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LCCI International Qualifications

Book-keeping and Accounts


Level 2

Model Answers
Series 4 2009 (2007)

For further Tel. +44 (0) 8707 202909


information Email. enquiries@ediplc.com
contact us: www.lcci.org.uk
Book- Keeping and Accounts Level 2
Series 4 2009

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.

© Education Development International plc 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 14
QUESTION 1

After stocktaking for the year ended 31 October 2009 had taken place, the closing stock of Fell Ltd
was valued at cost £80,500. The following adjustments are required:

(i) Some items were no longer up to date and it was decided to sell them at half the cost price. The
original selling price had been £2,400.
(ii) Ten items at a cost of £69 each had been included in the stock list at £96 each.
(iii) A total of £12,900 on one stock sheet had been carried forward as £9,120 to the next sheet.
(iv) A damaged item, which had cost £630, was to be written off.
(v) Goods that had been set aside, and are awaiting collection by a customer, had been included in
stock at a valuation of £1,850.
(vi) The last stock sheet, totalling £11,900, had not been included in the stock value.
(vii) Goods sent on a sale or return basis to Jones, at a sale price of £3,300, had not been sold or
returned at 31 October 2009.

Fell Ltd applies a mark up of 50% on cost.

REQUIRED

(a) Copy the following layout into your answer book and calculate the correct cost of stock at
31 October 2009.

Add Less £
Original Cost of Stock 80,500

Item (i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
………..
Correct Cost of Stock ………..
(16 marks)

Simms valued his stock on 30 November 2009 at a cost of £10,200. On the night of 5 December 2009
a fire occurred in the warehouse. The following transactions took place between 1 December 2009
and 5 December 2009:
£
Purchases 700
Purchases returns 50
Sales 1,800
Sales returns 300

Some stock, with a cost price £2,000, was saved from the fire but due to smoke damage this will be
sold for £1,500.
1
The gross profit margin of Simms is 33 /3%.

REQUIRED

(b) Prepare a statement for the stock destroyed to show the value to be claimed from the insurance
company.
(9 marks)

(Total 25 marks)

2007/4/09/MA Page 2 of 14
MODEL ANSWER TO QUESTION 1

(a) Fell Ltd


Adjusted Stock Valuation at 31 October 2009

Add Less £
Original Cost of Stock 80,500

(i) Less: Reduction to NRV

(2,400 – 800* / 2) 800

(ii) Less: Overvaluation

(96 – 69 x 10) 270

(iii) Add: Stock sheet error

(12,900 – 9,120) 3,780

(iv) Less: Written off item 630

(v) Less: Customers’ goods 1,850

(vi) Add: Stock sheet total 11,900

(vii) Add: Sale or return

(3,300 – 1,100) 2,200 ……..


17,880 3,550
14,330
Correct Cost of Stock 94,830

(b) Simms
Statement of Stock Destroyed
on 5 December 2009
£ £
Stock: 30 November 2009 10,200
Add: Purchases 700
Less: Returns 50 650
10,850

Less: Sales 1,800


Less: Returns 300
1,500
(1,500 – 500) 1,000
9,850
Less: Stock saved – NRV Adjustment 1,500
Value to be claimed 8,350

2007/4/09/MA Page 3 of 14
QUESTION 2

The following information relates to the business of C Ward.

Balances in the books at 30 June 2009:

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

The following balances were extracted from the books for the month ended 31 July 2009:

£
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, K. Miller, for damaged goods 2,250

Balances in the books at 1 August 2009:

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

REQUIRED

(a) Prepare for the month ended 31 July 2009:

(i) Purchases Ledger Control Account.


(9 marks)

(ii) Sales Ledger Control Account.


(14 marks)

(b) State one advantage of preparing Control Accounts.


(2 marks)

(Total 25 marks)

2007/4/09/MA Page 4 of 14
MODEL ANSWER TO QUESTION 2

(a) (i)
Purchases Ledger Control Account

£ £
2009 2009
July 1 Balance b/d 1,458 July 1 Balance b/d 111,129
July 31 Returns outwards 5,499 July 31 Purchases 316,773
July 31 Bank 289,440 July 31 Balance c/d 2,535
July 31 Contra/set off 12,825
July 31 Discount received 7,728
July 31 Balance c/d 113,487
430,437 430,437
Aug 1 Balance b/d 2,535 Aug 1 Balance b/d 113,487

(ii)
Sales Ledger Control Account

£ £
July 1 Balance b/d 196,326 July 1 Balance b/d 5,580
July 31 Carriage 14,805
July 31 Interest 1,467 July 31 Contra/set off 12,825
July 31 Sales 597,804 July 31 Returns inwards 8,721
July 31 Dishonoured cheque 11,877 July 31 Bad debts 3,840
July 31 Balance c/d 9,693 July 31 Discount allowed 16,647
July 31 Bank 651,690
July 31 K. Miller - allowance 2,250
July 31 Balance c/d 130,419
831,972 831,972
Aug 1 Balance b/d 130,419 Aug 1 Balance b/d 9,693

(b)

One advantage from examples below for 2 marks:

The identification of errors in the sales and purchases ledger.

Assist in preparing final accounts.

Locate total debtors and creditors.

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.

2007/4/09/MA Page 5 of 14
QUESTION 3

The following Trial Balance was extracted from the books of Broom Golf Club on 31 July 2009:

Dr Cr
£ £
Subscriptions 96,250
Catering stock at 1 August 2008 14,250
Catering staff wages 8,000
Catering purchases 52,000
Catering sales 110,340
Rent and rates 6,500
Golf club secretary’s salary 21,250
Lighting and heating 8,120
Insurance 17,160
General expenses 24,750
Cash at bank 40,995
Cash in hand 125
Accumulated fund 37,310
Equipment (at cost) 30,750
Fixtures and fittings (at cost) 85,000
Provision for depreciation on golf equipment 15,000
Provision for depreciation on fixtures and fittings ………... _50,000
308,900 308,900

Additional information:

(1) Depreciation is to be provided for the year ended 31 July 2009 as follows:
Equipment – 10% reducing balance
Fixtures and fittings – 25% straight line.

(2) No subscriptions were prepaid or accrued at 1 August 2008.

(3) At 31 July 2009:


General expenses included a prepayment of £1,000
Rent and rates were accrued £930
Subscriptions in arrears amounted to £1,500
Subscriptions prepaid totalled £1,200
Catering stock was valued at £16,000 at cost.

REQUIRED

Prepare for Broom Golf Club the:

(a) Catering Account, showing the profit for the year ended 31 July 2009.
(4 marks)

(b) Income and Expenditure Account for the year ended 31 July 2009.
(13 marks)

(c) Balance Sheet at 31 July 2009.


(8 marks)

(Total 25 marks)

2007/4/09/MA Page 6 of 14
MODEL ANSWER TO QUESTION 3

(a)
Broom Golf Club
Catering Account
for the year ended 31 July 2009

£ £
Sales 110,340

Cost of sales
Opening stock 14,250
Purchases 52,000
66,250
Closing stock 16,000
50,250
60,090
Catering staff wages _8,000
Catering profit 52,090

(b) Income & Expenditure Account


for the year ended 31 July 2009

£ £
Catering profit Accept 1.5 where 1,500 is shown 52,090
Subscriptions (96,250 + 1,500 – 1,200) 95051.50
148,640
Less
Rent and rates (6,500 + 930) 7,430
Golf club’s secretary 21,250
Lighting and heating 8,120
Insurance 17,160
General expenses (24,750 – 1,000) 23,750
Depreciation:
Golf equipment [(30,750 – 15,000) x 10%] 1,575
Fixtures and fittings (85,000 x 25%) 21,250

100,535
48,105

(Accept 46,606.50 for where 1.50 used not 1,500)

2007/4/09/MA Page 7 of 14
MODEL ANSWER TO QUESTION 3 CONTINUED

(c)
Balance Sheet at 31 July 2009

Fixed Assets Cost Depreciation NBV


£ £ £
Fixtures and fittings 85,000 71,250>50,000 13,750
Golf equipment 30,750 16,575>15,000 14,175
115,750 87,825 27,925

Current Assets
Stock 16,000
Subscriptions in arrears 1,500
General expenses prepaid 1,000
Bank 40,995
Cash 125
59,620

Current Liabilities
Subscriptions prepaid 1,200
Rent and rates accrued 930

2,130
57,490
85,415
Represented by
Accumulated fund 37,310
Add Surplus 48,105
85,415

2007/4/09/MA Page 8 of 14
QUESTION 4

Peggy produces her annual accounts with a year end of 31 October. She depreciates her motor
vehicles at 25% a year on the reducing balance basis. She provides a full year’s depreciation in the
year of acquisition and none in the year of disposal.

On 31 October 2008, her business owned three motor vehicles:

Motor vehicle W was purchased on 1 January 2006 for £32,000;


Motor vehicle X was purchased on 23 July 2007 for £36,000; and
Motor vehicle Y was purchased on 5 August 2008 for £38,000.

REQUIRED

(a) Calculate separately, for each of the motor vehicles W, X and Y, the accumulated depreciation at
31 October 2008.
(8 marks)

On 1 May 2009, Peggy sold motor vehicle W for £12,400 and replaced it with motor vehicle Z, which
she purchased with a cheque for £40,000.

REQUIRED

(b) Prepare, for the year ended 31 October 2009:

(i) The Motor Vehicles Cost Account


(5 marks)

(ii) The Provision for Depreciation Account


(8 marks)

(iii) The Disposal Account


(4 marks)

Figures must be rounded to the nearest whole £.

(Total 25 marks)

2007/4/09/MA Page 9 of 14
MODEL ANSWER TO QUESTION 4

(a)

Motor vehicle W Workings


£ £
2006 8,000 (32,000 x 25%)
2007 6,000 [(32,000 – 8,000) x 25%)]
2008 4,500 [(32,000 – 14,000) x 25%)]
18,500

Motor vehicle X

2007 9,000 (36,000 x 25%)


2008 6,750 [(36,000 – 9,000) x 25%)]
15,750

Motor vehicle Y

2008 9,500 (38,000 x 25%)


Total 43,750

(b) (i)

Motor Vehicles

2008 £ 2009 £
1 Nov Balance b/d 106,000 1 May Disposal 32,000
2009
1 May Bank 40,000 31 Oct Balance c/d 114,000
146,000 146,000
1 Nov Balance b/d 114,000

(ii)
Provision for Depreciation

2009 £ 2008 £
1 May Disposal 18,500 1 Nov Balance b/d 43,750
2009
31 Oct Balance c/d 47,438 31 Oct P & L/Dep 22,188
65,938 65,938
1 Nov Balance b/d 47,438

[1] Workings
£
P&L Motor vehicle X [(36,000 – 15,750) x 25%] 5,063
Motor vehicle Y [(38,000 – 9,500) x 25%] 7,125
Motor vehicle Z (40,000 x 25%) 10,000
22,188

(b) (iii)

Disposal Account

2009 £ 2009 £
1 May Motor vehicle 32,000 1 May Bank 12,400
1 May Provn Depn 18,500
_____ 31 Oct P&L 1,100
32,000 32,000

2007/4/09/MA Page 10 of 14
QUESTION 5

Yeung Ltd’s Trial Balance at 31 March 2009 is as follows:


£ £
Machinery at cost 146,200
Provision for depreciation on machinery 87,700
Fixtures and fittings at cost 27,625
Provision for depreciation on fixtures and fittings 11,050
Motor vehicles at cost 61,740
Provision for depreciation on motor vehicles 31,500
Ordinary share capital 176,900
Stock at 31 March 2008: Raw materials 9,880
Work in progress 5,135
Finished goods 23,692
Sales 455,000
Salesmen’s salaries 15,925
Purchases of raw materials 112,309
Direct wages 146,185
Indirect wages 36,400
Machinery repairs 11,700
Debtors 70,200
Creditors 18,791
Bank 8,840
Rent and rates 29,250
Administrative expenses 21,612
Insurance 17,870
Light and heat 15,240
Motor expenses 24,648
Provision for doubtful debts _ __ 3,510
784,451 784,451

Additional information:

(1) Depreciation is to be provided as follows:

Machinery 10% using the straight-line method


Fixtures and fittings 20% using the straight-line method
Motor vehicles 30% using the reducing balance method

(2) Expenses are to be apportioned as follows:

Administration Factory
% %
Machinery repairs 10 90
Rent and rates 30 70
Insurance 30 70
Light and heat 30 70
Motor expenses 50 50
Depreciation – Machinery 10 90
Fixtures and fittings 100 -
Motor vehicles 50 50

(3) There is a prepayment of £1,560 for machinery repairs.

(4) Stocks at 31 March 2009 were:

£
Raw materials 11,310
Work in progress 14,225
Finished goods 24,830

2007/4/09/MA Page 11 of 14
QUESTION 5 CONTINUED

REQUIRED

(a) Prepare the:

(i) Manufacturing Account for the year ended 31 March 2009.


(10 marks)

(ii) Trading and Profit & Loss Account for the year ended 31 March 2009.
(10 marks)

(b) Define the following:

(i) Direct materials


(ii) Direct labour
(iii) Direct expense
(3 marks)

(c) Give one example of direct labour and one example of direct expense.
(2 marks)

(Total 25 marks)

2007/4/09/MA Page 12 of 14
MODEL ANSWER TO QUESTION 5

(a) (i)
Yeung Ltd
Manufacturing Account for the year ended
31 March 2009
£ £
Raw materials
Opening stock - raw materials 9,880
Purchases – raw materials 112,309
Less: Closing stock - raw materials 11,310
Cost of raw materials consumed 110,879
Direct wages 146,185
Prime cost 257,064
Production overheads
Indirect wages 36,400
Rent and rates (29,250 x 70%) 20,475
Insurance (17,870 x 70%) 12,509
Light and heat (15,240 x 70%) 10,668
Motor expenses (24,648 x 50%) 12,324
Machinery repairs (11,700 - 1,560)] x 90% 9,126
Depreciation: Machinery (146,200 x 10%) x 90% 13,158
Motor vehicles [(61,740 - 31,500) x 30%] x 50% 4,536
119,196
376,260
Add: Opening work in progress 5,135
Less: Closing work in progress 14,225
(9,090)
Production cost 367,170

(a) (ii)
Trading and Profit & Loss Account for the year ended
31 March 2009
Sales 455,000
Opening stock –finished goods 23,692
Production cost 367,170
Less: Closing stock – finished goods 24,830
366,032
Gross profit 88,968
Less: expenses
Salesmen’s salaries 15,925
Rent and rates (29,250 x 30%) 8,775
Administrative expenses 21,612
Insurance (17,870 x 30%) 5,361
Light and heat (15,240 x 30%) 4,572
Motor expenses (24,648 x 50%) 12,324
Machinery repairs (11,700 - 1,560) x 10% 1,014
Depreciation: Machinery (146,200 x 10%) x 10% 1,462
Fixtures and fittings (27,625 x 20% ) 5,525
Motor vehicles [(61,740 - 31,500) x 30%] x 50% 4,536
81,106
Net profit 7,862

2007/4/09/MA Page 13 of 14
MODEL ANSWER TO QUESTION 5 CONTINUED

(b)
(i) Direct materials: the cost of the raw materials that are used to make the finished products.

(ii) Direct labour: the wages earned by those people who are involved in the actual production of
the finished goods.

(iii) Direct expense: these are other costs that can be identified with a particular unit of output
other than materials and direct labour.

(c)
(i) Direct labour: e.g. machine operatives or assembly workers.

(iii) Direct expense: e.g. royalties paid to the product designer, the hire of specialist machinery
and payments to subcontractors who work on the product.

2007/4/09/MA Page 14 of 14 © Education Development International plc 2009


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2007/4/09/MA from Education Development
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