70,200 18,791 8,840 29,250 21,612 17,870 15,240 24,648 _ 784,451
Additional information: (1) Depreciation is to be provided as follows: Machinery Fixtures and fittings Motor vehicles
10% using the straight-line method 20% using the straight-line method 30% using the reducing balance method
(2) Expenses are to be apportioned as follows:
Machinery repairs Rent and rates Insurance Light and heat Motor expenses Depreciation – Machinery Fixtures and fittings Motor vehicles
Administration % 10 30 30 30 50 10 100 50
(3) There is a prepayment of £1,560 for machinery repairs. (4) Stocks at 31 March 2009 were:
Raw materials Work in progress Finished goods
2007/4/09/MA
£
£ 11,310 14,225 24,830
Page 11 of 14
Factory % 90 70 70 70 50 90 50
3,510 784,451
QUESTION 5 CONTINUED
REQUIRED (a) Prepare the: (i)
Manufacturing Account for the year ended 31 March 2009. (10 marks)
(ii)
Trading and Profit & Loss Account for the year ended ended 31 March 2009. (10 marks)
(b) Define the following: (i) Direct materials (ii) Direct labour (iii) Direct expense (3 marks) (c)
Give one example of direct labour and one example of direct expense. (2 marks)
(Total 25 marks)
2007/4/09/MA
Page 12 of 14
MODEL ANSWER TO QUESTION 5 (a) (i) Yeung Ltd Manufacturing Account for the year ended 31 March 2009 £ Raw materials Opening stock - raw materials Purchases – raw materials Less: Closing stock - raw materials Cost of raw materials consumed Direct wages Prime cost Production overheads Indirect wages Rent and rates (29,250 x 70%) Insurance (17,870 x 70%) Light and heat (15,240 x 70%) Motor expenses (24,648 x 50%) Machinery repairs (11,700 - 1,560)] x 90% Depreciation: Machinery (146,200 x 10%) x 90% Motor vehicles [(61,740 - 31,500) x 30%] x 50%
£
9,880 112,309 11,310 110,879 146,185 257,064 36,400 20,475 12,509 10,668 12,324 9,126 13,158 4,536 119,196 376,260
Add: Opening work in progress Less: Closing work in progress
5,135 14,225 (9,090) 367,170
Production cost
(a) (ii) Trading and Profit & Loss Account for the year ended 31 March 2009 Sales Opening stock –finished goods Production cost Less: Closing stock – finished goods
455,000 23,692 367,170 24,830
Gross profit Less: expenses Salesmen’s salaries Rent and rates (29,250 x 30%) Administrative expenses Insurance (17,870 x 30%) Light and heat (15,240 x 30%) Motor expenses (24,648 x 50%) Machinery repairs (11,700 - 1,560) x 10% Depreciation: Machinery (146,200 x 10%) x 10% Fixtures and fittings (27,625 x 20% ) Motor vehicles [(61,740 - 31,500) x 30%] x 50%
15,925 8,775 21,612 5,361 4,572 12,324 1,014 1,462 5,525 4,536 81,106 7,862
Net profit
2007/4/09/MA
366,032 88,968
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MODEL ANSWER TO QUESTION 5 CONTINUED (b) (i)
Direct materials: the cost of the raw materials that are used to make the finished products. products.
(ii)
Direct labour: the wages earned by those people who are are involved in the actual production of the finished goods.
(iii) Direct expense: these are other costs that can be identified with a particular unit of output other than materials and direct labour.
(c) (i)
Direct labour: e.g. machine operatives or assembly workers.
(iii) Direct expense: e.g. royalties paid to the product designer, the hire of specialist machinery and payments to subcontractors who work on the product.
2007/4/09/MA
Page 14 of 14
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2007/4/09/MA
© Education Development International Plc 2009. All rights reserved. This publication in its entirety is the copyright of Education Development International Plc. Reproduction either in whole or in part is forbidden w ithout the written permission from Education Development Plc. Page 14 of 14 International © Education
