Book-keeping &

Accounts
Level 2

Model Answers
Series 3 2008 (Code 2007)
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Book-Keeping & Accounts Level 2
Series 3 2008

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Page 1 of 13
Page 2 of 13
Book-Keeping & Accounts Level 2
Series 3 2008
QUESTION 1

The following information relates to the business of Sally.

Balances in the books at 1 July 2007:

£
Purchases Ledger Debit 1,458
Credit 111,129
Sales Ledger Debit 196,326
Credit 5,580

The following figures extracted from the books for the month ended 31 July 2007:
£
Cash purchases 57,309
Credit purchases 316,773
Returns outwards 5,499
Payments by cheque to creditors 289,440
Carriage charged to debtors 14,805
Transfers of debit balances in sales ledger to purchases ledger 12,825
Interest charged to debtors 1,467
Credit sales 597,804
Returns inwards 8,721
Bad debts written off 3,840
Discounts received 7,728
Cash sales 343,446
Debtors cheque dishonoured 11,877
Discount allowed 16,647
Payments from debtors by cheque 651,690
Allowance to a debtor, Jenny, for damaged goods 2,250

Balances in the books at 1 August 2007:

£
Purchases ledger Debit 2,535
Sales ledger Credit 9,693
Provision for doubtful debts Credit 19,710

REQUIRED

(a) Prepare the following for the month ended 31 July 2007:

(i) Purchases Ledger Control Account (9 marks)

(ii) Sales Ledger Control Account. (14 marks)

(b) State one advantage to Sally of preparing control accounts. (2 marks)

(Total 25 marks)

2007/3/08/MA Page 3 of 13
MODEL ANSWER TO QUESTION 1

(a) (i) Purchases Ledger Control Account

2007 £ 2007 £
July 01 Balance b/d 1,458 July 01 Balance b/d 111,129
July 31 Returns outwards 5,499 July 31 Purchases 316,773
July 31 Bank 289,440 July 31 Balances c/d 2,535
July 31 Contra 12,825
July 31 Discount received 7,728
July 31 Balances c/d 113,487
430,437 430,437
Aug 01 Balance b/d 2,535 Aug 01 Balance b/d 113,487

(ii) Sales Ledger Control Account

2007 £ 2007 £
July 01 Balance b/d 196,326 July 01 Balance b/d 5,580
July 31 Carriage 14,805 July 31 Contra 12,825
July 31 Interest 1,467 July 31 Returns inwards 8,721
July 31 Sales 597,804 July 31 Bad debts 3,840
July 31 Dishonoured cheque 11,877 July 31 Discount allowed 16,647
July 31 Balance c/d 9,693 July 31 Bank 651,690
July 31 Jenny – allowance 2,250
July 31 Balance c/d 130,419

831,972 831,972
Aug 01 Balance b/d 130,419 Aug 01 Balance b/d 9,693

(b) One advantage from:

The identification of errors in the sales and purchases ledger.

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.

Accept any other reasonable answer.

2007/3/08/MA Page 4 of 13
QUESTION 2

Joe and Sue have been in partnership for some years sharing profits in the ratio 3:2 respectively.
On 30 September 2007 their Balance Sheet was as follows:

£ £
Fixed Assets
Plant and Equipment 30,000
Fixtures and Fittings 14,000
44,000
Current Assets
Stock 19,100
Debtors 12,000
Bank 6,100
37,200

Current Liabilities
Creditors 6,400
30,800
74,800
Capital Accounts
Joe 30,000
Sue 40,000
70,000
Current Accounts
Joe 1,000
Sue 3,800
4,800
74,800

On 1 October 2007, Lyn joined the partnership. She introduced a vehicle valued at £5,000 and paid
£10,000 into the partnership bank account.

Plant and equipment was revalued at £56,000, fixtures and fittings at £24,000 and stock at £17,710.

A provision for doubtful debts was created at 3% of debtors.

Goodwill was valued at £15,000, although no account was retained for goodwill. Joe, Sue and Lyn
agreed to share profits and losses in the ratio 3:2:1 respectively.

REQUIRED

Prepare the following at 1 October 2007:

(a) Revaluation Account (6 marks)

(b) Capital Accounts for Joe, Sue and Lyn in columnar format (10 marks)

(c) Balance Sheet. (9 marks)

(Total 25 marks)

2007/3/08/MA Page 5 of 13
MODEL ANSWER TO QUESTION 2

(a)
Revaluation Account
£ £
Provision for doubtful debts 360 Plant and equipment 26,000
(12,000 x 3%) (56,000 - 30,000)
Stock (19,100 - 17,710) 1,390 Fixtures and fittings 10,000
Capital a/c Joe (3/5) 20,550 (24,000 - 14,000)
Capital a/c Sue (2/5) 13,700
36,000 36,000

(b)
Capital Accounts
Joe Sue Lyn Joe Sue Lyn
£ £ £ £ £ £
Goodwill (3 : 2 : 1) 7,500 5,000 2,500 Balances b/d 30,000 40,000
Balances c/d 52,050 54,700 12,500 Vehicle 5,000
Bank 10,000
Goodwill (3 : 2) 9,000 6,000

Revaluation a/c 20,550 13,700

_____ _____
59,550 59,700 15,000 59,550 59,700 15,000

Balances b/d 52,050 54,700 12,500

2007/3/08/MA Page 6 of 13
MODEL ANSWER TO QUESTION 2 CONTINUED

(c) Balance Sheet at 1 October 2007

£
Fixed Assets
Plant and Equipment 56,000
Fixtures and Fittings 24,000
Vehicle 5,000
85,000

Current Assets
Stock 17,710
Debtors 12,000
Less Provision for doubtful debts (360) 11,640
Bank 16,100
45,450

Current Liabilities

Creditors 6,400
Net Current Assets 39,050
124,050

Capital Accounts
Joe 52,050
Sue 54,700
Lyn 12,500

119,250

Current Accounts
Jo 1,000
Sue 3,800
4,800
124,050

2007/3/08/MA Page 7 of 13
QUESTION 3

Lucy West depreciates her motor vehicles at of 25% per annum using the reducing balance method.

She provides a full year's depreciation on assets in the year of purchase and provides no depreciation
in the year of disposal.

Lucy bought new fixed assets as follows:

Date Purchased Motor vehicles

£
31 July 2005 40,000
31 August 2006 36,000

On 30 November 2007, she traded in the vehicle purchased in 2005 for a new vehicle. The old vehicle
was traded in for £22,000 and the purchase price of the replacement vehicle was £42,000, the balance
being paid by cheque.

REQUIRED

Prepare the following accounts, for each of the years ended 31 December 2005, 2006 and 2007:

(a) Motor Vehicles Account. (5 marks)

(b) Provision for Depreciation of Motor Vehicles Account. (5 marks)

(c) Depreciation of Motor Vehicles Account. (3 marks)

(d) Disposal of Motor Vehicle Account. (5 marks)

Items which appear in a Sales Ledger Control Account or a Purchase Ledger Control Account could
include the following:

(i) Payments made by credit customers

(ii) Sales returns
(iii) Purchases
(iv) Bad debts written-off
(v) Cash discounts
(vi) Transfers between the Sales Ledger and the Purchases Ledger
(vii) Interest charged to customers on overdue accounts
(viii) Refunds from suppliers.

REQUIRED

(e) List the numbers (i) to (viii) in your answer book and against each number state the name of the
appropriate book of prime entry. The first is completed as an example.

(i) Cash book (7 marks)

(Total 25 marks)

2007/3/08/MA Page 8 of 13
MODEL ANSWER TO QUESTION 3

(a) Lucy West

Motor Vehicles
£ £
31.07.05 Bank 40,000 31.12.05 Bal c/d 40,000
40,000 40,000
01.01.06 Bal b/d 40,000
31.08.06 Bank 36,000 31.12.06 Bal c/d 76,000
76,000 76,000
01.01.07 Bal b/d 76,000 30.11.07 Disposal a/c 40,000
30.11.07 Bank 20,000 31.12.07 Bal c/d 78,000
30.11.07 Disposal a/c 22,000
118,000 118,000
01.01.08 Bal b/d 78,000

(b) Provision for Depreciation of Motor Vehicles

£ £
31.12.05 Bal c/d 10,000 31.12.05 Depreciation 10,000
10,000 10,000
01.01.06 Bal b/d 10,000
31.12.06 Bal c/d 26,500 31.12.06 Depreciation 16,500
26,500 (7,500 + 9,000) 26,500
31.12.07 Disposal 17,500 01.01.07 Bal b/d 26,500
31.12.07 Bal c/d 26,250 31.12.07 Depreciation 17,250
(6,750 + 10,500)
43,750 43,750
01.01.08 Bal b/d 26,250

(c) Depreciation of Motor Vehicles

£ £
31.12.05 PDMV 10,000 31.12.05 P&L 10,000
10,000 10,000
31.12.06 PDMV 16,500 31.12.06 P&L 16,500
16,500 16,500
31.12.07 PDMV 17,250 31.12.07 P&L 17,250
17,250 17,250

(d) Disposal of Motor Vehicle

£ £
30.11.07 Motor vehicle 40,000 30.11.07 Motor vehicle 22,000
31.12.07 PDMV 17,500
31.12.07 P&L 500
40,000 40,000

(e) (i) Cash Book

(ii) Sales Returns Day Book
(iii) Purchases Day Book
(iv) General Journal
(v) Cash Book (discount column)
(vi) General Journal
(vii) General Journal
(viii) Cash Book

2007/3/08/MA Page 9 of 13
QUESTION 4

Jeremy sells goods at a mark-up of 25% on cost. During the year ended 31 December 2007 there
was a fire which damaged a quantity of his stock.

Jeremy needs to identify the amount of the stock lost for an insurance claim.

Other information relating to the year is as follows:

£
Sales 320,000
Sales returns 8,000
Stock at 1 January 34,000
Stock at 31 December 36,000
Creditors at 1 January 17,000
Creditors at 31 December 14,400
Payments to creditors 284,600

REQUIRED

(a) Prepare a Trading Account for Jeremy for the year ended 31 December 2007, showing the stock
loss resulting from the fire.
(11 marks)

Samantha has six lines of stock in her business. At 31 March 2008, the following information is
available regarding her stock:

Stock type Number of units in stock Cost per unit Selling price per unit
£ £
Skirts 10 32 0
Dresses 17 48 37
Jeans 15 36 48
Jumpers 12 24 28
Trousers 24 44 48
Cardigans 11 32 44

Additional information is also available:

(i) The stock of skirts is now obsolete

(ii) The stock of trousers needs an additional cost of £2 per unit to be incurred in bringing the
stock into a saleable condition

(iii) 20 cardigans are presently at a customer's premises on a sale or return basis.

REQUIRED

(b) Calculate the value of Samantha’s stock, at 31 March 2008. (14 marks)

(Total 25 marks)

2007/3/08/MA Page 10 of 13
MODEL ANSWER TO QUESTION 4

(a) Jeremy
Trading Account for the year ended 31 December 2007

£ £
Sales 320,000
Less Sales returns 8,000
312,000
Opening stock 34,000
Purchases (284,600 + 14,400 - 17,000) 282,000
Stock loss (30,400)
Less Closing stock (36,000)
Cost of sales (312,000 x 80%) 249,600
Gross profit (312,000 x 20%) 62,400

(b)
Stock type Units Value per unit Total
£ £
Skirts 10 0 0
Dresses 17 37 629
Jeans 15 36 540
Jumpers 12 24 288
Trousers 24 44 1,056
Cardigans 31 32 992
3,505

2007/3/08/MA Page 11 of 13
QUESTION 5

Jack Brown’s book-keeper prepared his trial balance at 31 May 2008. The trial balance contained the
balances for the Sales Ledger Control Account and the Purchase Ledger Control Account. The book-
keeper was unable to make the trial balance totals agree and therefore opened a suspense account.

After examining the books the following errors were discovered:

(i) Discounts allowed of £60 had been incorrectly credited to the discount received account.

(ii) A credit note from Black, a supplier, for £120 was incorrectly entered in the Purchases Return
Journal as £160.

(iii) A vehicle had been sold during the year for which Jack had received a cheque for £5,000. This
had been entered on the wrong side of the cash book although treated correctly in the disposal
account.

(iv) It is company policy not to depreciate vehicles in the year of disposal. An entry of £250 had been
incorrectly entered in the provision for depreciation account for a vehicle sold on 8 April 2008.

(v) Jack had taken goods amounting to £1,200 at cost for his own use. No entries had been made in
the books.

(vi) Rent paid by Jack Brown of £580 was correctly entered in the cash book but entered in the rent
payable account as £850.

(vii) Cash of £200 was received from a debtor with regard to a debt which had been written off in
March 2007. This had been correctly entered in the cash book but no other entry had been
made.

(viii) The Sales Journal had been overcast by £900.

Once these errors had been corrected the trial balance totals agreed.

REQUIRED

(a) Prepare journal entries to correct the above errors. Narratives are not required. (17 marks)

(b) Prepare the Suspense Account, correcting the errors above, and showing the opening balance.

(8 marks)

(Total 25 marks)

2007/3/08/MA Page 12 of 13
MODEL ANSWER TO QUESTION 5

(a) Dr Cr
£ £
Discounts received 60
Discounts allowed 60
Suspense 120

Purchases returns 40
Purchases ledger control account 40

Bank 10,000
Suspense 10,000

Provision for depreciation 250

P&L 250

Drawings 1,200
Purchases 1,200

Suspense 270
Rent 270

Suspense 200
Bad debts recovered 200

Sales 900
Sales ledger control account 900

(b) Suspense Account

Balance b/d 9,650 Discounts allowed 60

Rent 270 Discounts received 60
Bad debts recovered 200 Bank 10,000
10,120 10,120

2007/3/08/MA Page 13 of 13 © Education Development International plc 2008