CARIBBEAN EXAMINATIONS COUNCIL

1980

PRINCIPLES OF ACCOUNTS PAPER II GNERAL PROFICIENCY

Answer ALL questions in Section I and TWO questions from Section II.
Begin EACH answer on a separate page
Keep ALL parts of EACH answer together
Silent electronic calculators may be used, but ALL necessary working should be clearly
shown.

SECTION I
Answer all THREE questions in this section.
1.

The following information pertains to Jack and Jill who entered into a business
partnership on August 1, 1979 as sellers of fresh fruit. They agreed to share
profits in the ratio of 5: 3 respectively.
Trial Balance on July 31, 1979
Purchases
Petty Cash
Creditors
Office Salaries
Stock (August 1, 1978)
Current Accounts
Jack
Jill
Bank Overdraft
Rent and Electricity
Furniture
Debtors
Provision for Bad Debts (August 1, 1978)
Discounts
Selling Expenses
Water Rates
Sales
Carriage Inwards
Sales Returns
Bank Interest
Capital Accounts
Jack
Jill

$
51 490
42

$
6 100

5 180
6 200
4 500
3 000
1 000
1 100
920
4 000
200
1 900
250

340
315
66 096

320
214
35
3 000
2 500
79 351

79 351

Additional Notes
(i)

It was decided to write $80 off debtors as bad debts and reduce the
provision for bad debts to $250.

(ii)

Stock at July 31, 1979 was valued at $6 160

(iii)

It had been agreed during the year that as from February 1, 1979 profits
and losses should be divided equally (it is assumed that profits accrues at
an even rate month by month)

(iv)
(v)

It was agreed to allow Jack $100 and Jill $160 for expenses incurred on
behalf of the business during the trading period

(vi)

Interest accrued on bank overdraft amounts to $21.00

(vii)

Allow 5% depreciation on furniture

From the above information prepare the following:

(a)
(b)

The Trading and Profit and Loss Accounts for the year ended July 31,
1979 and Statement of Assets and Liabilities as at that date.
You are required:
(i)
(ii)

2.

to calculate the rate of stock turnover

to state concisely the information this provided about the sales
made by the business.
(24 marks)

On January 1 the following balances appeared in the books of Boucher.

Insurance
Electricity
Rent
Rates

$37 (dr)
$85 (cr)
$108 (dr)
$60 (dr)

During the year the following transactions occurred:

(i)

On September 15, $120 was paid for insurance of which $32 was a
prepayment for the new financial year.

(ii)

Four electricity bills were paid during the year

March 3
June 10
August 28
December 1

$280
$230
$150
$210

The value of electricity consumed from December 1 to December 31 was

estimated.
(iii)

The annual rent of $650 is paid quarterly in advance on March 31, June
30, September 30 and December 31.

(iv)

Rates of $280 per annum are paid half-yearly in advance on March 31

and September 30.

(a)

Journalise the above entries (i) (iv) including cash transactions.

(b)

Starting with the opening balances write up the four accounts for the year
taking care to show the appropriate transfers to the Profit and Loss
Account at the end of the year.

(c)

How your you interpret a debit and credit balance in the accounts you
have worked.
(24 marks)

SECTION II
Answer any TWO questions in this section.
(a)
(b)

Define the terms current assets and current ratio as used in accounts.
Prepare a table to show
(i)
(ii)

the effect of the transactions listed below on each of the following:

total current assets, current ratio
the ultimate effect on net profit for transactions ii, iii, iv and v only

Use the following symbols:

+
to indicate increase
0

to indicate no effect

to indicate a decrease

NB. Assume an initial current ratio of more than 1: 1

Present your answer in a table using the following format; No 1 has
been done as an example
Transaction No.
(i)

3.

TotalUltimate Effect
Current Assets
Current Ratio

Merchandise is
purchased on credit

(ii)

Stock is sold for cash

(iii)

Fixed assets is sold for

less than book value

(iv

A fixed asset is sold for

more than book value

(v)

Goods are sold on

account

(vi)

Cash is obtained through

bank loans

(vii)

Advances are made to

employees

(viii)

A wholly depreciated
asset is retired

(ix)

The allowance for doubtful

debts is increased

on Net Profit

On August 1 you prepared a Sales Ledger Control Account to verify the work of
the Sales Ledger Clerks. The following data is available:
July 1 (Beginning of Accounting year)

Debtors $6 000

Month of July
$
5 000

Sales
Returns

150

Cash from Customers

4 500

Discount deductions

80

Bad Debts written off

30

Transfer to Purchases Ledger setting off balances

45

(a)

Show what the account looked like at the end of the exercise.

(b)

Later in the month (August 25) the Sales Ledger Clerks had balance
$4 800. On the night on which the balances were computed burglars stole
most of the goods, the sales ledger, sales day book and sales invoices.
You, however, have the following data so far for the month:
$

From Cash Book:

Discounts deducted

Cash from customers

60

From Purchases Ledger:

Transfers setting off balances

5 000
45

From General Ledger:

Bad debts written off

30

Using a continuation of the above Control Account find the Sales (less
returns) August 1 25.
(c)

From the final accounts on July you find that the stock was valued
at $3 000 and the Gross Profit is normally one-firth of sales. Purchases of
goods from July 1 to August 25 amounted to $8 000. The value of the
goods left on the floor by the burglar was $250. If you claimed on your
insurance company and it offered you $6 000 as compensation for goods
stolen, what would be your reaction?

(d)

In what circumstances would you introduce a self-balancing ledger?

(24 marks)

5.

(a)

Distinguish between prime costs and overheads. What is the

significance of this distinction in relation to the net profit of a company?

(c)

Mr Tom Chow is a manufacturer. From the following information prepare

his Manufacturing and Trading Accounts for the year ended December 31,
1978.]
(Your accounts should show clearly the Prime Cost and Overheads.)
$
Factory Power
500
Purchases of Raw Materials

6 000

Factory and Machinery Maintenance

Sales

550
35 000

Factory Wages

15 000
Rent and Insurance

600

Electricity

80

Stocks January 1, 1978

Raw Materials

580

Work-in-progress

700

Finished Goods

3 000

Depreciation on Plant and Machinery

1 200

Factory Salaries

1 900

Factory Wages due

200

Closing Stocks at December 31, 1978 are as follows:

Raw Materials

500

Work in progress

700

Finished Goods

3 000
(24 marks)

6.

The balances on the books of the Golden Age Club at 31 March 19-8 were as
follows:
Accumulated Fund
Furniture at March 31, 19-7

$
262
84

Furniture Additions March 31, 19-8

54

Fixtures and Fittings March 31, 19-7

29

Billiard Table and Accessories March 31, 19-7

89

China, Glass, Cutlery, and Linen March 31, 19-7

20

Stock in Restaurant March 31, 19-7

Stock in Bar March 31, 19-7

36

Restaurant Takings

1 616

Bar Takings

1 305

Billiard Takings

256

Subscriptions from Members

515

Interest on Deposit

Purchases for restaurant

1 078

Purchases for Bar

822

Rent and Rates

349

Wages

623

Repairs and Renewals of China, Glass etc

179

Fuel and Light

175

Sundry Expenses:
Insurance
Other Expenses

100
34

134

Cash in hand March 31, 19-8

13

Bank Balance March 31, 19-8

91

Bank Deposit March 31, 19-8

283

Debtors March 31, 19-8

74

Creditors March 31, 19-8

175

You are required to prepare separate Trading Accounts for the Restaurant and
Bar and Income and Expenditure Account for the year to March 31, 1978
together with Balance Sheet at that date after making adjustments for the
following:
The staff wages due are estimated at $275 of which $250 is to be charged to
restaurant and $25 to the Bar.
Stocks at March 31, 19-8
Restaurant
Bar

$3
$29

Depreciation
Furniture
Fixtures
Billiard Table and Accessories

10%
5%
15%

(24 marks)