Book-Keeping & Accounts

Level 2

Model Answers
Series 4 2007 (Code 2006)

Vision Statement
Our vision is to contribute to the achievements of learners around the world by providing integrated assessment and learning services, adapted to meet both local market and wider occupational needs and delivered to international standards.

Education Development International plc 2007 Company Registration No: 3914767 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 without written permission from Education Development International plc. International House Siskin Parkway East Middlemarch Business Park Coventry CV3 4PE Telephone: +44 (0) 8707 202909 Facsimile: + 44 (0) 24 7651 6566 Email: customerservice@ediplc.com

Book- Keeping & Accounts Level 2

Series 4 2007

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) (2) Questions Model Answers reproduced from the printed examination paper 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) where appropriate, additional guidance relating to individual questions or to examination technique

(3)

Helpful Hints

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 2007 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 11

Page 2 of 11

Book-Keeping & Accounts Level 2

Series 4 2007
QUESTION 1 The following information relates to JP Ltd: Extracted from the Trading and Profit & Loss Account for the year ended 30 September 2007 Sales 852,800 Cost of sales 426,900 Expenses 255,660 Note: Stock values were: 1 October 2006 30 September 2007 52,000 49,000 1,099,903 314,258 100,000 1,000,000 200,000 810,500

Extracted from the Balance Sheet at 30 September 2007 Current assets Current liabilities Long Term Loan Ordinary Share Capital (issued and fully paid) Share premium Profit & loss REQUIRED (a) State the formula for each of the following ratios. Figures are not required at this stage: (i) (ii) (iii) (iv) (v) (vi) Gross profit margin Net profit margin Current (Working Capital) ratio Liquidity (Acid Test) ratio Rate of stock turnover (not stock holding in days) Return on total capital employed (use closing capital) (10 marks) (b) Using the formula stated above, calculate to two decimal places the following ratios for JP Ltd: (i) (ii) (iii) (iv) (v) (vi) Note: Gross profit margin Net profit margin Current (Working Capital) ratio Liquidity (Acid Test) ratio Rate of stock turnover (not stock holding in days) Return on total capital employed (15 marks) Assume that no interest payments were due for the year ended 30 September 2007. (Total 25 marks)

2006/4/07

Page 3 of 13

MODEL ANSWER TO QUESTION 1 (a) (i) Gross Profit x 100 Sales Net Profit before interest x 100 Sales (accept just Net Profit)

(ii)

(iii) Current Assets Current Liabilities (iv) Current Assets - Stock Current Liabilities (v) Cost of Sales Average Stock (vi) Net Profit before interest x 100 (accept just Net Profit) Closing ordinary share capital + reserves + preference shares + long term loans

(b) Calculation (i) 425,900 852,800 170,240 852,800 x 100 Answer 49.94%

(ii)

x 100

19.96%

(iii) 1,099,903 314,258 (iv) 1,099,903 - 49,000 314,258 (v) 426,900 50,500 170,240 2,110,500 x 100

3.5:1

3.34:1

8.45 times

(vi)

8.07%

2006/4/07/MA

Page 4 of 11

QUESTION 2 Green Ltd has a head office in London and a branch in Singapore. All purchases are sent and invoiced to the branch at cost plus one third, which is the selling price. Branch sales are all made on credit and any debtor payments received at the branch are sent to the head office, where the ledger records are maintained. The following information regarding the Singapore branch is available for the year ended 30 September 2007: Stock 1 October 2006 (at selling price) Debtors 1 October 2006 Goods sent to branch (at selling price) Returns to head office (at selling price) Branch sales Payments made by debtors to branch Discount allowed to debtors Goods returned by customers to branch Stock 30 September 2007 (at selling price) REQUIRED Prepare the following accounts for the year ended 30 September 2007 in the Head Office ledger. Dates may be ignored: (i) (ii) Branch Stock (9 marks) Goods to Branch (3 marks) (iii) Stock Adjustment (7 marks) (iv) Debtors (6 marks) (Total 25 marks) 48,000 9,400 402,400 2,400 410,100 406,200 2,100 2,000 32,000

2006/4/07/MA

Page 5 of 11

MODEL ANSWER TO QUESTION 2 (a) (i) Branch Stock 48,000 Branch debtors 301,800 Goods to branch 100,600 Stock adjustment 2,000 Stock loss: Stock adjustment Branch Profit & Loss Balance c/d 452,400 32,000

Balance b/d Goods to branch Stock adjustment Branch debtors

410,100 1,800 600 1,975 5,925 32,000 452,400

Balance b/d (ii)

Branch stock Head Office Trading

Goods to Branch 1,800 Branch stock 300,000 301,800

301,800

301,800

(iii) Stock 600 1,975 102,025 8,000 112,600 Adjustment Balance b/d Branch stock 12,000 100,600

Branch stock Branch stock Branch Profit & Loss Balance c/d

112,600 Balance b/d 8,000

(iv) Branch 9,400 410,100 Debtors Bank Discount allowed Branch stock Balance c/d 406,200 2,100 2,000 9,200 419,500

Balance b/d Branch stock

419,500 Balance b/d 9,200

2006/4/07/MA

Page 6 of 11

QUESTION 3 Alice and Brenda have been in partnership for many years, sharing profits and losses equally. At 30 September 2007, their summarised Balance Sheet was as follows: Fixed Assets Goodwill Premises (at cost) Motor vehicles (at net book value) Current Assets Stock Debtors Bank Less: Current Liabilities Creditors Net Current Assets Capital Alice Brenda 50,000 40,000 24,000 114,000 4,000 28,000 16,000 48,000 36,000 12,000 126,000 66,000 60,000 126,000

They decided to dissolve the partnership and close the books at the Balance Sheet date and on the following terms: (i) (ii) (iii) (iv) (v) (vi) The premises were sold for 45,000 cash Alice took a motor vehicle valued at 10,000 and Brenda the other vehicle valued at 14,000. The partners made no payment for the vehicles The goodwill and debtors were sold for 80,000 cash The stock was sold for 2,400 cash Dissolution expenses were 1,000, paid in cash Creditors were paid 33,000 cash in full and final settlement

These transactions took place on 30 September 2007 and all cash receipts and payments went through the partnership bank account. REQUIRED In the books of the partnership at 30 September 2007, prepare: (a) The Dissolution account (12 marks) (b) The partners Capital Accounts in columnar form (7 marks) (c) The Bank Account (6 marks) (Total 25 marks)

2006/4/07/MA

Page 7 of 11

MODEL ANSWER TO QUESTION 3 (a) Dissolution Account 2007 30-Sep 50,000 Bank - asset sales 40,000 Capital - vehicle transfers: 24,000 Alice 4,000 Brenda 28,000 Creditors discount 1,000 3,700 3,700 154,400

2007 30-Sep Goodwill Premises Motor vehicles Stock Debtors Bank: expenses Dissolution profit: Alice Brenda

127,400 10,000 14,000 3,000

154,400

(b) 2007 30-Sep Dissolution Bank Alice 10,000 59,700 69,700 Brenda 14,000 49,700 63,700 2007 30-Sep Balance b/d Dissolution - profit Alice 66,000 3,700 69,700 Brenda 60,000 3,700 63,700

(c) Bank 2007 30-Sep 16,000 Creditors 127,400 Dissolution account Capital: Alice Brenda 143,400

2007 30-Sep Balance b/d Dissolution account

33,000 1,000 59,700 49,700 143,400

2006/4/07/MA

Page 8 of 11

QUESTION 4 Alex had the following assets and liabilities at 30 September 2006: Creditors 17,600 Debtors 19,000 Stock 3,000 Cash at bank 5,200 Dr Equipment (net book value) 8,000 After one year, during which Alex introduced additional capital of 5,000 and withdrew 10,000 for personal use, his assets and liabilities were: Creditors 20,900 Debtors 26,800 Stock 5,000 Cash at bank 9,100 Dr Equipment (net book value) 6,000 REQUIRED (a) Calculate the net profit or loss made by Alex for the year ended 30 September 2007. (8 marks) The following information has been extracted from the records of Christina: Debtors at 30 September 2006 59,400 Debtors at 30 September 2007 48,000 For the year ended 30 September 2007: Bad debts written off Received from debtors Cash sales Goods received from debtors instead of payment Refunds made to debtors Returns inwards Discounts allowed Returned cheques (originally included in receipts) REQUIRED (b) Calculate Christinas total sales for the year ended 30 September 2007. (12 marks) Peter bought and sold antiques. He added a mark-up of 25% to all his purchases to arrive at a selling price. For the year ended 30 September 2007 Peters sales were 600,000, purchases amounted to 520,000 and his closing stock was 30,000 greater than his opening stock. Peter was convinced that goods had been stolen from his shop during the year but was uncertain as to how much REQUIRED (c) Calculate the cost price of the goods stolen from Peters shop during the year ended 30 September 2007. (5 marks) (Total 25 marks) 2,900 210,050 8,750 1,400 800 4,300 650 400

2006/4/07/MA

Page 9 of 11

MODEL ANSWER TO QUESTION 4 (a) Capital Account Balance at 30 September 2006 19,000 3,000 5,200 8,000 35,200 17,600 17,600 2007 26,800 5,000 9,100 6,000 46,900 20,900 26,000 26,000 -17,600 8,400 5,000 3,400 10,000 13,400

Debtors Stock Bank Equipment Less: Creditors Capital balance at 30 September

Increase in capital value during 2007 therefore:

Less: additional capital introduced Add: Drawings Net profit for year ended 30 September 2007

(b) Debtors Control Account 59,400 800 400 206,700 2,900 210,050 1,400 4,300 650 48,000 267,300

Balance b/d Bank Bank Sales (R)

Bad debts Bank Purchases Returns inwards Discount allowed Balance c/d

267,300

Total Sales
Cash sales Credit sales

8,750 206,700 215,450

2006/4/07/MA

Page 10 of 11

MODEL ANSWER TO QUESTION 4 CONTINUED (c) Gross Profit should have been: 600,000 x 20% Less: Actual Gross Profit:[ 600,000 - (520,000 - 30,000)] Value of stolen goods 120,000 110,000 10,000

2006/4/07/MA

Page 11 of 11

Education Development International plc 2007