Professional Documents
Culture Documents
Model Answers
Series 4 2008 (2007)
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:
(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)
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
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Page 1 of 13
QUESTION 1
Peggy values her stock on a monthly basis. Due to staff illness the stocktaking for the month of
September 2007 did not take place until 5 October 2007. The following information is available:
(i) The records at 31 August 2007 showed stock valued at cost of £170,400.
(ii) Sales during September 2007 were £127,800. Sales include a mark up on cost of 25%.
(iii) A quantity of stock valued at sale price, £7,200, on 31 August 2007 had been damaged. This
could now only be sold at half of cost price.
(vi) Returns by customers during September 2007 were £2,175 at selling price.
(vii) Included in the September sales figure were goods on a sale or return basis at sale price, £1,950.
The customer had not stated an intention to buy, or return the goods, at 5 October 2007.
(viii) Returns to suppliers during September 2007 were £4,050 at cost price.
REQUIRED
(a) Calculate the value of stock at 30 September 2007. Commence with the value of stock £170,400
at 31 August 2007.
(15 marks)
(b) Prepare Peggy’s Trading Account for the month ended 30 September 2007.
(10 marks)
(Total 25 marks)
2007/4/08/MA Page 2 of 13
MODEL ANSWER TO QUESTION 1
(a)
£ £ £
Stock at 1 September 2007 170,400
Add: Purchases 89,400
(b) Peggy
Trading Account for the month ended 30 September 2007
£ £ £
Sales (127,800 – 1,950) 125,850
Less: Returns 2,175
123,675
Cost of Sales:
Stock at 1 September 2007
(170,400 – 2,550) 167,850
Add: Purchases 89,400
Less: Returns 4,050 85,350
253,200
Less: Stock at 30 September 2007 151,380 101,820
Gross Profit 21,855
2007/4/08/MA Page 3 of 13
QUESTION 2
XYZ plc has an authorised share capital of 300,000 10% preference shares of £2 each and 450,000
ordinary shares of £2 each.
£
Preference shares fully paid 450,000
Ordinary shares fully paid 600,000
Stock 499,200
Provision for doubtful debts at 31 October 2006 1,000
Motor vans at cost 180,000
Furniture and equipment at cost 150,000
Debtors 236,000
Insurance prepaid 10,000
Bank overdraft 6,000
Profit and loss account balance at 31 October 2006 114,000
Provision for depreciation on motor vans at 31 October 2006 42,000
Provision for depreciation on furniture and equipment at 31 October 2006 37,500
10% Debentures (repayable 2021) 150,000
Creditors 186,000
Cash 5,000
Premises 645,000
Additional information:
After adjusting for items 1 – 4 above, the net profit before appropriation was £96,000.
REQUIRED
Prepare a Balance Sheet at 31 October 2007. Show clearly the value of net current assets and
total shareholders' funds.
(Total 25 marks)
2007/4/08/MA Page 4 of 13
MODEL ANSWER TO QUESTION 2
XYZ plc
Balance Sheet at 31 October 2007
Current Assets
Stock 499,200
Debtors 236,000
Less: Provision for
doubtful debts 3,200 232,800
Cash 5,000
Insurance prepaid 10,000 747,000
Reserves
Profit and Loss account (W4) 105,000 ________
Shareholders funds 1,155,000
2007/4/08/MA Page 5 of 13
MODEL ANSWER TO QUESTION 2 CONTINUED
Workings
£
1 Provision at 31 October 2006 42,000
Add: £180,000 x 10% 18,000
60,000
2007/4/08/MA Page 6 of 13
QUESTION 3
The following is a summary of B Ball’s bank account for the year ended 31 December 2007:
£ £
Balance at 1 January 2007 810 Payments to creditors for goods 58,974
Receipts from debtors 75,872 General expenses 750
Balance at 31 December 2007 1,404 Rent 3,500
Rates 1,780
Drawings 13,082
78,086 78,086
All the business takings have been paid into the bank with the exception of £19,000. From this, Ball
has paid wages of £10,684, drawings of £2,328 and has purchased goods totalling £5,988.
2006 2007
£ £
Debtors 17,802 17,248
Trade Creditors 11,748 14,778
Rates prepaid 420 450
Rent accrued 300 -
Fixtures at valuation 5,500 4,500
Stock 27,724 30,288
REQUIRED
(a) Trading and Profit & Loss account for the year ended 31 December 2007. (17 marks)
(Total 25 marks)
2007/4/08/MA Page 7 of 13
MODEL ANSWER TO QUESTION 3
(a) B Ball
Trading and Profit & Loss account for the year ended 31 December 2007
£ £
Sales 94,318 [W1]
Less Cost of goods sold
Opening stock 27,724
Add Purchases 67,992 [W2]
95,716
Less Closing stock 30,288 65,428
Gross profit 28,890
Less Expenses
Wages 10,684
Rent (3,500 - 300) 3,200
Rates (1,780 + 420 - 450) 1,750
General expenses 750
Depreciation 1,000 17,384
Net profit 11,506
[1] Workings
Sales Ledger Control Account
£ £
Balance b/d 17,802 Bank 75,872
Sales 75,318 Balance c/d 17,248
93,120 93,120
[2] Workings
Purchases Ledger Control Account
£ £
Bank 58,974 Balance b/d 11,748
Balance c/d 14,778 Purchases 62,004
73,752 73,752
2007/4/08/MA Page 8 of 13
MODEL ANSWER TO QUESTION 3 CONTINUED
£ £ £
Fixed Assets
Fixtures at valuation 5,500
Less Depreciation 1,000 4,500
Current Assets
Stock 30,288
Debtors 17,248
Prepayments 450
47,986
Current Liabilities
Trade creditors 14,778
Bank overdraft 1,404 16,182
[3] Workings
Assets Liabilities
£ £
Bank 810 Creditors 11,748
Stock 27,724 Rent accrued 300
Debtors 17,802 12,048
Rates prepaid 420 Capital 40,208
Fixtures 5,500
52,256 52,256
2007/4/08/MA Page 9 of 13
QUESTION 4
Bill Jones has drawn up the following trial balance at 31 March 2008. It contains a number of errors.
REQUIRED
(a) Prepare an amended Trial Balance at 31 March 2008. Clearly show the balance to be transferred
to the Suspense A/c.
(15 marks)
After preparing the Trial Balance, Bill discovered the following errors:
(i) Light & heat expenses of £2,500 have been correctly entered in the Cash Book but no other entry
had been made.
(ii) An entry of £1,000 for insurance has been entered on the credit side of the Insurance Account.
(iii) A credit sale to D Farrow of £300 has been debited to the account of D Marlow.
(iv) Fixtures & fittings of £77,500, purchased in January 2008, have been entered as £7,500 in the
Fixtures & Fittings Account but correctly entered in the Cash Book. No depreciation is charged in
the year of purchase.
(v) A balance on the Rent Payable Account of £6,500 has not been entered on the Trial Balance.
REQUIRED
(b) Prepare a Suspense account showing the necessary corrections to be made. (6 marks)
(c) State FOUR types of error that will not be identified by the preparation of a Trial Balance.
(4 marks)
(Total 25 marks)
2007/4/08/MA Page 10 of 13
MODEL ANSWER TO QUESTION 4
Dr Cr
£ £
Purchases 290,000
Sales 450,000
Capital 94,300
Drawings 43,000
Carriage inwards 4,000
Carriage outwards 3,000
Discounts allowed 2,300
Discounts received 1,500
Office equipment at cost 24,000
Provision for depreciation office equipment 4,800
Fixtures & fittings at cost 13,000
Provision for depreciation fixtures and fittings 2,600
Debtors 50,000
Creditors 40,000
Sales returns 2,000
Purchases returns 1,000
Insurance 8,000
Stock at 1 April 2007 30,000
Wages 40,000
Bank overdraft 12,000
Sundry expenses 14,000
Cash 1,900
Suspense 81,000
606,200 606,200
(c) Errors:
Commission
Omission
Principle
Compensating
Original
Reversal
2007/4/08/MA Page 11 of 13
QUESTION 5
The accounts of Jackson Ltd, for the years 2007 and 2008, are summarised below:
Trading and Profit & Loss Account for the year ended 30 November
2007 2008
£000 £000
Sales 800 1,120
Less
Cost of sales
Opening stock 140 70
Purchases 530 870
670 940
Less Closing Stock 70 100
600 840
Gross profit 200 280
Less
Administration expenses 154 186
Debenture interest 4 16
Net profit 42 78
REQUIRED
(a) Calculate the following ratios for 2007 and 2008 to the nearest TWO decimal places:
(c) State in which year Jackson’s Ltd performed the best, giving two reasons to support your answer.
(5 marks)
(Total 25 marks)
2007/4/08/MA Page 12 of 13
MODEL ANSWER TO QUESTION 5
(b) Determines if the business is able to meet its short-term obligations as they fall due
2007/4/08/MA Page 13 of 13
EDI
International House
Siskin Parkway East
Middlemarch Business Park
Coventry CV3 4PE
UK
2007/4/08/MA Page 13 of 13