Series 3 Examination 2010

CERTIFICATE IN BOOK-KEEPING AND ACCOUNTS

Level 2 Wednesday 2 June Subject code: 2007 Time allowed: 3 hours

INSTRUCTIONS FOR CANDIDATES Answer any 4 questions. All questions carry equal marks. Study the REQUIRED section of each question carefully. Then extract the data required for your answers from the information supplied. Write your answers in blue or black ink/ballpoint. You can only use pencil for graphs, charts, diagrams, etc. Begin your answer to each question on a new page. All answers must be correctly numbered but need not be in numerical order. Workings must be shown. You may use a calculator provided the calculator gives no printout, has no word display facilities, is silent and cordless. The provision of batteries and their condition is your responsibility. Marks may be lost through lack of neatness and poor presentation.

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ASE 2007 3 10 1

QUESTION 1 The following list of balances was extracted from the books of Gregg Ltd on 30 September 2009: Ordinary share capital issued and fully paid 8% Preference share capital issued and fully paid Premises Motor vehicles Office equipment Provision for depreciation on motor vehicles Provision for depreciation on office equipment Gross profit Stock at 30 September 2009 Administrative expenses Selling expenses Distribution expenses 5% Debentures (repayable 2017) Interest paid to debenture holders Profit on sale of vehicle Profit & loss account 1 October 2008 6% Deposit account invested by Gregg Ltd on 1 June 2009 Debtors Creditors Cash at bank Share premium Interim dividend ordinary shares Interim dividend preference shares Provision for doubtful debts The following additional information is also available at 30 September 2009: (1) (2) (3) The first year's deposit account interest was not due to be received until 30 May 2010. The provision for doubtful debts is to be maintained at 2% of debtors. Depreciation is to be provided as follows: Motor vehicles 25% reducing balance method Office equipment 20% per annum on cost. (4) The directors propose: (i) (ii) REQUIRED (a) Prepare the Profit and Loss & Appropriation Account for the year ended 30 September 2009. (13 marks) (b) Prepare the Balance Sheet at 30 September 2009. (12 marks) (Total 25 marks) A final dividend to the ordinary shareholders of 0.10 per share To create a general reserve of 25,000. 400,000 80,000 664,000 200,000 70,000 150,000 28,000 504,400 90,000 85,500 60,000 130,000 80,000 2,000 1,500 83,500 (Cr) 50,000 62,000 45,000 6,800 (Cr) 40,000 4,000 3,200 1,500

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QUESTION 2 The following balances were extracted from the books of Millward Ltd on 1 May 2010: Dr Purchases ledger Sales ledger 1,275 84,320 Cr 56,200 1,200

In the month of May 2010, the following was a summary of transactions made: Refund from supplier for overpayment in April Debit balance on sales ledger transferred to purchases ledger Cash purchases Debtors cheque dishonoured Legal fees for debt collection charged to customers account Credit sales Credit purchases Returns outwards Returns inwards Discounts allowed Discounts received Payments to credit suppliers Bad debts written off Cash sales Receipts from credit customers The provision for doubtful debts at 1 May 2010 was 1,270. At 1 June 2010, the following information was also available: Purchases ledger debit balances Sales ledger credit balances 480 610 1,275 3,300 7,275 2,400 200 85,300 62,760 2,530 1,060 870 600 55,780 315 12,670 82,370

The provision for doubtful debts was to be adjusted to 2% of debtors at 31 May 2010. REQUIRED (a) (b) (c) Prepare the Purchases Ledger Control Account for the month of May 2010. Prepare the Sales Ledger Control Account for the month of May 2010. (9 marks) (11 marks)

Prepare, at 31 May 2010, a Balance Sheet extract showing the debtors and creditors figures under the current assets and liabilities due within 1 year. (5 marks) (Total 25 marks)

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QUESTION 3 The following financial statements relate to Clarke Ltd: Trading and Profit and Loss Account for the year ended 30 June 2009 000 Sales Less: Cost of sales Opening stock Purchases Less: Closing stock Gross profit Less: expenses (including debenture interest) Net profit Balance Sheet at 30 June 2009 000 Fixed assets Current assets: Stock Trade debtors Bank Liabilities due within one year: Trade creditors Net current assets Liabilities due after more than one year: 6% debentures issued 2005 Capital and reserves 400,000 ordinary shares at 1 each Retained profits 120 250 30 400 200 200 875 200 675 400 275 675 000 675 000 1,500 180 1,140 120 1,200 300 125 175

REQUIRED (a) Calculate the following ratios for Clarke Ltd in respect of the year ended 30 June 2009. All workings must be shown. (i) (ii) (iii) (iv) (v) (vi) (vii) Gross profit margin Current ratio (working capital ratio) Liquidity ratio (acid test ratio) Rate of stock turnover (expressed as number of times per year) Return on total capital employed. Use net profit before interest. Debtors collection period (expressed in days) Creditors settlement period (expressed in days) All workings should be to no more than one decimal place. (14 marks)

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QUESTION 3 CONTINUED The Directors of Clarke Ltd made the following estimates for the year ending 30 June 2010: Sales volume would increase by 20% if selling prices were reduced by 3%. Cost of sales would increase in volume in line with the increase in sales, but purchase prices would reduce by 5%. Expenses, before debenture interest would increase by 2%. REQUIRED (b) Prepare a forecast Trading and Profit & Loss Account for Clarke Ltd for the year ending 30 June 2010. All workings must be shown to the nearest whole number. (11 marks) (Total 25 marks)

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QUESTION 4 Joe Bell, whose financial year ends at 31 December, summarised the following information for his last three years of trading: 2007 Debtors balances at 31 December before preparation of the final accounts Bad debts: Written off during the year To be written off at 31 December 70,000 2008 80,000 2009 65,000

800 300

1,500 1,000

1,200 700

Doubtful debts: Specific provision required at 31 December 1,200 General provision at 31 December to be adjusted to 3%

800 2%

600 4%

At 1 January 2007, the balance on the provision for doubtful debts account was 1,300. REQUIRED (a) Prepare ledger accounts for each of the years 2007, 2008 and 2009 for: (i) (ii) (b) (c) Bad debts Provision for doubtful debts. (9 marks) (9 marks) (3 marks)

Show the Balance Sheet extract recording the debtors at 31 December 2009.

Explain the difference between a specific provision for doubtful debts and a general provision for doubtful debts. (4 marks) (Total 25 marks)

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QUESTION 5 Stuart, Tess and Lee have been in partnership sharing profits and losses in the ratio 3:2:1 respectively. The partners have decided to dissolve the partnership with effect from 30 June 2010. The Balance Sheet of the partnership at 30 June 2010 was as follows: Fixed assets at net book value Premises Machinery Vehicles Current assets Stock Debtors Bank Creditors due within one year Creditors Net current assets Capital accounts: Stuart Tess Lee Additional information at 30 June 2010: (1) (2) (3) The debtors settled their outstanding debts for 20,000 by cheques. The creditors were settled by cheques, allowing a cash discount of 1,000. The premises were sold to McBride Ltd at an agreed purchase price of 280,000, consisting of: 216,000 ordinary shares of 1 each, 36,000 7% debentures and 28,000 received by cheque. The shares were divided in the profit sharing ratio and the debentures were shared equally between the partners. (4) (5) The machinery was sold for 2,200, receiving payment by cheque. One vehicle was taken over by Stuart at an agreed value of 6,000 and a second vehicle was taken over by Tess at an agreed value of 4,000. The third vehicle was sold for 8,000; a cheque was received for this amount. Tess took over the stock at an agreed value of 12,000. Dissolution expenses amounted to 10,800. 14,000 22,000 10,000 46,000 4,000 42,000 362,000 200,000 100,000 62,000 362,000 200,000 80,000 40,000 320,000

(6) (7)

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QUESTION 5 CONTINUED REQUIRED Prepare the: (a) (b) (c) Realisation Account The Partners Capital Accounts McBride Ltds Account. (15 marks) (6 marks) (4 marks) (Total 25 marks)

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