1 The following is the draft balance sheet of Marshall Klingsman, a sole trader, at 30 April 2011.

For
Examiner’s
Balance Sheet at 30 April 2011 Use

$ $ $
Non-current assets
Buildings at valuation 300 000
Equipment at book value 540 000
Motor vehicles at book value 330 000
1 170 000
Current assets
Inventories 70 000
Trade receivables 19 000
Other receivables 2 000
Cash and cash equivalents 4 000
95 000
Current liabilities
Trade payables 57 000
Other payables 3 000 60 000

Net current assets 35 000

1 205 000
Non-current liabilities
Loan 200 000
Net assets 1 005 000

Financed by:
Capital at start 1 000 000
Add Profit for the year (net profit) 80 000
1 080 000
Less Drawings 75 000
Capital at end 1 005 000

Additional information:

After preparation of the draft balance sheet the following errors were found.

1 Goods in inventory at 30 April 2011, valued at cost $15 000, were found to be
damaged. The estimated net realisable value is $8 000.

2 Loan interest of 4% per annum had been omitted from the accounts.

3 No provision for depreciation on equipment had been made for the year. Depreciation
should have been provided at 5% per annum using the reducing balance method.

4 Motor vehicles are depreciated by 10% per annum. During the year vehicle repairs
of $10 000 had been incorrectly debited to the motor vehicles account.

5 On 28 April 2011 a credit customer, who owed $3600, was declared bankrupt. It
was decided to write off this amount in full. No record of this has been made in the
accounts.
REQUIRED For
Examiner’s
(a) Prepare a statement to show the corrected profit for the year (net profit) ended Use

30 April 2011.

.. [9]

[Turn over
(b) Prepare the corrected balance sheet at 30 April 2011. For
Examiner’s
Use

.. [7]
 5

(c) (i) Explain two differences between cost and net realisable value. For
Examiner’s
Use

(ii) Discuss the accounting treatment of the damaged inventory in item 1.

... [4]

(d) Using your answers to (a) and (b) calculate the following ratios to two decimal places:

(i) current ratio

... [2]

(ii) liquid ratio (acid test).

... [2]

[Turn over
(e) State four ways in which Klingsman could improve his working capital. For
Examiner’s
Use

.. [4]

(f) Explain why the liquid ratio (acid test) is a more reliable indicator of liquidity than the
current ratio.

.. [2]

[Total: 30]
2 Kirsty, a sole trader, prepared the following trial balance at 30 April 2011. For
Examiner’s
Use
$ $
Rent 4 000
General expenses 6 000
Insurance 3 300
Salaries 14 000
Electricity 2 000
Capital 44 000
Motor expenses 4 900
Bad debts 200
Drawings 6 000
Trade receivables 6 200
Trade payables 3 800
Cash and cash equivalents 2 600
Inventory 3 600
10% Loan 15 000
Loan interest 1 250
Carriage outwards 700
Commission received 730
Ordinary goods purchased 56 000
Revenue 108 000
Purchases returns 2 500
Sales returns 4 800
Discounts allowed 600
Discounts received 400
Provision for doubtful debts 520
Equipment 48 000
Provision for depreciation of equipment 14 400
Motor vehicles 36 000
Provision for depreciation of motor vehicles 10 800
200 150 200 150
The following information is also available:

1 The closing inventory at 30 April 2011 was valued at $4200.

2 Included in the general expenses is an item of equipment purchased during the

year for $1200. This item has not yet been included in the equipment account.

3 A cheque for $800 received from a credit customer has not yet been entered in the
accounts.

4 At 30 April 2011:
loan interest owing amounted to $250
electricity owing was $380
insurance was prepaid by $460

5 During the year Kirsty had withdrawn, for her personal use, goods costing $1800.
This has not been recorded in the accounts.
 6 Commission receivable of $150 was owing to Kirsty at 30 April 2011.

7 The provision for doubtful debts is to be provided for a specific debt of $200, plus
2% of the remaining debtors.

8 One half of the 10% loan is repayable during the year ending 30 April 2012, and the For
balance is repayable after that date. Examiner’s
Use

9 Depreciation is to be provided as follows:

Equipment 10% per annum on cost.
A full year’s depreciation is provided on all equipment held at 30 April 2011,
regardless of the date of purchase.
Motor vehicles 25% by the reducing (diminishing) balance method. There were no
additions or disposals during the year.

REQUIRED

(a) Prepare the income statement (trading and profit and loss account) for Kirsty for the
year ended 30 April 2011.

9706/22/O/N/
11
(b) Prepare the statement of financial position (balance sheet) for Kirsty at 30 April 2011.

For
Examiner’s
Use
3 Depreciation may be thought of as the difference between the cost of an asset and the For
amount received from it on disposal. Examiner’s
Use

The following extract from the schedule of non-current (fixed) assets applies to the year
ended 30 April 2009.

Non-current (fixed) assets Machinery Motor vehicles

$000 $000
Cost at 1 May 2008 4200 3200
Additions during year 1200 800
Disposals during year (700) (1000)
Cost at 30 April 2009 4700 3000

Depreciation at 1 May 2008 1560 840

Add charge for year 470 750
Less disposals for year (520) (800)
Depreciation at 30 April 2009 1510 790

Net book value at 30 April 2009 3190 2210

During the year ended 30 April 2010 the following took place:

1 New machinery costing $900 000 was purchased on 1 November 2009. Machinery,
which had cost $400 000 on 1 July 2005, was sold for $200 000 in December 2009.

2 Three new motor vehicles were purchased on 1 April 2010 for $280 000 each. Two motor
vehicles, which had been purchased on 1 March 2007, for $200 000 each, were taken in
part-exchange. The part-exchange allowance for each vehicle was $60 000.

3 One vehicle which had been purchased for $360 000 on 31 January 2009 was involved
in an accident on 2 December 2009. The insurance company decided that it could not
be repaired and gave compensation of $210 000.

Depreciation is charged for the full year on all non-current (fixed) assets held at the yearend,
using the straight-line method.

No depreciation is charged on a non-current (fixed) asset in the year of disposal.

Rates of depreciation have remained constant since the business began trading.

(a) (i) Calculate the profits or losses on disposals during the year ended 30 April 2010.
(ii) Prepare a schedule of non-current (fixed) assets for the year ended 30 April 2010, For
using the layout given at the beginning of the question. Examiner’s
Use
... [8
(b) (i) State three causes of depreciation. For
Examiner’s
Use

... [3]

(ii) Give an example of a non-current (fixed) asset for which each cause given in (b)(i)
above might be appropriate.

... [3]

(c) State four factors which must be taken into account when deciding how much
depreciation to charge.

.. [4]

[Total: 30]
4 The following information has been extracted from the accounts of Harvey Rabbit for the For
year ended 31 March 2010. Examiner’s
Use

$
Sales ledger balance at 1 April 2009 29 040
Credit sales 499 892
Cash sales 14 634
Credit sales returns 9 878
Receipts from debtors, banked 462 680
Discount allowed on credit sales 21 404
Bad debts written off 9 510
Debtors’ cheques dishonoured 662
Contra entries 1 153

REQUIRED

(a) Prepare Harvey Rabbit’s sales ledger control account for the year ended 31 March 2010.

The total of Harvey Rabbit’s sales ledger balances at 31 March 2010 was $26 845, which did
not agree with the closing balance of his sales ledger control account. On checking his
accounts he discovered the following errors.

1 A credit note for $420 which had been sent to a debtor had been entered in the sales
journal (day book) and posted as a sale to both accounts.

2 A debit entry in the sales ledger for $698 had been set off as a contra entry in the
purchases ledger, but no entry had been made in the control accounts.
3 The discount allowed account had been overstated by $310. For
Examiner’s
4 A sales invoice for $998 had been completely omitted from the accounts. Use

5 A debit balance of $2102 had been omitted from the list of debtors.

6 A debtor who owed $896 had been declared bankrupt during March 2010. The debt
had been written off in the control account, but no entry had been made in the debtor’s
account.

7 A receipt for $630 had been debited to the bank account but omitted from the debtor’s
account.

8 An entry for $816 in the sales journal (day book) had not been posted to the debtor’s
account.

9 A sales ledger account had been understated by $200.

10 A page of the sales journal (day book) with entries totalling $3856 had been omitted
from total sales. The amounts had, however, been posted to the debtors’ accounts.

REQUIRED

(b) (i) Beginning with the closing balance which you have calculated in (a), prepare a
statement showing the amended balance on the control account.

Amendments to sales ledger control account

... [6]

[Turn over
 (ii) Beginning with Harvey Rabbit’s sales ledger balance of $26 845,
prepare a statement amending the total of the sales ledger balance to agree
with the new control account balance

(c) State three advantages of keeping control accounts.