LCCI International Qualifications
Book-Keeping and Accounts Level 2
Model Answers Series 4 2011 (2007)
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Book-Keeping and Accounts Level 2 Series 4 2011
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 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 summ ary 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 2011
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QUESTION 1 The following information was extracted from the books of Dore Trading Ltd, at 31 March 2011:
Goodwill Fixtures and fittings at cost Motor vehicles at cost Stock at 31 March 2011 Debtors Bank Creditors General reserve
£ 25,000 50,000 100,000 76,250 130,000 21,875 Dr 50,125 25,000
Additional information: (1) The motor vehicles and fixtures and fittings were all purchased on 1 April 2008. The depreciation policy is as follows: (i)
fixtures and fittings – straight line over 5 years assuming a residual balance of £5,000
(ii)
motor vehicles – 25% per annum reducing balance
(2)
A provision for doubtful debts of 5% of debtors was created on 31 March 2011
(3)
The company company has 125,000 ordinary shares of £1 each, all of which which have been been issued and fully paid at £1.10 a share
(4)
The directors directors have proposed a dividend of of £0.15 per share for the year ended 31 March 2011
(5)
During the year year ended 31 March 2011, Dore Dore Trading Ltd had taken out a bank loan for £50,000. £50,000. This is to be repaid by equal annual amounts over 10 years, commencing 1 February 2012
(6)
The balancing figure on the Balance Sheet represents the retained profit.
REQUIRED (a) Prepare the Balance Sheet, in vertical format, at 31 March 2011. (21 marks) (b) State two differences between a public limited company and a private limited company. (4 marks) (Total 25 marks)
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MODEL ANSWER TO QUESTION 1 Syllabus Topic 3: Limited Liability Companies (3.2.4), (3.2.7), (3.2.8), (3.2.9), (3.2.10), (3.2.12), (3.2.13) and (3.2.14) (a)
Dore Trading Ltd Balance Sheet at 31 March 2011
Fixed assets
Cost
1both
Accumulated depreciation £
£ Goodwill Fixtures and fittings Motor vehicles
Current assets Stock Debtors Less: PDD
50,000
27,000
100,000 150,000
57,813 84,813
23,000 42,187 90,187
76,250 130,000 6,500
Creditors falling due within one year Creditors 50,125 Proposed dividends 18,750 Loan repayment (50,000 x 10%) 5,000
123,500 21,875 221,625
1 1of
[W3] 1 1 73,875
Net current assets 1 Creditors falling due after more than one year Bank loan (50,000 - 5,000) 1 1 Capital and reserves Issued and fully paid share capital 125,000 £1 Ordinary shares Share premium (125,000 x 10%) General reserve Profit and loss
[W1] 3 [W2] 3
Net book value £ 25,000 1
1of 147,750 237,937
1of
45,000 192,937
125,000 12,500 25,000 30,437 192,937
1 1 1+1of
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[W1]
[W3]
50,000 less: 5,000 45,000 ÷ 5 years = 9,000 9,000 x 3 years 1 = 125,000 x £0.15 = 1
[W2] 1 1
100,000 x 25% = 75,000 x 25% 56,250 x 25% =
25,000 18,750 14,063 57,813
1 1 1
27,000 18,750 (21 marks)
Syllabus Topic 3.1: Formation of a Company (3.1.1) (b)
Public limited company
Private limited company
Has PLC in the name Shares are sold on the stock exchange Published report and accounts available to the public Publishes full report and accounts Minimum allotted capital of at least £50,000 Has unlimited number of Shareholders
Has Ltd in the name Shares are sold to private investors Report and accounts sent to companies house available on request Information disclosed is limited by the requirements of the Companies Act No minimum or maximum capital Has 2 to no fixed number of shareholders but usually 50
(4 marks) (Total 25 marks)
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QUESTION 2 Don Bates provides for doubtful debts at 3% of outstanding outstanding debtors at his year end of 30 April. The following balances of debtors are: Debtors
£
April 30, 2009 April 30, 2010 April 30, 2011
18,700 21,400 19,600
The following bad debts had been written off: Debtor
Date written off
£
Allan Brian Carlos David Edward Frank
May 15, 2009 August 16, 2009 January 7, 2010 March 21, 2010 June 13, 2010 October 30, 2010
60 109 42 101 37 29
The debt of David was partially recovered on 31 March 2011, when £36 was received.
REQUIRED (a)
Prepare for each of the years ended 30 April 2010 and 30 April 2011 the: (i)
Bad Debts Account (5 marks)
(iii)
Provision for Doubtful Debts Account
(iv)
David’s Account.
(7 marks) (5 marks) (c)
Prepare the Bad Debts Recovered Account for year ended 30 April 2011. (2 marks)
(c)
Prepare the Balance Balance Sheet Sheet extracts for each of the years years at 30 April 2009, 2010 and 2011. (6 marks) (Total 25 marks)
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MODEL ANSWER TO QUESTION 2 Syllabus topic 1.1: Advanced aspects of the syllabus for Level 1 Book-keeping (a) (i)
Bad Debts Account £
2009 May 15 Allan Aug 16 Brian 2010 Jan 7 Carlos Mar 21 David
1
£
60 109 2010
1
2010 Jun 13 Edward Oct 30 Frank
42 101 312
Apr 30 P&L A/c
1
312 312
2011 1
37 ..29 .. 29 ..66 .. 66
Apr 30 P&L A/c
1 ..66 ..66 ..66 .. 66 (5 marks)
Syllabus topic 1.4: Bad debts and provision for doubtful debts (1.4.5) (ii)
Provision for Doubtful Debts Account
2010 April 30 Balance c/d (21,400 x 3%)
1
£ 642
….. 642 2011 April 30 P&L A/c April 30 Balance c/d (19,600 x 3%)
1 of .. ..54 54 1 588 ….. 642
2009 £ May 1 Balance b/d(18,700 x 3%) 1 561 2010 April 30 P&L A/c 1 of 81 ….. 642 May 1
Balance b/d
1 of 642 ….. 642
2011 May 1
Balance B/D
1 of 588 (7 marks)
(iii)
David’s Account £
£
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MODEL ANSWER TO QUESTION 2 CONTINUED Syllabus topic 1.4: Bad Debts and provision for doubtful debts (1.4.6) (c)
Balance Sheet Extracts £
30 April 2009 Debtors Less provision for doubtful debts
30 April 2010 Debtors Less provision for doubtful debts
30 April 2011 Debtors Less provision for doubtful debts
18,700 ….561 …. 561 1 of 18,139 1 of
21,400 .....642 1 of .....642 20,758 1 of
19,600 .....588 ..... 588 1 of 19,012 1 of (6 marks) (Total 25 marks)
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QUESTION 3 Amy and Bill are in partnership sharing profits and losses in the ratio 2:1. Their Balance Sheet is as follows: Balance Sheet at 30 June 2011 £ Fixed assets Premises Equipment
£ 50,000 15,250 65,250
Current assets Stock Debtors Bank
8,500 7,800 550 16,850
Creditors falling due within one year Creditors Net current assets
7,150 9,700 74,950
Capital Accounts:
Amy Bill
40,000 30,000
Current Accounts:
Amy Bill
5,400 (450)
70,000
4,950 74,950 Additional information: (1)
On 1 July, Charles was admitted into the partnership. Future profits and losses were to be shared by Amy, Bill and Charles in the ratio 2:1:1 respectively.
(2)
Goodwill was valued at £9,000 at 30 June 2011. The partners agreed that goodwill would not be retained in the books of the partnership.
(3)
Charles brought into the partnership vehicles at a valuation of £13,500, stock £1,500 and cash £7,500. The cash was deposited in the business bank account.
(4)
It was was agreed that Charles would would make an additional payment payment by cheque into the partnership bank account, to pay for his share of the goodwill.
(5)
It was decided to revalue the premises at £110,000 at 30 June 2011.
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MODEL ANSWER TO QUESTION 3 Syllabus Topic 2.4: Partnerships (a)
Dr £
Cr £
Premises (110,000-50,000) Capital: Amy 2/3 Bill 1/3
60,000
1 40,000 1 20,000 1
Vehicles Stock Bank Capital: Charles
13,500 1,500 7,500
1 1 1 22,500 1
2,250
1 1,500 1 750 1
Bank (9,000 x ¼) Capital: Amy (9,000 x ⅔) – 9,000 x ½) Bill (9,000 x ⅓) – (9,000 x ¼)
(10 marks) (b)
Amy, Bill and Charles Balance Sheet at 1 July 2011 £
£
Fixed assets Premises Equipment Vehicles Current assets Stock Debtors 1 1 Bank (550 + 7,500 + 2,250)
Creditors falling due within 1 year Creditors Net current assets
Capital Accounts Amy (40,000 + 40,000 + 1,500) Bill (30,000 + 20,000 + 750) Charles Current Accounts
110,000 1 15,250 13,500 1 138,750 10,000 7,800
1
10,300 28,100
.7,150 ..20,950 1 of must be labelled ..20,950 159,700
81,500 50,750 22,500
1 of 1 of 154,750 1 of
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QUESTION 4 The following information is available from the books of Goodwin Ltd: At 31 August 2010
Stock Sales ledger balances:
At 31 August 2011
£ 14,830 7,605 Dr 205 Cr
£ 17,055 ? Dr 295 Cr
For the year ended 31 August 2011 Sales Purchases Sales returns Purchases returns Discounts allowed Discounts received Payments to suppliers Receipts from customers Bad debts written off Interest charged on customers’ overdue accounts Purchases ledger balance set off against sales ledger balance Refunds to customers
£ 255,340 180,060 705 680 655 490 179,300 249,800 175 30 305 575
All sales and purchases are on credit. REQUIRED (a)
Prepare for the year ended 31 August 2011 the: (i)
Sales Ledger Control Account (14 marks)
(ii)
Trading Account. (5 marks)
(b)
Identify three areas, other than debtors, where control accounts are used. (3 marks)
(c)
State three reasons why Goodwin Ltd would choose to use control accounts. (3 marks) (Total 25 marks)
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MODEL ANSWER TO QUESTION 4 (a)
(i)
Syllabus topic 8: Control Accounts (8.4), (8.6) and (8.7)
Sales Ledger Control Account £ Balance b/d Balance b/d 7,605 1 Sales Sales returns 255,340 1 Interest Discounts allowed 30 1 Bank (refunds) Bank 575 1 Balance c/d Bad debts 295 1 Contra ............ Balance c/d 263,845 Balance b/d 12,000 1of Balance b/d Must have narrative and amount. (ii)
£ 205 705 655 249,800 175 305 ..12,000 .. 12,000 263,845
1 1 1 1 1 1 1
295
1 (14 marks)
Syllabus topic 1.1: Advanced Aspects of the Syllabus for Level 1 (1.1) Goodwin Ltd Trading Account for the year ended 31 August 2011 £
£
Sales Sales returns Less: Cost of sales Opening stock Purchases Purchases returns Less: Closing stock Gross profit
£ 255,340 ......705 ...... 705 254,635
1
14,830 180,060 ......680 ...... 680
179,380 194,210 .17,055
1 177,155 .77,480
1 1+1of
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QUESTION 5 After stocktaking for the year ended 31 January 2011 had taken place, the closing stock of Jacques Ltd was valued at cost £66,550. The following adjustments are required: (i)
Some items were out of date and it was was decided to sell them at half the cost price. The original selling price was £9,600.
(ii)
Twelve items at a cost of £79 each had been incorrectly included in the stock take, at £97 each.
(iii)
A total of £12,900 on one stock sheet had had been carried forward as £2,900 £2,900 to the next stock sheet.
(iv)
An item, which had cost £630, was scrapped.
(v)
Goods paid for and awaiting collection by a customer had been included in in th the e stock at a valuation of £1,850.
(vi)
The last last stock sheet, totalling £14,900, had not been included in the stock valuation.
(vii)
Goods sent on sale or return to Daisy Bell, recorded as as a sale at £6,600, had not been returned or sold at 31 January 2011.
Jacques Ltd applies a mark up of 50% on cost. REQUIRED (a)
Copy the following layout into your answer book and calculate the revised stock value at 31 January 2011. Add
Original cost of stock
Deduct
£ 66,550
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QUESTION 5 CONTINUED The accountant of King’s Ltd extracted the following figures from the first years Trading and Profit & Loss Account for the year ended 31 December 2010 and the Balance Sheet at 31 December 2010: £ Sales Cost of sales Gross profit Operational expenses Loan interest
£ 550,000 200,000 350,000
225,000 4,500
Net profit
229,500 120,500
Debtors Closing stock Cash Creditors Bank overdraft
125,000 65,000 1,200 88,000 7,500
REQUIRED (b)
Calculate the following ratios to one decimal place, showing your workings and answer. (i) (ii) (iii) (iv)
Net profit (before interest) to sales Current/Working capital Liquidity/Acid test Stock turnover (based on closing stock). (8 marks)
(c)
State the purpose of calculating the current/working capital ratio.
(1 mark) (Total 25 marks)
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MODEL ANSWER TO QUESTION 5 Syllabus Topic 6: Stock valuation (6.1), (6.2) (a)
Jacques Ltd Adjusted Stock valuation at 31 January 2011 Add Deduct
Original cost of stock (i)
(ii)
(iii)
66,550
Reduction to NRV 1 1 1 (9,600 – 3,200 / 2)
(3,200)
Overvaluation 1 1 (97 – 79 x 12) Stock Sheet error 1 1 (12,900 – 2,900)
(iv)
Scrapped item
(v)
Customer’s goods
(vi)
Stock sheet total
(vii)
Sale or return 1 1 (6,600 - 2,200)
Net adjustment Revised stock value
£
1 (216)
10,000 (630) 1 (1,850) 1 14,900 1
..4,400 ..4,400 29,300
. ....... (5,896)
1 of 23,404 1+1of 89,954
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