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LCCI International Qualifications

Book-keeping and Accounts Level 2

Model Answers Series 4 2008 (2006)
Model Answers
Series 4 2008 (2006)

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Book- Keeping and Accounts Level 2

Series 4 2008

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 International Qualifications. The contents of this booklet are divided into 3 elements:

(1)

Questions

reproduced from the printed examination paper

(2)

Model Answers

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)

(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.

© EDI 2009

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 12

QUESTION 1

The following balances appeared in the ledger of P Tong plc following the preparation of the Profit & Loss Account for the year ended 31 December 2007:

 

£000

£000

Ordinary shares £0.25 3% £1 preference share capital Interim ordinary dividend paid Preference dividend paid Freehold land and buildings at cost Provision for depreciation of land and buildings Plant and machinery at cost Provision for depreciation of plant and machinery Motor vehicles at cost Provision for depreciation of motor vehicles Fixtures and fittings at cost Provision for depreciation of fixtures and fittings Debtors Creditors Bank Cash in hand Stock Share Premium Prepayments Accruals 8% Loan (repayable 30 June 2012) Loan interest accrued 5% debenture (repayable 31 March 2008) Profit & Loss Account Net profit Revaluation Reserve

12,000

600

560

18

10,400

 

80

13,880

 

1,632

3,720

 

860

3,420

 

580

5,920

 

3,840

1,750

260

4,292

 

2,640

290

 

262

2,800

112

1,600

8,656

3,880

1,468

 

42,760

42,760

The directors of P Tong plc have decided to pay a final dividend of £0.04 per ordinary share.

REQUIRED

 

(a)

Prepare the Appropriation Account for the year ended 31 December 2007.

(7 marks)

(b)

Prepare, in vertical format, the Balance Sheet at 31 December 2007.

(14 marks)

(c)

Calculate the current ratio.

(3 marks)

(d)

State the purpose of calculating the current ratio.

(1 mark)

 

(Total 25 marks)

MODEL ANSWER TO QUESTION 1

(a)

P Tong plc Appropriation Account for the year ended 31 December 2007

 

£000

£000

Net profit

3,880

Interim ordinary dividend

560

Preference dividend

18

Proposed final ordinary dividend

(48,000,000 x 0.04)

1,920

 

2,498

Transferred to reserves

1,382

MODEL ANSWER TO QUESTION 1 CONTINUED

(b)

P Tong plc Balance Sheet at 31 December 2007

 

£000

£000

£000

Cost

Provision for

NBV

Fixed assets Land & buildings Plant & machinery Fixtures & fittings Motor vehicles

depreciation

10,400

80

10,320

13,880

1,632

12,248

3,420

580

2,840

3,720

860

2,860

 

31,420

3,152

28,268

Current assets

Stock

4,292

Debtors

5,920

Prepayments

290

Cash

260

10,762

Creditors: amounts due within one year Creditors Loan interest Bank overdraft Accruals 5% debentures Proposed ordinary dividend

3,840

112

1,750

262

1,600

1,920

 

9,484

Net current assets

1,278

29,546

Creditors: amounts due after one year 8% loan

 

2,800

 

26,746

Shareholders' funds Capital and reserves Called up ordinary share capital:

48,000,000 £0.25 ordinary shares Share premium account Revaluation reserve Profit & Loss (8,656 + 1,382) Ordinary shareholders funds 600,000 3% £1 preference shares Total shareholders' funds

 

12,000

2,640

1,468

10,038

26,146

600

26,746

(c)

10,762,000/9,484,000 = 1.13:1

(d)

Illustrates the company's ability to repay its short term debts

QUESTION 2

A Choo, B Chang and C Mei have been in partnership sharing profits and losses in the proportion

2:2:1 respectively. The partnership Balance Sheet at 31 January 2008 was as follows:

Balance Sheet at 31 January 2008

 

£

£

Fixed Assets Goodwill Fixtures and fittings Motor vehicles

54,000

144,900

82,200

 

281,100

Current Assets

Stock

33,300

Debtors

80,100

Cash

300

113,700

Current Liabilities Creditors Bank overdraft

5,400

26,100

 

31,500

 

82,200

363,300

Capital accounts:

A Choo

105,780

B Chang

136,110

C Mei

121,410

363,300

On 31 January 2008, A Choo, B Chang and C Mei decided to dissolve the partnership and close the books on the following terms:

(1)

The goodwill and fixtures and fittings were sold to D Woo for £162,000. By agreement, D Woo paid each partner £54,000 and these amounts were paid into the partners’ private bank accounts.

(2)

Each partner took over a motor vehicle, valued at:

 

£

 

A Choo

27,300

B Chang

25,800

C Mei

30,600

(3)

All the cash in hand was used to pay dissolution expenses. The creditors were settled for an agreed sum of £5,370.

(4)

The remaining assets were sold for £146,400. This amount was paid into the partnership bank account.

(5)

The bank informed the partners that £660 interest was accrued on the bank overdraft. This amount has not been entered in the books.

QUESTION 2 CONTINUED

REQUIRED

Prepare the following accounts on 31 January 2008 for the partnership of A Choo, B Chang and C Mei:

(a)

Dissolution account

(15 marks)

(b)

Capital accounts

(4 marks)

(c)

Bank account

(4 marks)

(d)

D Woo’s account.

(2 marks)

 

(Total 25 marks)

MODEL ANSWER TO QUESTION 2

(a)

Dissolution Account

 

£

£

 

Goodwill Fixtures & fittings Motor vehicles Stock Debtors Cash: dissolution expenses Bank: interest charges

54,000

Discount on creditors D Woo Bank Capital accounts (MV):

 

30

144,900

162,000

82,200

146,400

33,300

 

80,100

Choo

27,300

300

Chang

25,800

660

Mei

30,600

 

Capital accounts:

Choo

1,332

Chang

1,332

Mei

666

(b)

395,460 395,460 Capital Accounts Chang Mei Choo Chang Mei £ £ £ £ £ 1,332
395,460
395,460
Capital Accounts
Chang
Mei
Choo
Chang
Mei
£
£
£
£
£
1,332
666
Bal b/d
105,780
136,110
121,410
25,800
30,600
54,000
54,000
54,978
36,144
 

Choo

£

Dissolution loss

1,332

Dissolution: MV

27,300

D Woo

54,000

Bank

23,148

105,780

136,110

121,410

105,780

136,110

121,410

MODEL ANSWER TO QUESTION 2 CONTINUED

(c)

Bank Account

 

£

£

 

Dissolution account

146,400

Bal b/d Dissolution account: interest Creditors Capital accounts:

26,100

 

660

5,370

Choo

23,148

Chang

54,978

Mei

36,144

 

146,400

146,400

(d)

D Woo

£

£

Dissolution account

162,000

Capital accounts:

 

Choo

54,000

Chang

54,000

Mei

54,000

 

162,000

162,000

QUESTION 3

The following information for the month of February 2008 was extracted from the ledgers of Ho Chang:

At 1 February 2008:

£

Purchases ledger

Dr balances

291

Purchases ledger

Cr balances

16,428

Sales ledger

Dr balances

27,066

Sales ledger

Cr balances

495

Provision for doubtful debts

690

At 1 March 2008:

Purchases ledger

Dr balances

399

Sales ledger

Cr balances

642

Provision for doubtful debts

750

For the month ended 29 February 2008:

Credit sales

162,384

Credit purchases

123,585

Payments to suppliers

112,251

Receipts from customers

147,534

Returns inwards

6,615

Returns outwards

3,204

Discounts allowed

5,232

Discounts received

3,630

Bad debts written off

576

Debit balances in sales ledger transferred to purchases ledger

1,035

Legal expenses charged to customer’s account

270

Customer’s cheque dishonoured

1,128

REQUIRED

(a)

Prepare for the month of February 2008:

 

(i)

Purchases Ledger Control Account

(8 marks)

(ii)

Sales Ledger Control Account.

(13 marks)

(b)

Prepare, at 29 February 2008, a Balance Sheet extract showing the debtors’ and creditors’ figures under the current assets and current liabilities.

(4 marks)

(Total 25 marks)

MODEL ANSWER TO QUESTION 3

(a)

(i)

Purchases Ledger control account

 
 

2008

£

2008

£

Feb 01

Balance b/d Bank Returns outwards Discounts received Contra Sales ledger Balance c/d

291

Feb 01

Balance b/d

16,428

Feb 29

112,251

Feb 29

Purchases

123,585

Feb 29

3,204

Feb 29

Balance c/d

399

Feb 29

3,630

Feb 29

1,035

Feb 29

20,001

 

140,412

140,412

 

Mar 01

Balance b/d

399

Mar 01

Balance b/d

20,001

 

(ii)

Sales Ledger control account

 

2008

£

2008

£

Feb 01

Balance b/d Sales Legal expenses Bank (dishonoured cheque) Balance c/d

27,066

Feb 01

Balance b/d

495

Feb 29

162,384

Feb 29

Bank

147,534

Feb 29

270

Feb 29

Returns inwards

6,615

Feb 29

1,128

Feb 29

Discounts allowed

5,232

Feb 29

642

Feb 29

Bad debts

576

 

Contra Purchases

1,035

ledger

 

Feb29

Balance c/d

30,003

 

191,490

191,490

 

Mar 01

Balance b/d

30,003

Mar 01

Balance b/d

642

(b)

Ho Chang Balance Sheet extract at 29 February 2008

£

£

Current Assets Debtors (399 + 30,003) Less provision for doubtful debts

30,402

750

29,652

Liabilities due within one year Creditors (20,001 + 642)

20,643

QUESTION 4

Maggie Kan owns a business in Hong Kong and has a branch in London.

Branch sales are all on credit, and all cash received at the branch is remitted to the head office. All purchases are made by the Hong Kong office, with goods sent to the branch being invoiced at cost plus 25%.

For the year ended 31 December 2007, the following information was entered in the head office books:

Balances at 1 January 2007:

£

Branch debtors

37,800

Branch stock at selling price

44,100

Branch adjustment account

8,820

For the year ended 31 December 2007:

Branch sales

462,900

Goods returned by customers to branch

4,565

Payments by branch debtors to branch

460,050

Discounts allowed to branch debtors

12,390

Goods invoiced to branch at selling price

450,000

Goods returned by branch to head office

9,000

Balance at 31 December 2007:

Branch stock at selling price

24,750

REQUIRED

Prepare the following accounts, relating to the London branch, in the head office books for the year ended 31 December 2007:

(a)

Branch Stock

(10 marks)

(b)

Goods to Branch

(3 marks)

(c)

Branch Adjustment

(6 marks)

(d)

Branch Debtors

(6 marks)

 

(Total 25 marks)

MODEL ANSWER TO QUESTION 4

(a)

Branch Stock

 

2007

£

2007

£

Jan 01

Balance b/d Goods to branch Branch adjustment Branch debtors

44,100

Dec 31

Branch debtors/Sales Goods to branch Branch adjustment Stock loss:

462,900

Dec 31

360,000

Dec 31

7,200

Dec 31

90,000

Dec 31

1800

Dec 31

4,565

Dec 31

 

Branch adjustment Branch P&L Balance c/d

403

1,612

 

Dec 31

24,750

 

498,665

498,665

2008

Jan 01

Balance b/d

24,750

(b)

Goods to Branch

 

2007

£

2007

£

Dec 31

Branch stock Head office trading a/c

7,200

Dec 31

Branch stock

360,000

Dec 31

352,800

 

360,000

360,000

(c)

Branch Adjustment

 

2007

£

2007

£

Dec 31

Branch stock/returns Branch stock/Loss Branch P & L [1] Balance cld

1800

Jan 01

Balance b/d

8,820

Dec 31

403

Dec 31

Branch stock

90,000

Dec 31

91,667

Dec 31

4,950

 

98,820

98,820

 

2008

Jan 01

Balance b/d

4,950

 

Workings [1] 462,900 - 4,565 = 458,335 @ 20% margin = 91,667

(d)

Branch Debtors

 

2007

£

2007

£

Jan 01

Balance b/d Branch stock/Sales

37,800

Dec 31

Cash/Bank Discounts allowed Branch stock/Returns Balance c/d

460,050

Dec 31

462,900

Dec 31

12,390

 

Dec 31

4,565

Dec 31

23,695

 

500,700

500,700

2008

Jan 01

Balance b/d

23,695

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